Pension savings versus life expectancy
As the average life expectancy improves among Nigerians, who now live longer, that positive trajectory contains some risks for pension and pensioners. Proactive measures are required to reduce the potential harmful effects of those risks on the wellbeing of pensioners in the country.
Although the World Health Organization (WHO) estimates that “an average Nigerian is expected to live approximately 55.2 years from birth,” reality shows that it is just that, a mere estimate. Millions of Nigerians, thousands of them pensioners, live by far longer than that average.
Even at 55.2 years, it is better than the estimated 50.4 years life expectancy for Nigerians in 2009, or the 50.9 for 2010 the World Health Organization claimed. It is noteworthy that all the estimated figures confirmed that even by WHO’s doubtful reckoning, Nigerians are definitely living longer.
The longer we live, the more likely it will be for the government, other employers and their employees to, as a matter of necessity, source and devote more resources to cater for the elongated pension needs of pensioners who may be drawing pension well into their 90s.
Out of the trio of the Pension Transitional Arrangement Directorate (PTAD), the National
Bureau for Statistics
(NBS) and the National Pension Commission
(PenCom), it is only PenCom (according to the facts available while researching for this item) that published a breakdown of the age ranges of pensioners in Nigeria. PenCom said in its first quarter 2019 report that there were 238,429 registered pensioners aged 65 and above in the CPS. Those aged 60 to 65 outnumbered their elders more than two-fold at 494,826. It cannot be discounted that more CPS enrollees will join both sub-groups in the next few years.
The implication regarding this group of elders is that their Retirement Savings Accounts may not have sufficient funds to give them lifetime pension. Those coming behind them, who may live longer, may most likely face the same problem.
Solution-finders for the challenge highlighted above can suggest multiple approaches, two of which could be increasing the rate of contributions by employers and employees, or by recourse to the fund set aside to mitigate shortfalls in such situations.
In view of that scenario of a swelling numbers of pensioners in their 80s and beyond, the unsustainability of the Defined Benefits system is made more glaring given the widening deficit in the annual budgets of the three tiers of government in the country. The pension liability will take longer to clear as the DB pensioners live longer. This problem also applies to big businesses that operate the DB pension model.
The Contributory Pension Scheme (CPS), which was basically designed for employers to pay pension in advance, and for employees to save for the proverbial rainy day in their old age, has some redressable shortcomings, the most prominent being low adequacy for many RSA holders.
Such inadequacy led to the paying-off 106,483 retirees whose RSAs had N550,000 or less in their saving accounts. Pencom paid them a total of N26.43 billion because their savings cannot support a programmed withdrawal or purchase annuity for a reasonable length of time.
T h e inadequacy issue facing the CPS will come to the fore more vividly in the next few years as the number of contributors aged 65 and above rise from the reported 238,429 and the 494,826 aged 60 to 65 goes up too. It is hoped that the Pension Protection Fund will be large enough for a chunk therefrom to be applied in line with Section 84 (1) of the Pension Reform Act 2014 to ensure that they are paid a guaranteed minimum pension.
In summary, longer life expectancy, plus more pensioners drawing stipends in their 80s in the next few years, equals to the need to be proactive in tackling an inevitably-huge pension bill.