Truncating  CPS’s  Success

The success story of  Contributory Pension Scheme, 20 years after its commencement, is being reversed by the federal government’s delay in payment of accrued rights of its workers, writes Ebere Nwoji

When the federal government through the 2004 Pension Reform Act introduced the regime of Contributory Pension Scheme (CPS) in place of Defined Benefit Scheme (DB), the main purpose was to rest the case of arrears of unpaid pensions due to lack of funds and alleviate the sufferings of Nigerian pensioners.

This is because between the period of 1979  when the Defined Benefit Scheme was introduced as a way  of paying  retirees’ benefits. Before it was laid to rest in 2004, Nigerian pensioners passed through severe hardship due to old age poverty occasioned by government’s failure to pay their retirement benefits as and when due.

Even when they attempted to pay at all,  the screening process to weed out ghost pensioners left the genuine pensioners in undesirable condition.

Indeed a sight of Nigerian pensioner on queue to undergo his  screening exercise portrayed  horrible pictures as most of them look worse than destitutes.

Then pension deficit was over N2 trillion with pay masters and pension managers cornering some released funds by the federal government while the supposed end point receivers die in poverty and penury.

The horrible appearance of railway pensioners, those of Nigerian postal services pensioners  among others has remained indelible in the minds of many adults who witnessed it.

Introduction of CPS

It was against this backdrop that the administration of President Olusegun Obasanjo  in search of better pension system adopted the contributory Pension scheme (CPS)  from Chile. The aim was to bring to an end the protracted delays in payment of pension benefits in the country.

Some of  the demerits of the Defined Benefit Scheme scheme as recently highlighted by the Managing Director and Chief Executive Officer of Nigeria University Pension Commission (NUPENCO), Oluwakemi Ugwu, include unfunded liabilities in which she noted that the government was struggling  to finance pension obligations due to inadequate budgeting and planning, leading to significant pension arrears and delay in pension payment.

He also mensioned dministrative inefficiencies noting that the system was plagued by bureaucratic delays, corruption, and mismanagement, which resulted in many retirees not receiving their benefits timely, while some never received it.

While adding that demographic and economic pressures was another  factor, she pointed out that increasing life expectancy and a growing number of retirees added financial pressure on the government, making the Defined Benefit scheme unsustainable.

Apparently, in earnest search for solution to the above problems  Obasanjo’s government introduced the CPS through the Pension Reform Act of 2004, which was repealed in 2014.

Merits of CPS 

Highlighting its merits, Ugwu said the  CPS established individual Retirement Savings Accounts (RSAs) for each employee, managed by licensed Pension Fund Administrators (PFAs) in which both  employees and employers contribute to typically at a rate of 8 percent and 10 percent of the employee’s basic, transport and housing allowances, respectively.

She said it reduced  government’s liability as the system was aimed  at reducing the financial burden on the government by spreading pension funding responsibilities between employers and employees and ensuring that retirees were  paid immediately after retirement.

She said, “The CPS also shifted government’s role to regulation and oversight through the National Pension Commission (PenCom); just as it  introduced professional fund management practices to ensure better returns on pension contributions; while the fund managers, PFAs are regulated to maintain transparency and accountability, aiming to protect the interests of contributors.

“These efforts are gearing towards solving the overall problem of delay in payment of retirement benefits to pensioners. But despite these efforts Nigerian pensioners under the CPS are gradually being subjected to the same sufferings and agony their predecessors suffered under the Defined Benefit Scheme scheme due to government’s delay in releasing their accrued rights.”

Accrued rights

Accrued rights, she added, refers to the pension benefits that employees of the federal government Treasury Funded Ministries, Departments and Agencies (MDAs) are entitled to based on their service years before the commencement of the contributory pension scheme in 2004.

She added, “This does not apply to the Private sector or an MDA’s employee who have been offered employment after the CPS. The accrued rights  pension benefits arose  from employer’s obligation of retirement benefits in the defunct Defined Benefits Scheme before the commencement of the CPS it was converted to bond payable/redeemable at retirement. Section 2.3 of the Revised Regulation on the administration of retirement/terminal benefits specifies that a retiree is entitled to access his or her retirement benefits only upon the consolidation of his or her  RSA.

“The components of an RSA at retirement shall include accrued pension rights or pre-act benefits (if any) for employees who were in employment before the commencement of the CPS employer/employee pension contributions, returns on investment, and the fixed portion of voluntary contributions (if any).” 

However, checks by THISDAY showed that this particular section of the PRA Act is undermining the success achieved within the 20 years of CPS regime in  Nigeria.

It is indeed retrograding the success because from what is happening in the pension sector, the pension fund managers are no longer at ease with the speed at which unpaid pension benefits is resurfacing itself due to  failure on the part of government to release workers’ accrued right.

It was learnt that some retirees, due to excessive sufferings, are ready to forfeit the accrued right and have their fund manager pay them the available contributions. But  the pension Act is so sacrosanct  that it does not allow the managers to take such action.

Police Pensioners’ plight

A few years back, a group of retirees of Nigerian Police raised the alarm  that their conditions were so bad after retirement from service that they could  no longer wait for the release of their accrued rights but would rather prefer to be paid the one they saved with their police PFA. Unfortunately, this option was denied them on the ground that it was against the pension law.

The retired police officers were groaning under the  undue delay in the remittance of their pension accrued rights, which they said  has lingered over a long period.

This is in addition to their complaint’s that the monthly pensions by the Nigerian’ Police Force Pensions Limited, the police pension fund administrator, was abysmally low and unable to take care of them at retirement.

The retirees, under the umbrella body of Association of Retired Police Officers (under the Contributory Pension Scheme) lamented  their woes and the attendant hardship they were going through with their families.

They noted that after 35 years of meritorious services to their fatherland, and having put their lives on the line for the security of the country and her citizens, they deserve better treatment in their retirement life. A critical look at the situation showed that it is  not only undermining the core objective of the CPS but also casting shadow on the image and integrity of Pension Fund Administrators who manage these funds. 

Sector analysts said the situation would be  heavier on the Police PFA, NPF Pensions Limited, whose clients are only the police, unlike other PFAs that have a mixed clients.

Against this backdrop, pension sector analysts have called on the Bola Tinubu administration to make haste and save the CPS  system from imminent collapse by making serious budgetary allocation to the accrued rights purse  and ensure its timely release to avoid truncating the success of the CPS in the past 20 years.

The analysts said in the alternative,  as both the law makers and PFA at their  recent retreat for members of house of Representatives Committee  on Pension and Establishment suggested, this particular section of the Act should be reviewed to give room  for at least release of a needy pensioner’s available fund pending the time his accrued pension will be paid.

QUOTES

“The CPS also shifted government’s role to regulation and oversight through the National Pension Commission (PenCom); just as it  introduced professional fund management practices to ensure better returns on pension contributions; while the fund managers, PFAs are regulated to maintain transparency and accountability, aiming to protect the interests of contributors.”

“These efforts are gearing towards solving the overall problem of delay in payment of retirement benefits to pensioners. But despite these efforts Nigerian pensioners under the CPS are gradually being subjected to the same sufferings and agony their predecessors suffered under the Defined Benefit Scheme scheme due to government’s delay in releasing their accrued rights.”