CPS: Agony of Nigerian Workers

As the regime of Contributory Pension Scheme in the country approaches 20 years, workers contributing into the scheme lament of uneasy assessment of their retirement benefits as government, economy operators count quantum of accumulated funds, writes Ebere Nwoji.

When the former President Olusegun Obasanjo in 2004 instituted the Contributory Pension scheme (CPS) to replace the Define Benefit Pension scheme, Nigerian workers and pensioners heaved a sigh of relief hoping that an end has come to the multiple problems bedeviling Nigeria pension system.

Indeed, given the funded nature of the CPS scheme, every worker opted for it to the extent that even those exempted from it because their retirement date was close by wished they were part of it.

On their part, employers of labor in both private and public service sectors were exceptionally happy with the scheme because it automatically relieved them from the stress of looking for funds to pay their workers’ retirement benefits and arrears of unpaid pensions especially on the side of public sector employees.

Pension Before CPS

Before the enactment of the CPS law, there was pension deficit of over N2trillion hanging on federal government’s neck while pictures of hungry, haggard looking and dying pensioners were on daily bases flashed on newspaper pages and television screens to the shame and detriment of federal government’s image. The worst hit in this regard were the railway pensioners.

Against this backdrop, the federal government under the regime of former President Olusegun Obasanjo instituted the CPS scheme, which it adopted from Chile. The CPS system required funding of pension system by both employers and employees who presently contribute 10 per cent and 8 per cent respectively to each worker’s Retirement Savings Account (RSA) domiciled with Pension Fund Manager of his choice according to the legislation on CPS.

The success of the scheme warranted the increase in the rate of contribution between 2004 and 2014 to the present rate of 18 per cent in order of 8 per cent contribution by workers taken upfront from their salary and 10 per cent by the employee.

CPS Assessment

Looking at assessment of the scheme by economy operators, the CPS which after 18 years regime has accumulated over N16 trillion assets was a huge success having built up such unimaginable long term investible funds most of which is invested in federal government securities.

But for the contributing workers, latest experience in the payment system of the CPS leaves much to be desired making it not looking anything different from the hitherto Defined Benefit system. Many workers especially those of state government that have fully keyed into the scheme have complained bitterly that more than two years after their retirement, the state governments were yet to pay their retirement benefits. Even those of private sectors are not happy either because their retirement benefits payment were seriously delayed. For federal government workers, delay in payment of their accrued often result to delay payment of a retired worker’s accrued right.

For instance the association of CPS Pensioners in Lagos state under the umbrella body National Union of pensioners NUP -CPS said its members have staged fasting and interdenominational prayers all over the state to press home their demand with the Lagos State government as all stumbling blocks towards payment of their retirement benefits shall be removed by fire by force.

The association said venue of the prayers is all the CPS zonal offices in the 20 Local government areas in the state.

The Chairman of the group Mr Michael Omisande in a said, “all pensioners in Lagos state were requested to participate. “We are set to get out of bondage. There are two groups of pensioners in Lagos state. The Defined benefit scheme (old pensions Scheme) and the Contributory Pensions Scheme (new pensions Scheme). The Defined benefit scheme is the old scheme where retirees collect gratuity and pensions for life. The   Contributory Pensions Scheme is the new reform as a result of defect discovered in the Defined benefit scheme such as corruption, inadequate funding and bureaucratic bottleneck.  These defects gave birth to the new pensions Scheme of service. In the new scheme the employees and employers are expected to contribute into the retirement savings accounts as you exit the service you collect a percentage of your entitlement and balance goes to our PFA or Annuity for our monthly pensions.”

“The scheme of service met us while we are in service under the old scheme, which made us to be at a serious disadvantage. That is serious lacuna, which calls for a serious attention. A Director under the old scheme earns above N250,000 while his counterpart in the new scheme earns an average of N70,000. The government introduced the scheme to us in Lagos state with the promise that it is going to be better. Lagos workers embraced it. On arrival of the scheme the same government removed all the indices that will make the scheme better such as gratuity, non-remittance of the accrued benefit as at 2007 into our RSA and delay of payment of bonds for three to five years. All these abnormalities made the scheme fail on arrival. The retired think tanks in the service saw the suicidal future of the scheme and ran back to the old scheme.”

Also, a cross section of contributors who work with the Lagos State government spoke with THISDAY recently about 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.

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

The employees 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.

Assessment by PenCom

But in its assessment of the scheme, PenCom said Nigeria has witnessed a remarkable shift in its pension system in about two decades with the introduction of the CPS.

It said that the innovative scheme has revolutionised retirement planning for employees, providing them with a range of benefits that ensure financial security and peace of mind in their post-employment years. The commission delved into advantages of the CPS and its positive impact on Nigerian workers saying it provided them with Financial Security and Stability

According to the commission, the CPS offers employees a reliable financial safety net, addressing the longstanding issue of inadequate funds to pay retirement benefits to retirees. By contributing a portion of their monthly income, employees gradually build a pension fund that grows over time, ensuring a stable income upon retirement. The scheme’s mandatory nature ensures that employees remain committed to saving for their future, reducing the risk of financial uncertainty in old age.

“Similarly, one of the significant advantages of the CPS is the employer’s mandatory contribution. Under this scheme, employers must contribute a certain percentage of an employee’s salary to their pension fund. This additional contribution, combined with the employee’s savings, accelerates the growth of the pension fund. Consequently, employees can accumulate a substantial retirement fund, enhancing their financial well-being during their golden years.

It is important to note that the CPS provides a social security framework for Nigerian employees. The CPS reduces dependence on family members or social welfare programmes, enabling individuals to lead dignified lives after retirement. With the CPS in place, employees can confidently look forward to retirement, knowing they will have a regular income stream to support their living expenses.

Contributors’ demands

Also NUP- CPS Secretary, Comrade Bisan Olufemi John said the pension arrangement by the government was still far from being favourable to retirees.

He said there was no way government could successfully proffer solution to the economy without adequately satisfying the yearnings of both pensioners and those currently in service.

According to him, “The federal government has been struggling with getting the economy to work, but one thing that is clear is that the people are the ones that will contribute mainly to make such a reality.

“The government must first think of the workers, improve their welfare so that they can then contribute their quota adequately to the economy. It should be the people before the economy. Government should think of how to build the operators of the economy and also improve on the lives of pensioners.”

While recalling the failure of government to pay Group Life Insurance claims to next of kin of deceased civil servants, he also lamented the perceived conflicts in annuity for pensioner under failed insurance companies.

He further called on the government to provide better opportunities for pensioners to be happy, saying that retirees’ welfare should not just end at the level of being paid their stipends.

Another retiree and member of NUPCPS, Comrade Olagbayo Johnson said it was unfortunate that the current CPS appeared to be failing.

He recalled that it was the failure of the Defined Benefit Scheme, which is government funded, that compelled the federal government to visit Chile to do a check on how the contributory Pension scheme works.

He however lamented that since Nigeria started the scheme in 2004, it had shown little or no difference from the old scheme apart from the fact that employees and employers now contribute towards the pool of funds.

On her part, the Chairman, Nigeria Labour Congress (NLC), Lagos Chapter, Comrade Funmi Sessi, lamented that Nigerian pensioners were still far from having the deserved rest, adding that there was need for them to earn their benefits, rest and enjoy the fruit of their labour.

She condemned the poor approach by Pension Fund Administrators (PFAs) to paying benefits to pensioners.

She also specifically condemned the difficult process in accessing benefits by relatives of deceased worker, stressing that the request for a letter of administration and other documents should be made easier.

THISDAY checks revealed that there is actually no perfect pension system anywhere in the world as both Nigerian pension system and even the Chilean system till date suffers criticism of being inefficient.

The Chilean system is faced with criticism of imposing high contribution rates that discouraged employers from hiring labour and both employers and workers from making proper declarations of earnings.