THE NATIONAL ASSEMBLY THREAT TO PENSION REFORM

 The passing of the bill for the establishment of a Police Pension Board is a wrong and costly act, contends Grace A. Abayomi

It is not uncommon for Nigerian government agencies to work at cross purposes, but we may have entered a phase in which the National Assembly is working against itself and wilfully tearing its own laws into shreds. The passing of the Bill for the Establishment of a Police Pension Board by the National Assembly is the latest act. By excluding the personnel of the Nigeria Police Force (NPF) from the Contributory Pension Scheme (CPS), the lawmakers have just contradicted a legislation they made nine years ago. Section 5 of the Pension Reform Act, 2014, says in unambiguous terms that there will be no exemption to the CPS apart from members of the Armed Forces and the intelligence and secret services of the Federation. It also excludes “any employee who is entitled to retirement benefits under any pension scheme existing before the 25th day of June 2004 being the commencement of the Pension Reform Act, 2004, but as at that date had three or less years to retire”.

Despite the clearly spelt-out provision, the lawmakers earlier this year trampled on its own laws and undermined itself when it passed the National Assembly Service Pensions Board (Establishment) Bill establishing the National Assembly Service Pensions Board, thereby exempting the personnel of the service from the CPS. Former President Muhammadu Buhari signed it into law on the eve of his departure from office. This is one of the most damaging moves in Buhari’s eight years, but he could be excused on the ground that he did not understand what he was doing. The word in town was that the only way to prevent Buhari from signing a document was to make sure it did not get to his desk. Except the people around had a different motive and dissuaded him, it was usually a done deal. The day it was reported that the National Assembly Service Pensions Board (Establishment) Bill had been transmitted to Buhari, those who knew him were sure he would not as much as query it. He didn’t.

If Buhari understood the implications, he would have known that he had just started a journey that would plunge the Nigerian Government into trillions of naira of liabilities in the years ahead. For a man who left Nigeria in debt of over N46 trillion, he could hardly be bothered that he had just opened a floodgate for other agencies of government to seek to be excluded from the CPS (which shares the responsibility of saving for pensions between the employers and the employees) and return to the Defined Benefit Scheme (DBS) which places the entire responsibility on the employer. With the National Assembly Service Pensions Board (Establishment) Bill signed into law, the next step was not surprising: the Senate passed the Pension Board Bill to transfer the full burden on pension payment to the federal government. According to media reports, personnel of the Nigeria Drug Law Enforcement Agency (NDLEA), Nigeria Immigration Service (NIS), Federal Fire Service (FFS), and the Nigeria Customs Service (NCS), among others, are now gearing up to be exempted.

Although Buhari left a huge national debt behind when he returned to his Daura country home on May 29, 2023, the damage his assent to the National Assembly Service Pensions Board (Establishment) Bill will do to Nigeria in the future will be far worse. First, there will be no end to exits from the CPS. All it takes is to lobby the National Assembly by any means possible. Second, Nigeria will return to the era of owing arrears of pensions as we witnessed for decades before the pension reform. Third, we will return to seeing images of pensioners on queues waiting for their benefits. It is very clear that government will not be able to meet the new obligations. Nigeria is suffering from revenue inadequacy and pension payment always gets relegated on the list of priorities. By and large, one of the most successful reforms in the history of Nigeria is now being destroyed by the actions of a few individuals who do not give a hoot about the national interest.

Those who are not familiar with the Pension Industry may not understand the harm that the lawmakers have been doing in their chambers in recent times. In 2004, the federal government embarked on one of the most ground-breaking reforms ever with the enactment of the Pension Reform Act, 2004 (re-enacted in 2014). Before then, employers used to run riotous schemes that did not inspire confidence in the employees. In the private sector, there were schemes that were less than beneficial and were often implemented in ways that gave too much room for discretion and often short-changed would-be beneficiaries. The public service operated the DBS under which retirees were entitled to life pension based on years of service and hierarchy. However, economic challenges and fiscal crises caused arrears of public pension payments to accumulate. Pensions were budgeted for annually but were only paid if there was funding. Pensioners were dying in penury and frustration while waiting for their entitlements. This was the situation when the Olusegun Obasanjo administration introduced the pension reform in 2004.

With the reform, the CPS has been regarded by Nigerians as an outstanding success story. Under the CPS, it is mandatory for employers in public service and private sector with a certain number of employees to make a minimum contribution towards the retirement benefits of their employees. There is also the contribution by the employees themselves, which is akin to compulsory savings towards retirement. The funds are invested by the Pension Fund Administrators (PFAs) and kept in custody by Pension Fund Custodians (PFCs). As a result, the old story of “no funds” became history. Nobody needed to wait for any budgetary allocation to pay pensions as the funds were already warehoused during the employee’s active years. Also, value is added to the savings over the years through returns on investment. These fundamental changes have created a new economy. From a negative position of huge unfunded liability, pension assets in Nigeria had grown to N15.45 trillion as at February 2023. The total number of pension contributors is close to 10 million and growing.

Unfortunately, it is not everybody that is excited by the success story as we can now see. For years, some interests in the Nigeria Police Force had been making efforts to exit the CPS. When police agitation reached its height under former President Goodluck Jonathan in 2013, the police were allowed to set up their own PFA as a compromise, to take care of their supposed peculiarities. Still, they were not content. According to previous reports that were not refuted, the determination of the police to exit went to the illegal extent that the Deputy Inspectors General of Police (DIGs) and Assistant Inspectors General of Police (AIG) were enrolled on the Integrated Payroll and Personnel Information System (IPPIS) to collect full salaries for life under a defined scheme that was not intended for them. This they did without the permission of anyone. They did not get the permission of the president and the regulatory authority and it is not in conformity with the Pensions Reform Act.

Some of the statistics should be of concern to us. Of the N577 billion budgeted for pensions in 2022 by the Federal Government of Nigeria (FGN), military pensions and gratuities account for N237 billion. That was close to half of the entire pensions budget. Police pensions and gratuities for certain exempted groups amount to N8 billion of the FGN budget for pensions for the year under discussion. However, if the National Assembly succeeds in pulling the NPF out of the contributory pension scheme altogether, that alone would have consumed the entire FGN budget for pensions in 2022. The military is just about 25 percent of the size of the police, so FGN is going to be saddled with a pensions and gratuities budget that will pass N1 trillion. With its current fiscal challenges, FGN will have no other option than to owe pensions. Meanwhile, the contribution of police funds to the pensions sector will shrink and this will no doubt affect the growth and prospects of the pension industry in particular and the Nigerian economy in general.

The passage of the Bill for the Establishment of a Police Pension Board by the National Assembly always looked like they were working to an answer. At the public hearing organised by the Senate Committee on Police Affairs on January 20, 2023, all major stakeholders, apart from the police, opposed it. The National Pension Commission (PenCom), which regulates the industry, the Pension Fund Operators Association of Nigeria and the Nigeria Labour Congress (NLC) canvassed robust arguments against it. Mr Boss Mustapha, former Secretary to the Government of The Federation (SGF), informed the Inspector General of Police, via a letter, in July 2022 that an SGF circular Ref. 59149/S.1/C.1/11/266 dated July 20, 2021 which said the police must be under the CPS remained in force. Mustapha also referred to the White Paper on the report of the Presidential Committee on Restructuring and Rationalization of Federal Government Parastatals, Commissions and Agencies which forbids any government body, apart from the military and the intelligence services, from exiting the CPS.

It is important to mention that the argument of those seeking exemption is that they will secure a guaranteed full monthly salaries package upon retirement under the Defined Scheme compared to what they may take from the PFAs under the Contributory Scheme. However, this is erroneous. There are other ways of getting more benefits allowed by the Pension Reform Act. For instance, what the Pension Act prescribes is merely a minimum contribution rate, which can be enhanced by the employer. Thus, rather than shoulder a burden of unsustainable pension liability, government can decide to do one or two things that are permissible under the Pension Reform Act. Government can increase the rate of its monthly contribution above the current minimum 10 percent. Government can also have a gratuity package that will be a lump sum paid to the retirees on exit from service, in addition to the contributions remitted to their employees’ RSAs. Indeed, if government decides to do both or any of these two benefit improvements under the CPS, the pension system would still be less costly and less volatile for government. Returning to the Defined Scheme is going to be fatal.

Mrs Abayomi, an economist, writes from Akure, Ondo State