Addressing Disincentive Clauses in Pension Laws

Contributors into the Contributory Pension scheme complain of disincentives in the law guiding the administration of the scheme, especially retirement benefits payment system and call for their review, writes Ebere Nwoji.

The news barely a month ago on the passage of the bill for establishment of a police pension board by  the Senate in collaboration with the Federal House of Representatives   no doubt threw the entire pension landscape to a pandemonium.

Indeed, there was palpable fear among the pension Fund Administrative firms while both National Pension Commission (PenCom) and Pension Fund Operators Association (PenOp) were obviously fidgeting on account of the bill passage.

The reason for this is not far fetched. If the presidency had assented to the bill and it was passed into law, by now, the Contributory Pension Scheme (CPS) would have been impacted because of quantum of funds contributed by the huge population of the Nigerian Police force which the scheme sits on. It is estimated that there are 371,800 police officers in Nigeria, this is  in addition to proposed recruitment of 10,000  police officers every year by the erstwhile  President Muhammadu Buhari.

The Nigerian police has contributing immensely to the growth of  pension assets which currently stands at  N15.772 trillion as at May 31,2023.

Had the presidency signed the police pension board bill into law, many PFAs would have been girding to close up shops.

PenCom, presidency intervention

However, the timely intervention of the PenCom Board Chairman in collaboration with the presidency which has saved the situation.

Feelers from contributors into the CPS point to the fact that until the rotten tooth is pulled out, the mouth must chew with caution.

This means that until certain aspects of the present pension laws which do not favour the contributors are expunged or reviewed, operators of the CPS, their regulators and their trading groups should not relax thinking that all is well. Truth be told, all is not yet  well with the system as many contributors are still agitating, pointing out so many anomalies in the system.

Poor performance of MPS

This also explains why  four years after official launch of the Micro pension scheme, only 84,612 contributors have so far registered into the scheme as at September 2022 according to PenCom report. This falls short of 8 million contributors into the scheme targeted by government in the first five years.

The Micro pension scheme which sets out to extend pension savings to self employed and employees of organisations with a minimum staff strength of three is somehow voluntary in nature unlike the conventional CPS in which workers are compelled to key into through any PFA of their choice.

The rate at which people who are prime target of the Micro pension scheme key into it is slow because it is voluntary. This shows that Nigerians have not voluntarily embraced the CPS and those who have embraced it have one reservation or the other.

Contributors’ Misgivings

A cross section of contributors who work with the Lagos State government spoke with THISDAY recently on their ill feelings  with the scheme.

According to them, the Lagos State Government takes good care of its workforce with  provision of good insurance package for them.

They said the only area they are disgusted is the area of pension arrangement because the state government did not make provision for alternative retirement pension scheme other than the contributory Pension scheme.

They said they would have preferred any other form of pension arrangement other than CPS.

Asked whether they remembered the problem their predecessors passed through during the Defined  Benefit Scheme one of them threw back question on whether the present scheme has made things better in real terms considering the payment system.

According to the LASG employee who said she has less than five years to retire, the fact that workers’ salaries are deducted every month for the purpose of funding the scheme gives an average worker right to determine how to collect his retirement benefit.

She said contrary to this, the various laws surrounding the scheme have not given workers the freedom to choose how to collect their retirement benefits.

He gave example of percentage of lump sum benefits allowed by law saying for example if she has N10 million  in her account as her total savings at retirement the law only permitted her to collect 25 percent which is N2.5 million which according to her cannot buy her a house or a land and even if it can buy her a land she argued that she would not have money to build on it.

Asked if she is aware of the mortgage financing window of opportunity provided  by the law, which PenCom has promised to implement, she said she only heard about it but that bogus  conditions she heard were attached to accessing the benefits appear to be unattainable.

Accessing Mortgage Finance

At a recent media training organised by Leadway Assurance, journalists asked questions on the number of contributors that have been able to access the mortgage financing benefit, it was discovered that no single contributor has in the real sense of the word assessed the benefit mainly because of stringent conditions attached to it.

According to PenCom, the  following are the conditions attached to the scheme by law; “The  guidelines is in line with the provisions of Section 89 (2) of the Pension Reform Act (PRA 2014), which allows RSA holders to utilise part of their retirement savings as equity contribution for the purpose of securing Residential Mortgage.

“In addition to other General conditions attached PenCom said the following are the eligibility  Criteria for RSA Holders to access the benefit. The RSA holder shall have an Offer Letter for the property duly signed by  the property owner and verified by the Mortgage Lender. The RSA of the applicant shall have both employer and employee’s 

mandatory contributions for a cumulative minimum period of 60 months prior to the application for the RSA holder to access his/her RSA balance for the purpose of equity contribution for residential mortgage. In addition to the above, the applicant may utilise the contingent portion of his/her Voluntary Contribution (VC) for equity contribution, in line with the Voluntary Contribution Guidelines under the CPS.

“Where an RSA holder who wishes to include his/her VC contingent portion, NSITF and Pre-Scheme contribution as equity contribution he/she shall sign a consent with his/her PFA to that effect. A Micro Pension Contributor shall be eligible to access his/her RSA balance towards the payment of equity contribution for residential mortgage provided he/she has made contributions for a minimum of 60 months prior to his/her application.

 In addition to 4.1.6 above, the applicant may utilise the contingent portion of his/her contribution, in line with the Guidelines for Micro Pension Plan, after meeting the provision in Section 4.1.6.

“Where a Micro Pension Contributor wishes to include his/her contingency portion as equity contribution, he/she shall sign a consent with his/her PFA to that effect.

The RSA holder shall provide documents/information as required under Section 5.0 of these Guidelines and other additional documentation that may be specified by the Commission from time to time.

“In addition to the above eligibility rules,the following rules for general application applies. The RSA holder shall be in active employment, either as a salaried employee 

or as a self-employed person. The RSA holder if registered before 1 July 2019, must have updated his/her records through the RSA data recapture exercise. Application for equity contribution for residential mortgage shall be in person and not by proxy.”

It added, “For the purpose of equity contribution for residential mortgage, an RSA 

holder can only access his/her RSA once. The RSA holder and the Mortgage Lender shall indemnify the PFA on the  exclusive use of the funds released from the RSA for payment of equity  contribution. These and more are the conditions that looked scaring to the contributors making application to the mortgage financing scheme look cumbersome.”

In a chat with THISDAY, a non academic staff of Michael Okpara University, Umudike, Umuahia Abia state, said CPS was good in nature because it was a fully funded scheme but that the retirement payment system is a problem and that the laws to this effect needed to be reviewed.

She said currently she has N4 million in her RSA meaning that if she is retiring today she will be entitled to only N1 million which cannot do anything tangible for her. She said the prevailing laws guiding CPS is anti contributor but grows the regulator, the fund managers and the economy.

She said there is need for review of the payment system  to favor contributors a bit .

Some other contributors who spoke to THISDAY expressed diverse problems with some saying sometimes what is remitted to their accounts is different from what they actually  contributed.

Pension analysts said there was need to look into these complaints, especially the conditions for accessing mortgage financing and the percentage paid to retiring workers as lump sum benefits so as to make the scheme attractive.

They argued that this has become necessary because more contributors were getting to know their right and have realised that the PRA Act is in favour of the fund managers; “therefore, there is need to review the law in a way that it will favour the contributors.”