Pension blues

The fundamental reforms of Nigeria’s pension system, through the Pension Reform Act of 2004, which was further updated and strengthened through the Pension Reform Act of 2014, has considerably improved the efficiency and effectiveness of pensions collection and payments in the country.

Under the law, employers with 15 employees and more are to maintain a pension package for their workers, through the Contributory Pension Scheme. Employees must choose a Pension Fund Administrator (PFA), with which they open a Retirement Savings Account (RSA).  Into this account, the employer must pay 18% of the employees’ monthly salary: 10% contributed by the employer; 8% by the employee. This fund then becomes post-retirement monthly pension payments.

Still, problems persist.  Many employers fail to remit pension contributions. Thus, the industry regulator, the National Pension Commission (PenCom), has imposed a fine of N154.61 million on 31 employers indicted for this infraction. This fine is deducted from N398.006 million recovered from such defaulters.  PenCom has also recommended another set of 19 defaulting employers for similar legal sanctions.

This is a very grievous offence, especially as it exposes retired employees to old-age penury, after a lifetime of service. It is particularly cruel and indefensible when employers effect deductions but fail to remit same to RSAs, as required by the law.

Still, other employers strive to meet their pensions obligations. For instance, PenCom received 10, 700 applications from private sector organizations which had met their pension payment requirements; and sought Pension Clearance Certificates (PCCs) to qualify them for Federal Government contracts.

Of these, 10, 417 have been issued the PCCs, having remitted N38.371 million into the RSAs of 127, 483 employees.  Another 283 applications are undergoing the approval process. In a similar vein, PenCom granted the Nigeria Social Insurance Trust Fund (NSITF) approval to transfer N170.026 million into the RSAs of 298 contributors; and monthly pensions of N62.327 million, to 3, 629 NSITF pensioners.

Even as the PenCom is commended for effectively playing its regulatory role and sanctioning erring employers, it can’t be indifferent to the state of the economy.  There are real possibilities that many companies may indeed face genuine cash flow problems, making it difficult for them to immediately meet their pension obligations.

Of course, companies able to pay salaries should ordinarily have no problems deducting and crediting their employees’ RSAs. However, there are also many companies which struggle to survive; and may even be owing workers’ salaries.

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Yet, many others just have enough cash flow to pay salaries, net the RSA commitments.  On paper they might have defaulted, in the eye of the law.  But really, the cash is just not there to remit — and many workers, pressured by daily routine grinds, are too happy to take their salaries and ask PFA questions much later!

PenCom must, therefore, develop the capacity to find out and sanction only companies able to pay the required pension contributions, are deducting such from their employees’ salaries but are deliberately and irresponsibly refusing to remit the cash.

In particular, there is no excuse for the federal and state governments (which reportedly owe humongous amounts of unpaid pensions arrears and contributions), to fail to meet their obligations, even when budgetary allocations are made annually for this purpose.

Quite apart from the role of pensions in providing means of sustenance for the retired and elderly after an active working life, pension funds are also a critical source of massive savings for long-term investment, thus contributing significantly to economic growth.

The country’s pension assets grew from N815 billion representing 2.4% of nominal GDP in 2007 to N7.5 trillion representing 6.6% of nominal GDP at the end of 2017. By the end of 2020, the pension assets have reportedly grown to N12.3 trillion, which is 8% of nominal GDP.

The number of RSA holders too has increased, every year, to over 9.27 million RSA holders at the end of 2020. Given Nigeria’s estimated labour force of over 80 million as estimated by the National Bureau of Statistics (NBS),  there is still room for massive growth in this area.

This is not to talk of the huge opportunities in the informal sector, which the Micro Pension Plan (MPP), launched in 2019, is meant to cater for. The MPP enables the self-employed to become part of the pension scheme; and make flexible contributions through PFAs of their choice. Under this MPP scheme, the frequency of contributions and amount contributed are at the discretion of the holder of the MPP.

Of the country’s N12.3 trillion pension assets at the end of 2020, the MPP represents only a paltry N75 million. Even as PenCom focuses on getting employers to meet their pensions contributions to their workers, it must not lose sight of opportunities to vastly increase the number of RSA holders, to the benefit of the economy.