Experts trace loophole in contributory pension, accrued rights payment
There is a loophole in the Contributory Pension Scheme (CPS) with respect to the accrued rights of some pensioners who worked with the Federal Government before the new scheme came into being.
The Federal Government is mandated by law to increase the accrued rights of retirees who retired under the contributory pension scheme every five years or whenever salaries are reviewed.
Daily Trust findings show that this is a loophole in the Contributory Pension Act, 2004, amended in 2014, which could not override Section 173 (3) of the Constitution: “Pensions shall be reviewed every five years or together with any Federal Civil Service salary review, whichever is earlier.”
A source with a pension regulatory agency in Abuja told Daily Trust that by this provision, the accrued pension rights of federal civil servants who transited to the contributory pension scheme should also be raised whenever pensioners in the Old Defined Pension (ODP) scheme got an increment.
Federal Civil Service retirees who migrated to the contributory pension shortly before they retired are entitled to two components of retirement benefits: the contributions accumulated in their Retirement Savings Accounts (RSA) and their accrued rights from the time they joined the service to the time they migrated to the CPS.
Accrued rights are the benefits which employees who had worked for their employers prior to their joining the new scheme are entitled to.
So, in addition to the retirees’ contributions in their RSAs, the Federal Government must pay the retirees their accrued rights before the total benefits can be paid out.
The National Pension Commission (PenCom) insists that retirees entitled to accrued rights can only have access to their RSAs only when government pays the accrued rights into their RSAs.
The source told Daily Trust that government’s initial assumption was that once the accrued right is paid into the retiree’s RSA, government would not have anything again to do with the pension of the retiree.
“That assumption is wrong. The constitution is clear about it. Government will continue to increase the accrued right periodically, but what we see is that they are increasing the pension of the ones under the old scheme and forgetting the accrued right,” he said.
He said the attention of the Federal Government was drawn to it when a committee was set up to determine the total government pension liability and government accepted to pay the accumulated increases on the accrued rights.
However, it is unclear if the Federal Government has done the actuarial valuation of the accumulated increment or decided to flout the constitutional provision.
If the Federal Government decides to flout it, then it may also be a breach of Section 173 (1) of the Constitution that states that any benefit to which a pensioner is entitled to “shall not be withheld or altered to his disadvantage.”
A source within PenCom, who also asked not to be named, told Daily Trust that the commission was aware of the loophole in the law but could not initiate a constitutional amendment to save government the huge liability because of the lengthy and cumbersome constitution review process.
The source said PenCom would have to do something about it otherwise government would continue to shoulder huge retirement liabilities for a long time.
A pension expert, Mr. Olajide Gbenga, told Daily Trust that the whole essence of contributory pension is to take away all pension liabilities from the Federal Government.
Gbenga, who is also an economist, said the loophole was a setback to the contributory pension scheme and must be blocked.
He observed that the loophole had created a problem because when the accrued right is paid into the retiree’s RSA, he took between 25 to 50 per cent of his total balance in the account as lump sum.
He said what was left in the account was used for either programmed withdrawal or annuity for monthly pension.
He wondered whether government should be increasing the monthly pension, which was not a factor of the accrued right or the total accrued right, which the pensioner had depleted.
He advised PenCom to initiate a legislative review to clear the grey areas and ensure that once a government employee retired, government was free from any retirement liabilities.