What to expect from contributory pension scheme in 2017
The Contributory Pension Scheme (CPS) had witnessed sustained rising growth in 11 years until 2016 when the growth was a bit stunted due largely to Nigeria’s economy sliding into a recession, a recession; it is yet to recover from.
Because of the recession, Nigeria’s economic growth slowed, some businesses closed shop, some reduced salaries and some sack huge number of workers. These had proportional effect on the level of pension contributions and even the accrued assets as sacked workers besieged Pension Funds Administrators (PFAs) to access their 25 percent lump sum, in unprecedented numbers. This no doubt sent shock waves down the CPS scheme.
The pension assets that peaked some N5.9 trillion in August 2016 dropped down to about N5.85 trillion in October 2016, National Pension Commission (PenCom) data show following access of lump sums from sacked workers.
The Pension Act 2004 allows a contributor to apply for a maximum of 25 per cent of his or her total contribution in retirement savings account (RSA) after at least four months of being out of an employment.
Data from PenCom also showed that about 177,000 employers, who have lost their jobs as at September 2016, have accessed 25 percent of their contributions in the Pension Scheme estimated at N49.55 billion.
But this reduced pace in the CPS growth is not anticipated to continue in 2017 as economic forecast predicts Nigeria’s economy will recover this year.
Forecasts from the International Monetary Fund (IMF), The Central Bank of Nigeria (CBN) and the Ministry of Finance said Nigeria’s economy is expected to recover sometime in 2017.
When this occurs, businesses would become more stable and be able to hire more staff and pay better salaries. This will have positive effect on pension assets as more asset accumulations would happen.
Beyond the issues around pension the slow pace economic growth and impact on the CPS, other pension themes will define the CPS in 2017.
Transfer Window
The Transfer Window when implemented by the National Pension Commission, will give RSA account holders the opportunity to switch PFAs if they are dissatisfied with service delivery from their current PFA.
PenCom has already developed the guide of how that would happen but it is currently cleaning up the RSA data for seamless operations.
PenCom had said some RSA accounts are a duplication and unless those accounts are thrown up and deleted, they could compromise the integrity of the transfer window.
Whilst the PFAs are already gearing up to take advantage of the Transfer Window to shore up their client base when it happens, PenCom is fine-tuning the process and industry watchers are hopeful, the window will be opened this year.
Micro Pension
Micro pension is expected to kick-start this year. Micro pensions is a scheme targeted at Self-employed people, especially those with irregular income, usually in the informal sector and are largely financially uninformed with limited or no access to financial services especially pension plan. This segment largely exists in Nigeria as artisans and self-employed persons.
Statistics from Nigeria`s National Bureau of Statistics show that the informal sector is largely untapped by any structured pension scheme and represents over 70 percent of Nigeria’s total working population.
Worried by this deficit and the economic consequences, PenCom recently moved to include these informal sector players into the CPS. First to protect their financial future and secondly, to attract additional pool of long term funds for investments and national development.
Polycarp Anyanwu, Head Micro Pensions Department of PenCom recently said the micro pension scheme is expected to help boost the pension contributors to 20 million Nigerians by 2019 and 30 million by the year 2024.
The current pension coverage in Nigeria under the formal Contributory Pension Scheme was put at 7.24million as at September, 2016 and this represents about 7.7 percent of total labour force in Nigeria (Private and Public sector contributors).
The micro pension scheme is expected to have simplified registration process through physical presence, internet, or through mobile phone.
It is also conceived to have flexible frequency of contribution, easy method of contribution remittance and contributions to be split into two; a smaller percentage shall be savings and accessible to the contributor while the greater percentage shall be strictly set aside for pension.
For a start, PenCom said the trade Unions/Associations will assist introduce members to the Scheme for the Pilot phase.
Recovery of unremitted pension recoveries, possible prosecution for defaulters
There are growing number of cases where employers deduct pension contributions of employees but fail to remit them to the Pension Funds Administrations (PFA).
The recovery agents engaged by the National Pension Commission (PenCom) has recovered in excess N9.289 billion as at 31 December, 2015.The agents who are guided by the Commission’s Framework for Recovery of Outstanding Pension Contributions with Interest Penalty from defaulting employers.
These recoveries are expected to continue in 2017 and even prosecution may occur if debtors refuse to pay up.
The default in pension remittances by some employers is impacting negatively on the growth of the employee’s (RSA) account and contradicts the provisions of the PRA 2014 which state in Section 11 subsection 3(b) that “the employer shall not later than 7 working days from the day the employee is paid his salary remit an amount comprising the employee’s contribution under paragraph (a) of this subsection and the employer’s contribution to the Pension Fund Custodian specified by the Pension Fund Administrator of the employee”.
Deepening awareness the CPS of
The contributory pension scheme (CPS) is 12 years old but millions of Nigerians are yet to key in. Thus the PenCom and the PFAs will be stepping awareness creation to enable more Nigerians appreciate the benefits of the CPS so they can also sign on.
Though PenCom and the pension fund administrators have done a lot to publicise the contributory pension scheme thus far, stakeholders in the pension industry have consistently called for increased awareness and publicity on the relatively new pension scheme. Sigma Pensions Limited is one of the PFAs that has invested heavily in awareness creation on the CPS.
More states to implement CPS
More states across the country may also begin implementation of the CPS for the benefit of their workers.
Twenty-six states, have so far adopted the Contributory Pension Scheme (CPS) and are at various degrees of implementation while a few states have completed the process. More states are expected to also complete the process this year while some more states are expected also begin the process in 2017.