Contributory pension: Why Senate’s move to amend act may hurt economy
In just 12 years, the Contributory Pension Scheme (CPS) reversed the negative pension narrative in Nigeria, pushing total pension assets to about 6 per cent of the country’s Gross Domestic Product (GDP).
This huge gain recorded in the country’s pension reform, experts say, may be threatened by a bill before currently before the Senate.
The bill seeks to amend the Pension Reform Act 2014 to exclude the Nigeria police, the Nigeria Security and Civil Defence Corp, the Nigeria Customs Service, the Nigeria Prison Service, Nigeria Immigration Service and the Economic and Financial Crimes Commission.
It also seeks to allow contributors to take up to 75 per cent of their savings at retirement, leaving very little for their monthly pension.
Data sourced from the National Pension Commission (PenCom) showed that, as at the first quarter of this year, Nigeria’s total pension fund assets had grown to N6.42 trillion from billions of pension liabilities burdening the Federal Government before the introduction of the CPS.
At the moment, Nigeria’s average monthly pension contributions stand at N30 billion, above the average monthly pension payment of N6.7 billion, an indication that the pension sector is futuristically healthy.
A total of 7.4 million workers are currently enrolled on the scheme with about 200,000 private sector employers of labour implementing the CPS.
Meanwhile, the economy has benefited from the pension reform in the country as the contributions are not left idle but deployed towards the facilitation of the development of the Corporate Bond Market, deepened the Nigerian Capital Market and the development of rating agencies.
The monthly pension payment under the Life Annuity Scheme has averaged N1.7 billion while the total premium paid to insurance companies for the monthly Life Annuity was N170.57 billion as at the end of the first quarter of this year.
However, these gains recorded in the pension sector, insurance industry, corporate bond market, capital market and infrastructure development may be reversed if a bill currently before the Senate succeeds the way it is now.
Pension experts, retirees, PenCom, Pension Fund Administrators and even some workers have expressed their dissatisfaction with the bill.
The position of PenCom is that if it succeeds the way it is crafted, including the exemption of some government agencies, the implication would be instant divestment from Federal Government securities before maturity, which would have ripple negative effects on not only the finances of government, but on the entire financial system.
“Another immediate negative impact of exempting these agencies is the erosion of the pool of long term investible funds accumulated under the CPS, which is suitable for economic development of any nation as illustrated in other jurisdictions including developed economies,” PenCom said.
This would thereby undermine the process of the attainment of development initiatives in the infrastructure, housing and real sectors of the economy, which are largely hinged on the utilisation of a portion of the pool of pension fund assets.
Altering the CPS Act to exclude some agencies will affect the Nigeria Mortgage Refinancing Company as N83.36 billion pension funds have been invested in its securities and other mortgage refinancing initiatives of the Federal Government.
Expressing further concerns, PenCom said, “Exemption of some agencies of government would also result in loss of confidence in the pension reform.”
Reacting to moves in the National Assembly to allow retirees withdraw up to 75 per cent of the balance in their Retirement Savings Accounts (RSAs), an expert in one of the leading Pension Fund Administrators (PFAs) told Daily Trust that the development will hurt the Contributory Pension Scheme (CPS) as well as expose retirees to financial insecurity.
“We know that one of the objectives for having the scheme is to ensure that when people retire, after they might have exhausted their adulthood in service, they should retire home and have something to live on until they die. If you allow retirees to take 75 per cent of the balance of their account as lump sum, one of the major objectives of the scheme will be defeated,” the expert said.
A retiree, who is also a member of the Nigeria Union of Pensioners, Mr. Peter Ikenna, said the bill, if allowed to pass, would be a setback for the pension industry in Nigeria.
“People who face problem with their pension payment, people like the police are the ones they want to remove from contributory pension. It will be a backward step for the country,” he said.