If Nigeria’s pensions landscape was a Google Search bar and one had the opportunity to enter any given year before 2004, the results would have been easily organizable on a neat continuum ranging from confusion to an abject mess. The rules were a spaghetti-like web of contradictory rules, ill-thought out implementation, poor record keeping, problematic legal loopholes, indefensible exceptions and in some cases, ignorance on the part of regulators, operators and contributors centred on the Defined Benefit model which contributed to creating a pipeline that leaked a steady stream of fraud horror stories, non-uniformity in pension arrangements in both the public and private sectors, and a deficit in pension liabilities that at one time was N1.6 trillion large, according to the Pension Fund Operators Association of Nigeria, an umbrella body of the biggest operators in the pensions industry – big enough for almost a sixth of the country’s 2017 budget.
Drawing on the success of similar contributory pension arrangements in Europe, East Asia and some American states, and in one of the Olusegun Obasanjo’s seldom heralded yet consequential moves, the pensions regulatory regime was dramatically overhauled in 2004. The new regime was anchored around a new piece of legislation, the Pension Reform Act 2004 and the introduction of the Contributory Pension System (CPS), a novel innovation in West Africa at the time. The elaborate control mechanisms entrenched in the CPS framework by virtue of the triad of the Pension Fund Administrator (PFA), the Pension Fund Custodian (PFC) and the Regulator – a reinvigorated and empowered National Pension Commission (Pencom), elevated the pensions experience in Nigeria to a level that substantially addressed the ills prevalent in the old DB system. In simple terms, the participatory nature of the new system as well as its unitary nature made the system personalised by engraving ownership for its contributors; well organised and predictable; open and transparent and had inbuilt mechanisms for ensuring it was appropriately funded at all times.
As a result, emerging from the ashes of a pensions section saddled with a deficit of N1.6 trillion at the advent of the PRA 2004 – a mere footnote in the Nigerian economy – the ‘new’ CPS, on the back of an amendment in the operating law in 2014, has flexed its newfound muscles and as at June 2017, was a N6.6 trillion behemoth. The twenty one (21) fiercely competitive and innovative PFAs licensed to operate in a fierce market have between them a total of 7,592,157 contributors and growing. For context, between the period April to June 2017 alone, they generated 97,713 registered Retirement Savings Accounts (RSA) holders. Compliance from the public sector has been somewhat impressive – 1,898,386 registered RSAs belong to federal government employees, with a further 1,537,436 from state government employees. The most enthusiastic participants, though, has been the private sector which has pumped in 4,156,335 contributors into the CPS. This seeming miracle occurred within a 12-year span that witnessed a negligible amount of fraud incidents. Armed with the exhaustive legal tools available under the PFA, increased expertise and professionalism, a diversified portfolio enforced by the force of legal backing, and an increasingly educated workforce, Nigerian PFAs have consistently mirrored their larger global colleagues in delivering outsized returns for their beneficiaries, proving the received wisdom that pension funds can be catalysts for economic growth and development, making sensible investments in critical segments of Africa’s largest economy.
Like all good things, accidental and deliberate that have happened in this country, a time comes when a person or institution arises to shock the system. For the pensions industry, that day of reckoning came in 2010, with a private members’ Bill sponsored at the National Assembly by Honourable Oluwole Oke, representing Obokon/Oriade Federal Constituency of Osun state sought to exempt the Armed Forces (Army, Navy, Air Force) and the intelligence agencies from the CPS. Despite resistance from all the important economic participants in the scheme, this effort was forced through with the passage of a 2011 amendment to the PRA. The amendment, in effect, excluded the armed and intelligence services for the ostensible reason of the sensitivity of their statutory roles in shepherding the country’s security interests and the need to have their pension data within a restricted management circle. A similar effort to excise the Nigeria Police Force from the CPS during the lifetime of the 6th National Assembly was partially rebuffed, the political compromise being the creation of a restricted PFA for the police, licensed by Pencom but crucially, still operating within the sheltered rigour of the CPS.
Oke would not be deterred. In May of this year, he sponsored another bill before his colleagues calling for the removal not only of the police this time, but in addition, “the Nigerian Security and Civil Defence Corps, the Nigeria Customs Service, the Nigeria Prison Service, the Nigeria Immigration Service and the Economic and Financial Crimes Commission from the application of the Contributory Pension Scheme and other related matters.” The bill has passed its second reading and is currently sitting before the Pensions Committee of the House of Representatives which is due to hold a public hearing on Thursday 28 September and has called for “all relevant stakeholders” to submit any memoranda that would aid it to make its determinations. There is one critical thing to note about the above-mentioned bill, which is similar in context, wording and intent to the Armed Forces and intelligence agencies amendment. It seeks to fully exempt the above-stated organisations from the CPS and return them to being 100 percent underwritten in relation to pension arrangements by the Federal Government. In simple terms, our lawmakers want to return some of the country’s most critical enforcement institutions to the outmoded, discredited and ill-fitting era of the Defined Benefit arrangement.
The bill’s promoters claim to have something going for their arguments, which has been succinctly expressed in the Legislative Digest (Pension Reform Amendment Bill 2016). They include national security concerns, the same bullet point used in 2011. For the promoters, the identity, data, addresses and family ties of security personnel are best handled internally by the relevant service and not kept in civilian custody which may be easily compromised. Also, there are issues of occupational hazards, the unique nature of the work of the paramilitary being laden with unrivalled hardship and as such, the burden of paying their pensions should, therefore, be borne by the government. They also cite the low monthly pensions being paid to the typical retired personnel. It is hard, however, to escape the feeling that the real reasons for this almost zealous effort by lawmakers to free the government from the shackles of the CPS are because of two of their rationales as shown in the digest. First, the consistent delays in the payment of entitlements by the federal government to its beneficiaries – a backlog which stretches to months of back contributions – and has been put by the finance ministry on a stressed national purse, and good old nostalgia as many a veteran government administrator have expressed a fondness for the old DB system where workers who had worked up to 35 years were entitled to 70 percent of their last monthly salary and directors received a full salary entitlement on passing out from public service.
To compound a murky picture, Oke’s latest Christmas wish is just one of at least seven attempts aimed at upending the current pensions arrangement. One particularly effort, sponsored by Senator Aliyu Wamako, who is enjoying an enthusiastic début in lawmaking after spending eight years at the helm of domestic affairs in Sokoto State, contains a proposed 75 percent lump sum withdrawal from the retirement savings accounts of retirees – an effort which the industry body, PenOp has sensibly said will be detrimental to retirees welfare as, in their words, “it is doubtful if the 25 percent balance in a retiree’s RSA, after deduction of a 75 percent lump sum, would, if spread through the retiree’s expected lifespan, be adequate to reasonably cater for his livelihood during old age.” In addition, a recent Punch investigation determined that a new rule under the 2014 PFA amendment, passed by a National Assembly which included among others, Oluwole Oke, and required all organisations to increase the minimum pension contribution of both employers and employees to the RSAs of workers, has not been complied with the same federal government who saw through the change in the law. Yet, this is the same government that claims to be so interested in the welfare, well-being and data security of pensions contributors that it wants to drive yet another amendment down the throats of an exasperated pensions industry.
These efforts should be construed for what they are – a calculated effort at dealing a death blow to the fail-safe mechanisms that have made pensions assets management one of the precious few bright spots in Nigeria’s economy. The Oke Bill seeks to empower the police, the customs service, the prison service and the Economic and Financial Crimes Commission, institutions which are not renowned for their prudent financial management from the rigorous rules of the centrally managed CPS. It would seem that the country’s legislators, driven by a wider self-proclaimed agenda of the current administration aimed at increasing revenue flows, will stop at nothing, including spurning fidelity to any set of rules, laws, principles, process, even plain common sense, as long as it dips its hands into any substantial pool of funds within the country – witness the whittling of the country’s external reserves before their recent ascent to 33-month highs.
In an economy barely clambering its way out of a recession which still feels clear and present to many of its participants, we might be on the brink of buying a one-way ticket to yet another self-inflicted economic own goal, something squeezed employees juggling ever more expensive family responsibilities with saving for the fading dream of a decent retirement hardly need at this point. At the risk of beating the point to death, a finding that the government has not been complying with a law which it first passed in 2004, amended in 2011 and 2014 and seeks to do this year while simultaneously slamming the hammer of regulatory compliance on the private sector is not only hypocritical, it hints of outright irresponsibility. This government is yet to convincingly prove its bona fides on this matter and it is safe to say that it will be the poorest policy evangelist of the gospel of the merits of pensions reform when decades worth of evidence have near irrefutably proved that it cannot abide by what it says and pay its employees their dues, when it is due. And we have not gotten into the messy dredge of the Presidency not substantially complying with the law when getting rid of the former Director-General of the PenCom, the globally acclaimed Chinelo Anohu-Amazu.
Pension funds, when cleverly set up, beefed up with sound expertise and rigorously and consistently policed have shown themselves to be capable of returning a decent margin on investments, while providing the psychological comfort of remaining a ready and steady buffer in the inevitably lean and often perilous times when one’s bones are too soft to withstand the rigours of the 9-5 rat race. The daring of a profitable return today, and the promise of a secure tomorrow is what federal lawmakers are proposing to legislate away with this latest round of amendments. Every Nigerian currently participating in, or looking to join this new economy ought to lift up an arm and a pen, and write a strongly worded defence to our lawmakers, of arguably Nigeria’s most successful government promoted and backed social welfare scheme.
Source: Ikemesit Effiong - lead analyst at SBM Intelligence