Minister of Labour, Emeka Wogu

Linda Eroke writes on efforts by the National Pension Commission (PenCom) to sustain the pension industry to positively impact on the welfare of workers

The National Pension Commission (PenCom) has recorded modest achievements in the implementation of Contributory Pension Scheme (CPS) in the last seven years.
The CPS, which was introduced by the 2004 Pension Reform Act to address the abnormalities in the pension industry, now contributes over seven percent to the nation’s Gross Domestic Product (GDP).

Available data from PenCom indicates that the pension industry’s pension assets as a percentage of GDP have grown steadily from 1.5 per cent in 2006 to about 8.5 per cent by December 2011.

According to the commission, the scheme had accumulated N22.7 trillion investible funds that would enable payment of retirement benefits as well as assist in the economic development of the country. 

One major success of a contributory pension scheme is that it has regularised the process of remitting funds to retirees. This is so because under the new pension scheme, no matter what happens to the employer, the contributors’ funds are protected because they are not impacted by the liquidity of the business.

Also, the new scheme has introduced a nation-wide mass savings culture, which allows Pension Fund Administrators (PFAs) accumulate assets that can be invested in financial markets. This is expected to potentially promote depth and liquidity in the financial markets, which is critical to the success of any economy.

Challenges of the Scheme
However, the contributory pension scheme is not without its challenges. One of the major challenges is the unwillingness of some private sector organisations to join the CPS, while others who have joined do not remit the monthly contributions into their employees’ Retirement Savings Account (RSAs) as at when due.
The issue of defaulting poses a major challenge to the success of the scheme, as it influences the adequacy of benefit payments to participants.

Consequently, PenCom, in recognition of its role in enforcing compliance with the provisions of the PRA 2004, has licensed recovery agents to ensure collection of outstanding remittances due to employees from defaulting employers.

Director General of PenCom, Mr. Muhammed Ahmad, who confirmed this at a one-day interactive session with the Nigeria Employers’ Consultative Association (NECA), said the Commission has engaged recovery agents to recover outstanding contributions with interest from the defaulting employers in the private sector.

The interactive session, which was a follow-up to the successive ones held between the Commission and NECA, was designed to discuss the journey so far and matters arising in the implementation of the CPS.

The PenCom boss, represented at the event by the Commission’s Director, Enforcement and Compliance, Dr. Mohammed Umar, said the Commission would continue with its zero tolerance for non compliance and consultative approach to supervision, in order to promote a stable and sustainable pension industry that would guarantee reasonable income on retirement.

He added that the Commission would review guidelines and regulations to ensure sound corporate governance, adequate protection of pension assets and appropriate response to changes in the environment.

“The Commission has issued revised investment regulations (which introduces multi-fund structures), guidelines for registration of state and local government employees and a new minimum capital requirement for pension fund administrators, among others.

“The minimum capital requirement would ensure that operators deploy adequate resources to improve service delivery. The Commission is also working with other regulatory agencies to promote the development of alternative assets classes in which pension funds could be invested to ensure reasonable income and promote national development,” he explained.

Proposed Amendment of Pension Act
To further enhance the effectiveness of the scheme, he hinted that the Commission is proposing an amendment of the 2004 Pension Reform Act (PRA) and listed some areas recommended for amendment to include excluding pension contributions and any pension based interest, dividends, profits and other income from taxation.

He said the amendment would also include empowering the employer to open RSAs for employees that fail to do so.
In addition, he said the Commission would soon issue guidelines for informal sector participation in the CPS, which would provide an opportunity for those in the sector to make voluntary contributions to cater for their retirement.

Challenges for Employers
Speaking on employers challenges in the implementation of the Pension Reform Act, Human Resource Director, 7Up Bottling Company, Mr. Femi Mokikan, lamented that the process of getting benefits has been a major challenge for employers in view of the bottlenecks associated with the payment of retirement benefits to individuals.

He urged PenCom to come out with a clear provision that would allow individuals easier access to their entitlements. Speaking further, he said the remittance of employee’s contribution not later than seven working days from the day the employee is paid his salary remains one of the troublesome areas in compliance.

For instance, he argued that salary payment practices vary from company to company and is influenced by a variety of factors, adding that it is an uphill task to comply with the provision in many of the affected companies; particularly those that pay salaries twice every month.

Mokikan expressed concern about the sustainability of the nascent pension scheme, following the unprecedented fraud recently uncovered in the public service and police pension schemes.

He also called for a review of the guidelines, particularly faulted the Pension Act requiring employers to audit the account of PFAs, and stated that Section 56 subsection 1, 2, 3 already provides for such audit.

He however commended PenCom for the leadership role it has exhibited in the last seven years urging the commission to be more transparent in the implementation of the contributory pension scheme.

“PenCom has provided the needed leadership which you would not find in some government agencies - they listen, when you present a superior argument they accept it and alter their position, they do not exhibit the kind of arrogance you notice in some agencies.

“If PenCom can maintain its focus as it has done so far and consolidate on the attributes that endear them to other stakeholders, maintains the flexibility that allows it to accommodate views from other stakeholders, and if all other stakeholders tag along, the future of pension industry in Nigeria will be bright,” Mokikan said.

However, stakeholders in the industry have renewed call on the Federal Government to assist in ensuring the success of the scheme. They particularly called on government to engender strict enforcement of the provisions of the PRA 2004. They submitted that government needs to enforce stricter sanctions against defaulting employers.

Efficient customer service and good investment returns are at the heart of the scheme, therefore the PFAs have to put systems in place, as well as personnel and services that will ensure that contributors can gain easy access to their accounts, maximise returns to be earned on their retirement benefits over time, and receive their retirement benefits with ease.