The Ill-ad­vised pro­pos­als to tinker with the pen­sion sys­tem

Financial Nigeria Magazine - - Contents - Cheta Nwanze is Head of Re­search at SBM In­tel­li­gence.

In 2010, a bill was in­tro­duced at the House of Rep­re­sen­ta­tives, seek­ing to ex­empt the Nige­rian Armed Forces (Army, Navy, Air Force) and in­tel­li­gence agen­cies from the Con­trib­u­tory Pen­sion Scheme (CPS). The pri­vate mem­bers’ bill was spon­sored by Hon­ourable Olu­wole Oke, rep­re­sent­ing the Obokon/Ori­ade Fed­eral Con­stituency of Osun State. De­spite ob­jec­tions from dif­fer­ent quar­ters, an en­abling leg­is­la­tion was en­acted in 2011 which with­drew the Armed Forces as well as Se­cu­rity Ser­vice Agen­cies (SSA) per­son­nel from the CPS.

Given the near-col­lapse of the old De­fined Ben­e­fit Scheme (DBS), due to highly in­ef­fi­cient op­er­a­tions and huge un­funded pen­sion li­a­bil­i­ties of the govern­ment, the Pen­sion Re­form Act 2004, now re­pealed by the PRA 2014, was en­acted and pro­vided the le­gal and op­er­a­tional frame­work for the CPS. Although the new pen­sion ad­min­is­tra­tion has guar­an­teed timely pay­ment of ben­e­fits to re­tirees, sup­port­ers of the Oke bill ar­gued that it pro­vided for a dis­par­ity in the lump-sum paid on retirement and low monthly pen­sions of re­tirees. They also con­tended that for na­tional se­cu­rity rea­sons, there was a need to pro­tect the per­sonal in­for­ma­tion of se­cu­rity per­son­nel from the gen­er­ally ad­min­is­tered CPS plat­forms.

Af­ter the with­drawal of Armed Forces and SSA per­son­nel from the CPS, sim­i­lar ef­forts were made to re­move the Nige­ria Po­lice Force from the pen­sion scheme for the same rea­sons. How­ever, a po­lit­i­cal com­pro­mise was made, lead­ing to the cre­ation of a spe­cial Pen­sion Fund Ad­min­is­tra­tor (PFA) for the po­lice. The po­lice PFA, like ev­ery other op­er­a­tor of the new pen­sion sys­tem, was li­cenced and reg­u­lated by the Na­tional Pen­sion Com­mis­sion (PenCom).

How­ever, Oke spon­sored an­other bill in May of this year call­ing for the re­moval of six para­mil­i­tary agen­cies from the CPS. The agen­cies are the Nige­rian Se­cu­rity and Civil De­fence Corps, Nige­ria Cus­toms Ser­vice, Nige­ria Prison Ser­vice, Nige­ria Im­mi­gra­tion Ser­vice, Eco­nomic and Fi­nan­cial Crimes Com­mis­sion, and, still, the Nige­ria Po­lice. The bill has now passed its sec­ond read­ing and is cur­rently be­fore the Pen­sions Com­mit­tee of the House of Rep­re­sen­ta­tives, which com­pleted its pub­lic hear­ing on Septem­ber 28.

The pro­mot­ers of the new bill also want the govern­ment to be fully re­spon­si­ble for the retirement plan of the para­mil­i­tary. In other words, the law­mak­ers want to re­turn some of the coun­try’s most crit­i­cal law en­force­ment in­sti­tu­tions to the out­moded, dys­func­tional DBS.

To put things in per­spec­tive, this old sys­tem was marred by weak and poor ad­min­is­tra­tion. One of the risks as­so­ci­ated with the sys­tem was in­ad­e­quate fund­ing be­cause it was sub­ject to bud­getary al­lo­ca­tions. At the time the scheme was ab­ro­gated in 2004, over N2 tril­lion un­funded pen­sion li­a­bil­i­ties had been ac­cu­mu­lated. Whereas, un­der the ef­fi­ciently-ad­min­is­tered CPS, pen­sion as­sets have grown steadily to N6.6 tril­lion as of June 2017. The 21 li­cenced PFAs have between them a to­tal of 7.59 mil­lion con­trib­u­tors and grow­ing. Fed­eral govern­ment em­ploy­ees ac­count for 1.89 mil­lion of the con­trib­u­tors to the Retirement Sav­ings Ac­counts (RSAs), state em­ploy­ees 1.53 mil­lion, while the pri­vate sec­tor ac­count for 4.15 mil­lion. Between April and June 2017 alone, the PFAs reg­is­tered 97,713 new RSAs.

Af­ter op­er­at­ing for 13 years, the ev­i­dence is that the CPS is work­ing, and per­haps un­ri­valled by any other govern­ment ini­tia­tive this mil­len­nium. PenCom is rig­or­ous with ex­er­cis­ing its reg­u­la­tory over­sight. Nige­rian PFAs are com­pet­i­tive and have con­sis­tently mir­rored their larger global col­leagues in de­liv­er­ing healthy re­turns for their ben­e­fi­cia­ries. More­over, the pen­sion as­sets have sig­nif­i­cantly im­proved liq­uid­ity in the Nige­rian fi­nan­cial mar­kets.

With­out equiv­o­ca­tion, the with­drawal of cer­tain seg­ments of the work­force from the CPS will un­wit­tingly weaken the scheme. The re­sul­tant slum in liq­uid­ity in the pen­sion sys­tem will hurt the govern­ment, whose deficit fi­nanc­ing has been pro­vided in large part by pen­sion sav­ings.

The idea of pen­sion is to en­hance the fi­nan­cial se­cu­rity of in­di­vid­u­als af­ter retirement. Oke’s bill, as well as an­other ob­nox­ious bill be­ing spon­sored by Se­na­tor Aliyu Wa­mako, now seeks to un­der­mine this. The Pen­sions Op­er­a­tors As­so­ci­a­tion of Nige­ria (PenOp) has de­nounced their pro­pos­als, say­ing they will be detri­men­tal to re­tirees’ wel­fare. Oke’s bill pro­poses a 75% lump-sum with­drawal from the RSAs of re­tirees on retirement. The law cur­rently pro­vides for 25% lump-sum with­drawal. PenOp has ar­gued if Oke’s pro­posal is im­ple­mented, the 25% bal­ance in a re­tiree’s RSA would not pro­vide ad­e­quate cov­er­age for the re­tirees’ monthly pen­sions.

To be sure, PenCom's preem­i­nent pri­or­ity is the safety of pen­sion as­sets. To reg­is­ter for RSAs, PFAs are man­dated to cap­ture the fin­ger­prints of con­trib­u­tors. The sys­tem is be­ing up­graded for bio­met­ric data cap­ture of the 10 fin­gers. With such scrupu­lous iden­ti­fi­ca­tion sys­tem and the strin­gent op­er­a­tional and in­vest­ment guide­lines PenCom has put in place, op­er­a­tors say it is al­most im­pos­si­ble to carry out fraud un­der the CPS or take ex­ces­sive risk with retirement sav­ings. This should al­lay the con­cerns of sup­port­ers of the Oke bill who iden­tify the po­ten­tial risk of breach­ing the sys­tem and ex­pos­ing the iden­tity of se­cu­rity per­son­nel as a rea­son they are seek­ing to dis­man­tle those govern­ment in­sti­tu­tions from the CPS.

How­ever, ad­di­tional lay­ers of se­cu­rity can be put in place by the PFAs, in con­junc­tion with the con­cerned govern­ment agen­cies, to have a fool-proof sys­tem that guar­an­tees the pro­tec­tion of per­sonal data on the RSAs of para­mil­i­tary per­son­nel. Al­ter­na­tively, closed PFAs can be set up for th­ese govern­ment or­gan­i­sa­tions, but un­der the CPS, à la the po­lice PFA.

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