Of 2023 and Struggle Against Mass Exodus from CPS

As pension stakeholders in Nigeria join other members in the business community to welcome a new business year, Ebere Nwoji looks at the sector’s performance in 2023, pointing out that the struggle against mass exit of workers from CPS was a major challenge to the operators

The year 2023 saw the pension sector struggling to keep the over 10 million Nigerian workers who keyed into  the Contributory Pension scheme(CPS). There were agitations by some sector workers to exit the CPS and establish entirely new body that would be in charge of pensions in the country. Indeed, both the industry operators and the National Pension Commission (PenCom) were during the year kept on their toes in their efforts to stop passage of bills on the exit of one sector workers or the other from the CPS.

At the wake of the year,  the two chambers of the legislative body secretly passed a bill seeking for an act to exempt the National Assembly service personnel from the Contributory Pension Scheme.

In passing the bill, they were seeking for an act  to amend the Pension Reform Act, 2014, to exclude/exempt the National Assembly Service  personnel from the  CPS and establish what the law makers tagged  National Assembly Service Pension Board.

The bill provided that, “the board shall be charged with responsibility of managing payment of pensions and gratuities to all personnel of the Service. The bill shall apply to all personnel of the National Assembly Service including those who had retired before the commencement of the bill. It provided that the retirement benefits of the personnel shall be adjusted to be commensurate with the provisions of the bill. They shall be charged on and paid out of the Consolidated Revenue Fund of the Federation, all such sums of money as may, from time to time, be granted by the federal government by way of pension and gratuity in accordance with the bill.”

But this was swiftly resisted by the umbrella body of pension fund administrators the Pension Operators Association of Nigeria (PenOp), which insisted that the  bill sets a dangerous precedent that would not augur well for hardworking Nigerians working across the private and public sector, who depend on the Contributory Pension Scheme (CPS) for retirement security and stability.

“This scheme has brought transparency, international best practice and guaranteed peace of mind to millions of pensioners” said the Chief Executive Officer of PenOp, Mr Oguche Aguda.

Expressing  grave concern regarding the way the  bill was passed,  PenOp insisted that the  passage of the bill seems to have been unnecessarily expedited and shrouded in secrecy with very little engagement and input from critical stakeholders—as it was passed during the National Assembly’s recess. 

PenOp said it was disturbing that the bill did not go through any public hearing, noting that a key component of the legislative process that allows stakeholders to have their voices and opinions heard for possible inclusion in the process was not done.

BExemption of Police from CPS

Not quite long after this, the  Senate in collaboration with the  House of Representatives passed a bill for the establishment of a Police Pension Board, a move that  will exempt the Nigeria Police Force (NPF) workers from the Contributory Pension scheme.

The bill if assented by the president, will mean that police pension has exited from CPS  under the federal government non funded Defined Benefit Pension scheme (DBS).

What this means is that retiring police officers will now receive their pension benefits through government budgetary allocation like the military and other federal government workers exempted from the CPS.

Again, in a swift reaction, both PenCom and PenOp stood against it  highlighting the negative implications of passing the bill.

According to PenOp,  this was not the first time such bill was sponsored and passed   by the sixth National Assembly.

According to PenOp, the reasons for its non-passage by the sixth National Assembly,despite the argument and reasons adduced for such action were still valid and were further reinforced by many more economic, fiscal, social and public policy reasons.

PenOp recalled that its erstwhile Chairman, Longe Eguarekhide had spoken against similar bill saying the argument against the exemption of the above paramilitary government agencies was further reinforced by many other economic, fiscal, social and public policy reasons such as constituting additional financial burden on federal government by way of unsustainable pension obligations, exposing government to high allocation of resources to fund their retirement benefits, dismantling of the institutions, systems and processes put in place by government, amounting to unsettling of government’s fiscal policy and financial system stability as well as resulting in erosion of pool of long term investible funds accumulated under the CPS among others.

After these reasons coupled with the intervention of the presidency, the bill was placed on hold while the police workeforce continued to be under the CPS.

Feelers from the police officers themselves show that the officers wanted nothing but exit from the CPS, which for them, is not favorable because at retirement, the lump sum payable to them by their pension fund managers is nothing to write home about when compared with the gratuity payable to them by government under the Defined Benefit  Pension scheme.

For an average police  officer, anybody saying anything against signing of the bill is not talking in their best interest and should not speak further.

So both PenOp and PenCom continued to battle against the movement until President Bola Ahmed Tinubu suspended the entire process.

Mortgage financing

The industry during the year made good its promise to implement the aspect of the PRA2014 on use of  RSA balance of contributors for mortgage financing for contributing workers.

Indeed, PenCom during the year under review, showed determination to make mortgage financing for home ownership through Workers’ RSA savings a reality.

Way back in the year 2015, the former Director General  of PenCom, Mrs Chinelo Anohu-Amazu, at the sideline of the 2015 edition of the “World Pension Summit Africa Special,”  informed journalists that the commission was working out modalities to ensure that Nigerian workers who contribute into the CPS use part of their Retirement Savings Account(RSA) balance for payment of equity as mortgage for acquisition of  homes. 

Since then, nothing was done to that effect until in 2023 when PenCom under the leadership of Aisha Dahir-Umar in September 2022, released  guidelines on assessment of RSA balance for acquisition of homes by RSA holders.

In 2023, it published  names of  mortgage institutions approved  by the Central Bank of Nigeria (CBN) for the home mortgage financing for contributing workers  and kicked off the implementation in 2023.

According to PenOp report, between March and September 2023 PFAs received a total of 649 applications for home ownership amounting to N7,887,611,971 some of which have been approved and the funds disbursed .

Section 89(2) of the Pension Reform Act 2014  provides that, “Notwithstanding the provision of sub-section (1)(c) of this section, a Pension Fund Administrator may, subject to guidelines issued by the Commission, apply a percentage of the pension assets in the retirement savings account towards payment of equity contribution for payment of residential mortgage by the the holder of Retirement Savings Account.”

RPFAs After 20 years of CPS

Towards the end of 2023, operators took a critical look at their journey through the CPS in redefining the fortunes of pensioners  in the past 20 years and arrived at a conclusion that it has really been a fruitful adventure.

In a paper titled, “At the Dawn of 20 Years of Pension Reform What are the Gains,” the Chief Executive Officer of PenOp, Mr Oguche Aguda, said Pension Fund Administrators (PFAs) in the country have paid a total sum of N1.63trillion to retirees in both public and private sectors under both programme withdrawal and Annuity in the past 15 years.

He said the above figure was to 442,000 Nigerians who retired from services in various employments in the country during the period.

Agudah, said out of the N1.63trillion lump sum paid on both life annuity  and programme withdrawal, in the second quarter 2023  total life annuity payment stood at N665.1 billion. This according to him was received by 111.708 applicants.

He said in third quarter 2022, a total of N595.22billion was paid to 102,696applicants as annuity lump sum.

He said in third quarter 2019, a total of N386.30 billion was paid as annuity life lump sum to 71,214 applicants while in the third quarter 2015, a total of N101.96 billion was paid to 20,615 applicants and in third quarter 2011, N1.51 billion was paid to 331 applicants as  annuity.

Oguche said under programme withdrawal, in second quarter 2023, a total of N964.23 billion was paid to 339,201 applicants as lump sum under programme withdrawal while in third quarter 2022,N887.60 billion was paid to 315, 112 applicants in third quarter  2022. In third quarter 2019, a total of N 589.33 billion was paid to 117,502 applicants under the programme withdrawal while in third quarter 2015, N288,541 billion was paid to 117,502 applicants and in third quarter 2011, a total of N99. 29 billion was paid to 35,419 applicants.

The Annuity and programme withdrawal systems are two windows through which retirees under the Contributory Pension Scheme receive their retirement benefits.

He insisted that twenty years down the line the Contributory Pension Scheme instituted by the former President Olusegun Obasanjo has recorded significant growth with the total assets now standing at N17.65 trillion as at October 2023.

From PenCom’s table

PenCom’s account during the year said  three key issues must be recognised and practiced by operators to get pension work properly in the country, especially as CPS enters its 20th year of practice in Nigeria.

PenCom’s Head of Survillance Department, Dr Ehimeme Ohioma at the PenOp media retreat said said the three key issues in pension management which all PFAs must not joke with were; adequacy, sustainability and service delivery.

According to him, pension payment must be adequate for retirees to solve their problems. He however said for pension payment to be adequate, workers and their employers must contribute adequately because a worker’s contributions determine his payment at retirement.

He said the pension system must be sustained to ensure continuity.

He added that to ensure that continuity, the managers must ensure that in this period of inflation, return on investment was above inflation.

This, he stated, could be done through right choice of investment instruments and windows.

On service delivery, Ohioma said pension administrators must bear in mind that there must always be complaints from the contributors.

He said this being the case, it behoves operators and regulators to ensure that the complains were perfectly treated.

This, he added, explains why PenCom increased the capital of operators to ensure they have critical infrastructures to be able to serve the public.

He highlighted capacity as another critical factor in ensuring successful pension management. 

He said skill of individual pension fund manager needed to be constantly updated to meet acceptable standard. He said these were  the secret behind the accumulation of N17.65 trillion pension assets in Nigeria between June 2004 and  October 31, 2023.

He said 64 per cent of the assets were invested in federal government securities, 11 per cent in corporate debt and 8 per cent in quoted equities while less than 1 per cent was in private equities and infrastructure.

Investment in infrastructure

Also during the year, pension fund operators sought for investment in infrastructure, technology. At the beginning of the year 2023, contrary to initial fears by pension fund managers that investment of pension funds in infrastructural development would sink contributors’ funds due to lack of safety, the PFAs disclosed their plans to invest heavily in infrastructure in 2023.

The managers disclosed this at a virtual market outlook seminar during the year where they reviewed their economic and investment performance in 2022 and deliberated on their investment out look for the 2023 year.

In his presentation,  Agudah, said 42 per cent of the Pension Fund Administrators indicated that they were actively looking for investments in infrastructure while another 50 per cent said they would also consider investments along that line of business in the year. 

The event, which attracted frontline economists was anchored on the theme: “The Nigerian Economic and an Investment Outlook: A focus on Pension Fund Investment Strategies.”

Aguda, however, said although fund managers were cautious about private equity, they would consider a deal-by-deal basis. 

According to him, 25 per cent of fund managers polled were actively looking to invest in private equity while 67 per cent say they would  consider it.

He added, “Fund managers are looking to invest in impact focused funds but transparency and structure are key.”