Employee pensions at risk as lockdown, job losses threaten remittances
Employees enrolled under Nigeria’s Contributory Pension Scheme (CPS) face a tough future of low benefits as the ravaging COVID-19 pandemic has affected employer-employee contributions, industry experts tell Businessday.
The experts say the lockdown of key sectors of the economy to curb the spread of coronavirus, and job losses across different sectors arising therefrom, will lead to drop in value of pension fund assets, number of contributors and overall benefits to employee contributors.
Cont r i butor y Pension Scheme is a type of pension in which both the employer and employee pay money into the employee’s Retirement Savings Account (RSA), accessible to the employee at a later date, either as a result of retirement or job loss.
“Being a contributory scheme,
the economy has to be up and running for workers to be able to make contributions,” Paddy Ezeala, a pension expert and public affairs analyst, told BusinessDay in a Whatsapp response to questions.
He said contributions to Retirement Savings Accounts (RSAS) would have been irregular by now. Even retiring workers would have difficulty processing their documents now that offices are not operating at full capacity.
“You should know that payment of entitlement for government workers is often delayed because of the lateness in the payment of accrued rights. This situation is now being worsened by the pandemic,” he said.
He, however, noted that the beauty of the CPS is not only in the contribution and amassment of funds, but also in the ability to grow the funds.
“When investment options are not doing well, pension funds are affected. Also, when inflation rate is higher than the rate of Return on Investment (ROI), it erodes the gains that are being made. It should also be noted that pension funds would lose real value in the face of unfavourable exchange rate or currency devaluation,” Ezeala said.
He further said the worst hit should be the micro-pension scheme which provides a great opportunity for Micro, Small and Medium Enterprises and even individual artisans.
“This sector has almost been completely shut down by the pandemic and no one now talks about their enlistment into the CPS. As important as the pension scheme is, it is relegated to the background when existential challenges take centre stage,” Ezeala said.
“The point, however, is that the pension industry must be supported and contributions must continue because there is a tomorrow; there is a post-pandemic economy and people would continue to work and retire,” he said.
Oguche Aguda, chief executive officer, Pension Fund Operators Association of Nigeria (Penop), said the pandemic would definitely affect the pension industry to the extent that some formal workers are losing their jobs or having their salaries slashed.
“However, the extent of the impact will not be fully felt as the lockdown has persisted for just two months – we will understand the full extent in the coming months,” Aguda said.
Agudah, however, said the industry is engaging on a number of strategies to cushion the supposed effects on operators.
As the COVID-19 pandemic mounts pressure on economies and inflicts financial pain on firms, it’s been a difficult time for employers who are fighting a gruelling battle to keep staff, Timothy Olawale, director-general, Nigeria Employers’ Consultative Association (NECA), the umbrella organisation of employers in the Organised Private Sector, had told Businessday in an interview.
In a bid to remain afloat, Olawale said, some employers are now engaging cost-cutting measures which include, sadly, reduction in the number of staff, negotiation and agreement on the terms of salary or other benefits for adjustments with their employees, and renegotiation of different contracts.
Hadi Sirika, minister of aviation, had said the aviation sector is the worst hit by the coronavirus pandemic, warning that many airlines would not survive the crisis with N17 billion losses monthly, while airline operators see over 120 aircraft parked during the period.
Staff layoffs in the private sector, which employs some 90 percent of the country’s total workforce, will worsen what is already a precarious economic situation for Africa’s most populous country already grappling with high unemployment and poverty rates, say analysts.
Staff layoffs mean that many more people are going to file for their pension benefits, but these benefits may not be readily available because the pandemic has adversely impacted contributions.
“Yes, the pandemic, no doubt, will affect contributions,” a CEO of one of the Pension Fund Administrators (PFAS) told Businessday in a telephone interview. He, however, said it would be up to the end of May before the real impact in terms of numbers could actually be evaluated.
“What I can say is that we are still receiving about 50 percent of the contributions of our customers, but I am sure by end of May it would have started being clearer what we did during the period,” said the CEO who asked not to be mentioned.
“For now, we cannot know whether some of our customers were unable to implement a business continuity plan during the period, or whether they shut up completely, but we are reaching out to them,” he said.
He hinted that the PFAS were working with the regulator to come up with modalities for relating with retirees who need to file request for benefits, without a face-to-face encounter, stating that discussions were at advanced stage to ensure there was smooth process of customer engagement during this period.
Joan Omoregbe, a former employee of one of the local airlines who has just been laid off, said she sees a drastic decline in pensions fund assets as well as number of registered contributors from the month of March.
“Now that a lot people will be out of job, with many companies being unable to pay salaries regularly, remittance of pensions will be impacted negatively,” Omoregbe said.
As at the end of February 2020, total pension fund assets under management by PFAS stood at N10.507 trillion, while number of registered contributors stood at 8.85 million as at September 2019.