62 Years of Tremendous Growth in Nigeria’s Pension Sector

Ebere Nwoji writes that Nigeria’s pensions sub-sector has recorded milestone achievement since the country’s independence 62 years ago

The pension sector is no doubt one of the fastest growing sectors of the Nigerian economy since the introduction of the funded Contributory Pension Scheme (CPS).

Indeed, with the quantum of assets accumulated by the sector, Nigeria has no doubt recorded significant success in the reformation of its pension subsector.

The industry now sits on huge pension assets of N14. 2trillion.

Aside the above quantum of assets accumulated by the sector, a good sign that the country has achieved improvement in its pension sub-sector is the growing interest and awareness among Nigerians in pension matters.

Indeed, every Nigerian worker, irrespective of his   level, is now aware that pension benefit is a package waiting for him at retirement. Many on daily basis look at quantum of benefit in their Retirement Savings Accounts. 

Of all the achievements since inception, the biggest came in the past two years when it implemented the window transfer mechanism and the release of the guidelines on the use of pension assets for mortgage. Also the Micro Pension plan gave hope for informal sector operators.

Having this at the back of their minds, every Nigerian worker is interested in pension matter and is eager to contribute his ideas on such matter anytime anywhere.

Meaning of pension

Pension by its definition and meaning as spelt by the Cambridge English Dictionary is an amount of money paid regularly by government or a private company to a person who does not work any more because he is too old or has become ill.

The dictionary.com defines it as a fixed amount other than wages paid at regular intervals to a person or the person’s surviving dependents in consideration of past services, age, merit, poverty , injury or loss sustained.

By whichever way the word pension is looked at, it is an entitlement belonging to a retired worker who had used his youthful strength to work for a particular organisation until he grows old and weak that he can no longer work as he used to do and so goes for retirement.

At the retirement period, he sits back to receive periodically, usually monthly, a certain amount; though may not be as high as what he was receiving during his service years, for his continued up keep in life. 

A good pension scheme serves as an incentive to new employees and helps to hold back experienced staff. It is, therefore, the responsibility of a good employer to articulate and design a good pension plan that will motivate staff. 

62 years after independence, Nigeria has recorded huge success in the transformation of its pension system which had in the past recorded ugly history.

Improvement in this regard was so tremendous that the rest of African countries now look at Nigeria as role model in the reformation of their pension system

Era of Defined Benefit scheme 

Before the advent of the current Contributory Pension Scheme established by the Pension Reform Act of 2004, amended in 2014, Nigeria was operating the Defined Benefit scheme currently tagged old scheme. It came into effect in April 1974, but was backed up by an enabling law in 1979.

The scheme, which was unfunded in nature, was apparently characterised by   problems of different magnitude and complexities, such as lack of accountability, transparency, mismanagement of funds and corruption.

 Consequence of this was that Nigerian pensioners were denied payment of their benefits and other legitimate entitlements on retirement. 

The result was that many retirees died out of shock, heart attack, stress on regular calls for verification of pensioners and other serious life threatening hardships to which they were subjected simply to be eligible to be paid their gratuity and pension. Many of them after the sufferings never received the said pensions until they died.

Some time ago in Nigeria, precisely in 2010, media reports went wide about a particular pensioner who was ill and his children continued to struggle for payment of his monthly pension arrears to enable them take him to hospital for treatment, but the paymasters insisted that unless he was brought out from the hospital to the point of verification, he would not be paid.

The children later succumbed and carried the sick pensioner to the verification venue only for him to give up the ghost on the way and the children vehemently brought the body to the pay masters before his entitlement was paid.

This was one of the gory experiences of pensioners simply because the pension fund managers then preferred to divert the provided money to their own account while the real owners die in poverty and penury.

The New Era

This ugly situation, continued until in 1999, when the former president, Chief Olusegun Obasanjo was confronted with the challenge of rampage by retired military officers who happened to be his school mates in military school and protest letters from some prominent university professors. He was then compelled to form a committee, which he sent to different parts of the world to study the pension system in advanced countries.

The committee later came up with suggestions and advice for Nigeria to adopt the on going contributory Pension Scheme practiced in Chile.

The Pension Reform Act was in June, 2004, signed into law thereby establishing the regime of Contributory Pension Scheme in Nigeria.

The scheme was meant to accommodate workers who had three years to go for retirement before the enactment of the contributory pension scheme.

While those who had from four years up to retire were accommodated.

The former were retained under the Defined Benefit scheme and the two currently exist side by side until the last pensioner under the old scheme dies.

Also military personnel were exempted from the CPS. 

With this arrangement, sufferings and old age poverty associated with retirement in Nigeria became a history.

Pensioners under the contributory pension scheme and those under the Defined Benefit scheme now receive human treatment with respect from managers of the scheme.

At the verification exercise conducted by the Pension Transitional Arrangement Committee (PTAD) for about 21,000 pensioners residing in Lagos who are under the Defined Benefit Scheme recently, the pensioners confessed that there has been a great change in the way their cases were handled.

One of the pensioners, Mrs M. Shonowo who retired as commercial Manager Ministry of Communications, in her assessment of the Lagos verification exercise has this to say: “The arrangement now is superb. Before, we were under sun and rain. No seat, no separation of elders and sick ones. But because it is woman that is handling it now she is very considerate she has pity for the pensioners. She made provision for us elderly and the sick ones to get prompt attention. It is a good arrangement God will continually help PTAD they will know no sorrow they   will reap the fruit of their labour”.

For the contributory Pension scheme, which is funded in nature, both the employer and employees   save to better the lot of the worker at retirement.

Initially, both the employee and employer were required to save 7.5 percent each of the employee’s monthly package, which should be paid into the retirement Savings Account (RSA) of the employee. The pension Act also requires that every employer who has up to five employees to open RSA for each of the employee with any of the 21 Pension Fund   Administrator of his choice.

Pension Reform Act Amendment

The amended version of the act requires that employers of labour with two employees should enroll them into the scheme while the employee contributes 8 percent of his monthly wage and his employer 10 percent which should be saved in his RSA.

Actors in the scheme are the National Pension Commission (PenCom)-regulator, the Pension Fund Administrators (PFAs)-fund managers and the Pension Fund Custodians (PFCs) as the custodians and investors of the funds.

By the design of the Act, none of the above actors has access to the fund and none has the power to tamper with the fund as the funds are invested in various instruments where they yield interest to the Contributors’ savings.

Today, records say that Pension Assets under the CPS has grown to N14.2 trillion and retirees are no longer passing through difficult times in collection of their Retirement Benefits.

Indeed, most PFAs pay retirees as early as 18th of every  month while the retirees have confessed that they are getting their pension benefits earlier than they were getting their salaries while in service.

The CPS has remained one of the most successful and enduring legacies left by the Obasanjo administration.

But as successful as the CPS is the regulator is still battling to fine tune it and ensure that every working Nigeria is brought under the scheme.

At 62 Nigeria, currently looked upon by other African countries, is still faced with three major challenges among others in its effort to build a perfect and all encompassing pension system.

These challenges are how to secure the compliance of all eligible employers of labour to the scheme, how to sweep every working Nigerian under CPS scheme through the micro pension scheme, how to judiciously invest the accrued funds in such a way that the contributors will feel the positive impact of the invested funds while reaping its yields.

One of the innovations introduced into the CPS was structure which classified investment of pension funds into four classes of fund one, fund 2, fund 3 and retirees fund, which is, fund 4. With this, investment of contributor funds is determined by his or her age unless the contributor chooses otherwise. The structure also liberalised investment of the funds to other portfolios other than federal government in that the fund can be invested in real estate, infrastructures and other portfolios.

The immediate past Director General of PenCom, Chinelo Anohu- Amazu, had said that to achieve this, the commission should look at investment of the funds in real estate in such a way that contributors can through their RSA own houses of their own.

Before her exit, she disclosed that the commission had opened   discussions with some heads of federal ministries on how to achieve this so that Nigerians at retirement would not think of how to live their retirement life without roof on their heads.

To achieve these, the commission had established partnership with the Pension and Investments/World Pension Summit, Amsterdam, to institute the annual   Pension Summit Africa Special.

The Summit, which was established by the two bodies in 2014, now   serves as platform for exchanging ideas, supporting professionals in social security and in all aspects of pensions to gain expertise in pension fund management.

In overall, given the level of success currently recorded by Nigeria in the journey to enthrone the regime of workable and functional pension system, one will modestly say that Nigeria, has successfully covered reasonable distance in its journey to achieve perfect pension system that will conquer the fear of retirement among Nigerians and at the same time build long term investible funds that will help to keep Nigeria on stable economic track.

Former Managing Director/CEO, Premium Pension Limited, Mr. Wilson Ideva,  had  attributed this  success story to what he described as  the ‘airtight statutory provisions and the efficiency’ of PenCom.

Former President Olusegun Obasanjo, to whom credit of achievements recorded in pension sub sector goes to, speaking at the last pension summit in Abuja, told his audience that he was happy that the CPS his administration introduced in Nigeria in 2004, has earned public confidence and acceptability. 

“Today, I am proud to say that over N14 trillion, million employees from both the Public and Private Sectors in Nigeria have been registered under the CPS and have all opened Retirement Savings Accounts and the scheme has so far accumulated about N6.5 trillion worth of pension assets. 

Continuing, he said, “I am happy to mention that this modest achievement demonstrates that the National Pension Commission of Nigeria has achieved more two of the objectives – coverage and generation of a pool of investible funds, for which the government decided to reform the Nigerian pension system twelve years ago.

He said given the long-term nature of pension funds, it is important that pension assets are deployed as endogenous domestic capital for development in a region that has hitherto essentially depended on multilateral aid and foreign direct investment. 

He counseled that Nigeria should learn to effectively utilise its resources in a manner that would generate employment for its unemployed youths and develop its infrastructure in addition to providing long term, affordable capital to the real sector of the economy.