THE ENDANGERED PENSION REFORM
Too many exemptions will derail this major successful government policy
The reported approval by President Muhammadu Buhari that the Head of the Civil Service of the Federation (HCSF) and permanent secretaries be exempted from the Contributory Pension Scheme (CPS) is rather disturbing. We fail to understand the motive behind the attempt to mend what is not broken. Before the CPS started in 2004, life in retirement had been hellish for civil servants. The Defined Benefit Scheme (DBS) under which they were placed required sufficient yearly budgetary provisions by the government. This was hardly the case, and many retirees went to their graves bitter and frustrated as the government prioritised its expenditure in the wake of revenue challenges.
The enactment of the Pension Reform Act 2004, amended in 2014, created the present scheme under which employees are required to make monthly contributions which are to be matched or surpassed by their employers. Upon retirement or exit from service, they will be able to draw down on the savings. Since there is no need for annual budgetary provisions for their pensions, the era of accumulated pension arrears became history. In addition to the certainty of the benefits being paid with interests as and when due, Nigeria has moved from a negative position of unfunded liability in 2004 to pension assets of N14.27 trillion as at June 2022. The total number of contributors is now about 10 million, according to the National Pension Commission (PENCOM), the industry regulator.
However, there are those who believe that the new system does not favour them as they would like. This has led to the clamour to be excluded from the contributory scheme, despite its obvious success. The HCSF and the permanent secretaries in particular have always argued that they are political appointees and not civil servants and should be excluded from the CPS and placed on salaries for life, like former Presidents and Heads of State, and some government officials, such as judicial officers and military personnel, who are expressly exempted by law. After many years of making a case for themselves, during which the Office of the Attorney-General of the Federation gave conflicting opinions, the HCSF and the permanent secretaries have now got their wish.
Apart from the dangers posed to the sustenance of the reform, the exemption raises legal questions. By the provisions of section 308 of the 1999 Constitution of the Federal Republic of Nigeria (as amended), political appointees and civil servants are defined as public officers. No distinction is made. Therefore, because they are public officers, they come under Section 6(2) of the Pension Reform Act which allows PENCOM to regulate their pensions. Although they retire with full benefits and PENCOM cannot, by law, reduce or increase the quantum of their entitlements, they are nevertheless not legally excluded from the contributory scheme. They will still get all their benefits. The only difference is that they will also have to contribute towards their retirement and will not be paid salaries for life. If their argument is right, then what political appointees get is severance package, not pensions or salaries.
What the presidential approval has done is to further encourage other government officials and agencies to start their own clamour for exemption that will lead to additional budgetary line at a time of heavy debts and challenged revenues. Besides, as we have witnessed with the increasing clamour to be exempted from the Integrated Payroll and Personnel Information System (IPPIS) platform by some agencies, granting exemptions that are not backed by the law may return Nigeria to the era of unpaid pension liabilities because of fiscal challenges.
We call on the president to reverse the exemption of the HCSF and permanent secretaries before he derails one of the few reform efforts that have worked in Nigeria.
