The National Provident Fund was the first formal Pension scheme in Nigeria established in 1961 for the non-pensionable private sector employees. The Nigeria Social Insurance Trust Fund was established in 1993 to take over the NPF Scheme to provide enhanced Pension system for the private sector employees. The Public Service operated an unfunded Defined Benefits Scheme and the payment of retirement benefits were budgeted by governments at the various levels annually. As the narratives are, both system were not workable hence the Olusegun Obasanjo-led Federal Government thought it wise to find a workable system that guarantees availability of funds for the retirees as at when due, which culminated into the 2004 Pension Reform Act.
It suffices to however mention that prior to the enactment of the Pension Reform Act, 2004, the public sector Pension in Nigeria left less to be desired with terrible history of myriad of challenges. The annual budgetary allocation for Pension was often one of the most vulnerable items in the budget implementation in the light of resource constraints. In many cases, even where budgetary provisions were made, inadequate and untimely release of funds resulted in delays and accumulation of arrears of payment of Pension rights. It was obvious therefore that the euphoria that welcomed the new system was clearly understandable.
Comparatively, the private sector had tales of many employees not being covered by the Pension schemes put in place by their employers and many other circumstances these schemes were not funded. Besides, where the schemes were funded, the management of the Pension funds was full of malpractices between the fund managers and the Trustees of the Pension funds.
This scenario necessitated a re-think of Pension administration in Nigeria by the administration of President Olusegun Obasanjo as I stated above. Accordingly, the administration initiated a Pension reform in order to address and eliminate the problems associated with Pension schemes in the country. The outcome of the reform was the enactment into law of the Pension Reform Act 2004 as amended in 2014.
Subsequently, states began to see need to embrace the new scheme even though with mix reactions, while some state governors saw it as escapist strategy to run away from the ever accumulation Pension liabilities, very many states were skeptical about embracing the new scheme. Some however, were courageous enough to take the bull by the horn. Niger State, then under the leadership of Dr. Muazu Babangida Aliyu, promptly garnered the courage to invite stakeholders in the Pension industry for talks. The result was the establishment of the Niger State Contributory Pension Scheme.
Although Niger State has a functional Pension Board since then, it suspended implementation of the CPS in April 2015 and stopped remitting Pension contributions.
Situation of Contributory Pension Scheme across Nigeria
Stories from across the states as obtained from National Pension Commission reveals that only six states and the FCT have fully implemented the scheme with regular and up-to-date remittance of Pension contributions with the establishment of a Pension Board and enactment of Pension law.
In the North-Central Zone, only FCT is up-to-date with remittances of Pension contributions and has a Pension Board in place while Benue, Kogi and Nasarawa States have enacted CPS laws but have no Pension Boards in place with Kwara and Plateau States yet to enact CPS law. On the other hand, Niger State enacted the CPS law in 2016, suspended implementation of the CPS in April 2015 but amended its law in 2017 to extend its transition period to exempt some employees from the CPS.
Five states in the North East zone, comprising Borno, Adamawa, Bauchi, Gombe and Taraba, are yet to commence remitting Pension contributions while Yobe is still operating the Defined Benefits Scheme. Still within the North-East Zone, only Adamawa, Gombe and Taraba have enacted CPS laws but none is yet to establish a Pension Board according to PENCOM.
In the North West Zone, only Kaduna has fully implemented the CPS with regular and up-to-date remittance of Pension contributions, established a Pension Board, registered its employees with PFAs and consistent in funding of the accrued rights with 5 per cent of total monthly bill. However, of all the North West states, only Katsina neither enacted CPS law nor established Pension Board, while Jigawa and Kebbi with Pension Boards in place are only remitting portions of the Pension contributions. Kano, without a Pension board, was deducting Pension contributions on a modified Defined Benefits system under the management of a board of trustees and yet to transfer the Pension asset to a licensed Pension Funds Administrator.
In the South East Zone, revelations from PENCOM indicates that except for Anambra which is fully complying with the implementation of the CPS scheme, States of Abia, Ebonyi, Enugu and Imo are yet to key into the scheme.
Further revelations from PENCOM shows that while all the South West States have enacted the CPS laws and established pensions Boards, Ekiti and Ondo were remitting Pension contributions, Ogun and Osun had huge backlogs, however there are no records indicating remittances from Lagos State. Oyo was yet to commence remittance of Pension contributions.
In addition, the South-South States of Edo and Delta were up-to-date in their Pension contributions, while Rivers and Bayelsa were yet to commence remittance of Pension contributions. In Rivers, contributions made under the repealed law were being refunded to exempted employees, while Akwa Ibom and Cross River did not even have a CPS law in place, according to records from PENCOM.
Evolving issues in Niger State
Out of all the PFAs registered by the National Pension Commission 19of them are currently doing business in Niger state. However, with persistent agitations from the labour unions, government bowed to pressure and suspended the scheme in 2015. As reality begin to down on all stakeholders, a committee led by the Deputy Governor of the state, Alhaji Ahmad Muhammad Ketso, was able to broker peace with the state labour unions and other critical stakeholders to resume remittances as from June 2020.
The resumption of deductions and remittances in Niger State is said to be championed by the Director General of the Pension Board and the committee who identified the need for civil servants to have a viable system to look forward to upon retirement. The Abubakar Sani Bello-led administration therefore, thought it wise to resume the contribution even in the face of challenging financial demands expressing commitment to the welfare of workers among other things. In order to ensure transparency and accountability, a Funds Monitoring Committee has also been instituted to forestall diversion of contributions and other irregularities that led to the earlier suspension.
In a chat with the State Director General of Pensions, Usman Tinau Muhammad, he confirmed that a new remittance ratio of 10.5 per cent and 7.5 per cent for employer and employee respectively have been agreed upon; adding that three leading PFAs (Premium Pensions for state contribution, Trust Fund for the Local Government employees and PAL Pensions for the SUBBEB staff) have been selected to manage the contributions. Mr. Tinau further explained that the state has concluded arrangements to fund a 5% Retirement Benefits Bond Redemption Fund Account to commence funding of Accrued Rights with Veritas and IEI Anchor Pensions to manage the Bond for competitiveness.
In another dimension, the DG said that measures are being put in place to secure Group Life Insurance Policy for the contributors, while arrangements to fund the missing gap of five years from the time of suspension have also being worked out. Another strategy put in place for the smooth running of the scheme in the state henceforth is the institution of independent monitoring team to periodically assess the performance of the PFAs for possible sanctioning and appraisals.
Lessons for States
It is obvious that with proper planning, the Contributory Pension Scheme have the possibility of supporting reduction in wage bill of states. This is so important that with the widening deficit in states budgets, any opportunity to reduce the wage bills at the state level should be a low hanging fruit. In other words, the process of registration and validation of workers to be transferred to the new scheme will help generate a database that can be used by many states to update their workforce thereby reducing the age-long hydra-headed issue of ghost workers in most states.
The CPS has also been proven to be an easy way of access to funds for capital projects by states. Once your CPS is up-to-date, you can as a state float infrastructure bonds to access pension funds that can be used for developmental projects. In addition, we are aware that a reduced wage bill would free funds to be utilized in other aspects of the state economy thereby increasing state governors the ability to do more for their people.
The scheme entrenches the principle of transparency that ensures the security of the funds which is reflected in the reporting requirements of the PFAs and PFCs to the contributors.
Most of all, with the CPS, there is the reduced retirement burden to State Governments who are fully subscribed to the Contributory Pension Scheme. Pension funds being managed by professionals who make appropriate investment decisions will guarantee availability of funds for retirees as at when due.
Finally, States and Local Governments are also opened to additional income earned as administration fee per employee Retirement Savings Account on a monthly basis from the PFAs.
. Abugi, a public affairs analyst, can be reached on 08035906755 (sms only) and [email protected]