Contributory Pension Scheme Facing Existential Threat

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The huge success of the Contributory Pension Scheme is now being challenged by a number of factors, ranging from government to managers of the scheme, writes Ebere Nwoji

The contributory Pension Scheme( CPS), established by Pension Reform Act 2004 and amended in 2014, is one government policy, which success and positive impact on the lives of Nigerians has received much commendation.

Nigerian workers, see it as government weapon that has successfully conquered the fear of retirement, while retirees see it as the key to stress -free retirement.
But in the midst of these celebrations, recent developments in the industry tend towards truncating the success of the scheme, thereby creating fears of another era of hard times for retirees and workers.

These developments are partly from government and partly from the scheme managers themselves especially in the area of remittances and full implementation of stipulations of the act establishing the scheme.

From government side, failure in remittances of contributors’ money to their Retirement Savings Account (RSA) by both federal and state governments is a major development that if not urgently addressed, would throw spanner into the wheel of the progress recorded by the scheme and will erode public confidence.

Recent reports in the media that the federal government, has in the past 11 months, failed to remit its workers’ contributions to their RSAs is a huge source of worry to the workers concerned and to the general public.

It is also a signal to workers that they may return to the old order of arrears of unpaid pension and its attendant sufferings on the part of the retirees.

Also, the failure by government to transfer its workers’ accrued rights to PenCom for onward transfer to the RSA of workers is another source of worry.

The federal government is said to have over N20 billion outstanding Accrued Rights of workers, a situation which has been affecting the smooth running of the scheme and payment of benefits to the workers and pensioners concerned.

Chairman, Pension Operators Association of Nigeria (PenOp), Eguarekhide Longe commenting on this during a media retreat organised in Lagos. He said due to economic recession in the country, remittances have gone down, while there is gap in the payment of accrued right.
He however said the industry regulator, the National Pension Commission, has been wonderful as far as the accrued rights issue is concerned.

According to him, the commission, has tried to ensure that there is integrity in the system, by asking government to transfer its subvention to pay for the accrued rights that has been outstanding .

According to him, the commission had said that rather than paying its subvention, government should transfer that subvention to take care of the need of pension industry.
But despite PenCom’s offer to government in the Accrued Rights issue, the huge outstanding is still there raising the question on what is delaying government from transferring the commission’s subvention to payment of the Accrued Rights as the commission offered.

Although the government mayuse the current economic recession as an excuse, if it can pay subvention to other MDAs, it can as well use PenCom’s portion to provide for the Accrued Rights of workers and pensioners.

It has also raised the question on whether the present administration does not believe in the CPS or whether it wants to introduce another pension system into the country.

The questions, are there in a presentation made by PenCom to the National Assembly recently, the commission said from 2014 to date, there has been a decline in budgetary provision in funding the Retirement Benefit Bonds Redemption Fund (RBBF) account and the remittance of monthly contribution, adding that the sum of N20.07 billion is required to pay all outstanding Accrued Benefits for deceased and mandatory retirees of the federal government for the periods October to December 2015 and the sum of N79.16billion has been computed as the arrears of 15 per cent pension increase owed to 79,961 federal government retirees under the Contributory Pension Scheme (CPS) as at December, 2014.

PenCom, in the presentation, said that N50.20billion was provided for the 2016 federal government Budgetary Appropriation for the RBBRF account presented to the National Assembly, compared to the Commission’s projection of N91.91billion, resulting in a shortfall of N41.71billion.

Inspenonline, a pension and insurance online medium quoted Longe as recently saying that compliance with regard to remittances of pension contributions from the public sector on both the federal and state levels have lagged notably, stressing that whilst remittances from the federal government through the National Pension Commission (Pencom) were last received for September 2015, some states have outstanding remittances dating back over two years.

PenCom on its part said the federal government is yet to commence the implementation of the revised 18 per cent minimum pension contributions for its employees as stipulated under Section 4 of the PRA 2014.

The Commission, however admitted that from the inception of the pension reform in 2004, the federal government had been religiously implementing the CPS by payment of monthly contributions of its employees in a dedicated account in the Central Bank of Nigeria, the Contributory Pension Account.

It noted that the federal government, was equally making payment of five per cent of its monthly wage bill into the Retirement Benefits Bond Redemption Fund Account for the payment of the accrued pension rights of its employees who had worked under the old Defined Benefits Scheme and transited to the CPS, until the recent financial crisis, which had hindered its obligations.

Aside governments’ remittance failure, another major issue affecting smooth running of the scheme is continued delay, with the same reason year in year out, on the takeoff of the CPS window transfer.

This has continued to spell hardship on contributors to the scheme.
The situation is now denying contributing workers to the scheme the chances of having their deducted money and those contributed by their employers remitted into their RSA.
According to some contributors who are victims of this, the problem is worst with private sector contributors who left their former employer to secure job with another employer only to discover that the name of the Pension Fund Administrator(PFA) they were using while in their former employment was not in the list of PFAs chosen by their present employer.

For such a contributors, the problem is that the present employer, cannot accept the Personal Identification Number (PIN) of his or her former PFA to commence the remittance of his RSA to his account since it is not in their new employer’s list. This is despite the fact that the Act permits every contributor to choose any PFA of his choice, but some private sector employers and restricting their employees from exercising this right of choice by choosing particular PFAs to deal with.

Under this circumstance, the option left for the contributor would have been to open new account with one of the PFAs in the list of his or her new employer but PenCom cannot issue two PINs to a single contributor. What this means is that the deducted money from such contributor’s salary will remain with the employer until the PenCom’s transfer window kicks off.

Alternatively an employee of Leadway Pensions who spoke to THISDAY on anonymous ground advised such contributors to collect the window transfer form from any of the PFAs of their choice, fill it and submit same and continue to wait for the takeoff of the PenCom’s transfer window so that as soon as it takes off, it will be the duty of pencom to effect the transfer. But the take off time for the transfer window is still elusive and for now, PenCom and PFAs are no longer saying anything in that direction.

This according to findings is just but one aspect of hardship faced by contributors on account of delay in the commencement of the transfer window, diverse problems faced by contributors on account of the delay abound making contributors to express worry over the delay.

THISDAY, recalls that PenCom, under its former management led by Muhammad Ahmad, had in 2012, informed contributors that the commission was at the verge of introducing a software application window that would enable seamless transfer of RSAs from one PFA to another by savers who may wish to explore the window.
The then PenCom management had said that the estimated date for the opening of the transfer window was December 2012.

“Employees who are dissatisfied with the services being rendered to them by their Pension Fund Administrator (PFAs) will have the opportunity to transfer their RSAs from one PFA to another PFA beginning from December 2012. This is in accordance with Section 11(2) of the Pension Act which provides that the employee may, not more than once in a year; transfer his RSA from one PFA to another PFA without adducing any reason for such transfer”, Ahmad stated.

As at the time Ahmad gave this assurance, some contributors were already expressing dissatisfaction with their PFAS agitating for opportunity to migrate to other PFAs although the then Chairman of Pension Fund Operators (PenOp) Mr. Dave Uduanu, had cautioned that contributors should be patient and restrain from much pressure on the transfer explaining that the problem they were experiencing with one PFA that made them want to migrate to another may be worse in the new administrator they were agitating to migrate to.
In some quarters, the delay in the transfer window commencement is making some group of workers to regret contributing to the scheme and is seriously eroding their confidence in the scheme.

On the reason for the delay, PenCom, had always explained that one of the reasons the transfer window had not taken off is that it was yet to conclude works on the supporting Information and Technology (IT) applications of the transfer window which will enable pension contributors change their administrators.

The commission, few years back informed that the framework has been issued to operators for implementation, and that work is still ongoing on the supporting information and technology application that would drive the initiative.
To ensure seamless operation of the initiative, PenCom said it had mandated PFAs and Pension Fund Custodians (PFCs) to deploy IT infrastructure for the transfer process.
It noted that such IT infrastructure must have adequate storage and retrieval capability for a period of 10 years.

PenCom said: “Every PFA / PFC shall be required to achieve and maintain an IT infrastructural level as prescribed by the Commission in section 3.0 of the guidelines for the operations of Pension Fund Administrators.

“In addition to the IT requirements, operators must have automated fingerprint capturing equipment for capturing fingerprints (PFAs); Automated Document Management System for the transfer of RSA holder’s documents between the PFAs and the RSA Transfer Clearing System (PFAs & PFCs).

It added: “Every PFA / PFC official shall abide by the Code of Ethics and Business Practices issued by the Commission and respect the confidentiality of sensitive information relating to the transfer process.”

On the delay, Managing Director Leadway Pensions, Mrs. Ronke Adedeji said a lot of work is being done even up to date.

She however said the transfer window was quite a complex exercise, adding that on the face, it always appears very simple and that People always say, “I want to change my PFA and move from A to B,’ but that its complex from the perspective that when you are moving an account from one PFA to another, certain processes need to take place and the major one is the identification process.

“We want to make sure that when you are transferring account from one entity to the other, you are transferring correctly and that you are not transferring somebody else’s account simply because they have common names. She added: “The issue of biometrics is very key. As such, the identification process to ensure that the transfer is secured and correct has to take place. In Nigeria, we really haven’t sorted out identification, but in more developed parts of the world, identification is quite simple and straightforward. So a major criterion for us is biometrics.”

But it has been discovered that while the commission and the operators are waiting for dotting of ‘Ts’ and ‘Is’ for perfection to be achieved in the transfer window exercise, contributors who want the change are becoming impatient and worried and would want the commission to quicken steps in the whole process. Some have argued that since the issue of window transfer has been there in the act establishing PenComand PFAs, failure to have gotten the process right to kick off the transfer 12 years down the line is a sign of gross incompetent on the side of PenCom and PFAs.

Meanwhile, some PFAs are afraid that the opening of the transfer window may spell doom for their operations.
They are indeed afraid that there may be mass exit of contributors from smaller PFAs to bigger ones like IBTC pensions.

From findings, it was discovered that when the contributory pension scheme started and PFAs went into marketing of their firms, some organisations chose some PFAs on sympathy ground just for the sake of patronage. Also some organisations, before choosing PFAs for their employees have not tested the performance of PFAs before as a result, they just chose randomly among a number of PFAs that submitted their proposal forms to them.

Having experimented with such PFAs these years, the contributory Pension scheme has lasted, some of these organisations have seen some pitfalls of such PFAs and have made up their minds for a change.

For such organisations, there are fears that as soon as the transfer window takes off, such organisation may open door of change for their employees and their PFA of first choice will have serious problem.

A major stake holder in the contributory pension scheme has predicted that with the commencement of the transfer window, the system may witness the existence of one or two big PFAs as contributors may prefer to deal with such big administrators there by starving others which may eventually lead to their demise.

These call for serious brainstorming by both PenCom and the PFAs to ensure that not only effective transfer is achieved but also that continuity of the existing firms is maintained.
The demise of more PFAs in addition to few that died during the recapitalisation exercise will not be to the best interest of the economy as such PFAs will throw back their employees to the labour field.

PenCom should not only quicken steps in making the transfer window work, should handle the transfer window in such a way that will not spell doom to small and medium scale PFAs and ensure that such PFAs whose clients are complaining perfect their operations to be in position to satisfy their clients and compel them to remain with them.