A
few years ago, it was common sight to see aged pensioners struggling –
and often dying – in the process of obtaining what was rightfully
theirs: their pensions. Due to the chaotic and punitive conditions
suffered by these senior citizens who more often than not travelled
great distances to Abuja to receive their dues, many simply gave up the
ghost – some literally died while standing in queues.
Those that
persevered were subjected to sleeping on the streets under harsh weather
conditions and begging passersby for what to eat. To reward our parents
and grandparents who had devoted their lives to serving Nigeria in such
cavalier manner speaks volumes about our essence as individuals and
collective humanity as a people.
Any discourse about the issue
of pension reforms in Nigeria must begin with critical questions: What
systems were in place for pension administration and how effective where
they? What happened to the funds that were expected to be set aside for
these pensioners over the years? Was there not a less cumbersome means
of pension funds administration? What are the gains and losses of a
decade of pension reforms, and what more do we need to do as a country
to widen and deepen the social security system?
Pension, which
is essentially setting aside monies for use in old age when one can no
longer work and earn much income, was first started in the 1880s in
present day Germany when Otto von Bismarck introduced social insurance
programs that became the model for other countries and the basis of the
modern welfare state. Bismarck introduced old age pensions, accident
insurance, medical care and unemployment insurance. Bismarck appreciated
that society has a responsibility to put in place a safety net for the
old, the vulnerable and disadvantaged. Decades later, John F. Kennedy
concurred with Bismarck's vision when he observed that "if a free
society cannot help the many who are poor, it cannot save the few who
are rich."
The first attempt at pension legislation in Nigeria
was enacting the Pension Ordinance of 1951 which allowed the
Governor-General to grant pensions and gratuities applicable to public
sector employees, in accordance with the regulations, which were
reviewed from time to time with the approval of the Secretary of State
for Colonial Affairs in the UK government.
In 1961, the
National Provident Fund (NPF) now the Nigerian Social Insurance Trust
Fund (NSITF) was established by an Act of Parliament. It was established
in line with the International Labour Organization's (ILO) Social
Security (Minimum Standards) Convention 102 of 1952 and sought to cater
to employees in the private sector of the Nigerian economy.
Subsequently
there were; the existing civil service pension scheme covered by the
Basic Pension Decree 102 of 1979, the Local Government Pension Scheme
which was established in 1977 and the Armed Forces Pension Scheme
created through Decree 103 of 1979 by the Murtala-Obasanjo
administration. There was also the Pensions Rights of Judges Decree No.5
of 1985 as amended by Decrees Nos. 51 of 1988,29 and 62 of 1991. The
Police and other Agencies Pension Scheme Decree No. 75 of 1993 which
took retroactive effect from 1990 represented another landmark
development in the history of the Nigerian pension system and sought to
cover the largest public sector organization in Nigeria – the Police
with its nearly 400,000 officers and men.
There was one
fundamental flaw with all these schemes – they mandated in the laws
pension entitlements, called "defined benefits' in pension's parlance,
without setting aside any cash to pay for the future liabilities. The
assumption of successive governments in Nigeria (and indeed in many
countries) is that there will always be tax (and oil) revenues to pay
for future pension entitlements. This held true until the mid-1980s when
profligate spending accompanied by collapsing oil prices and resultant
debt burdens brought our economy to its knees. Pension payments became
erratic and current arrears built up, and unfunded future liabilities
escalated.
When the BPE was tasked with the responsibility of
privatizing public enterprises in 1999, we realized that the unfunded
pension liabilities in NITEL, then estimated at N43 billion and NEPA at
N75 billion would make difficult if not impossible to privatize the
companies. Who would buy a company with such hidden, future liabilities,
in addition to over-staffing, attitudinal and other problems? Drawing
on a seminal paper by a Nigerian lawyer Jude Uzonwanne of Levin &
Srinivasan LLP, New York, the BPE presented a memorandum to the
government in year 2000 warning that unfunded pension liabilities in
public enterprises alone amounted to nearly N500 billion, while the rest
of the public sector had another N1 trillion of the same.
The
Obasanjo administration realized that a 'defined contribution' system
needed to be put in place to replace the unfunded, defined-benefits
"pay-as-you-go" pension scheme prevalent in Nigeria. A steering
committee on pension reforms under the chairmanship of Fola Adeola
worked at resolving the problem first in public enterprises, then
nationally, with many outside stakeholders and select BPE staff. Many
people like M K Ahmed, Dr. Musa Ibrahim, Chinelo Anohu and Aisha Umar
that ended up being foundation staff of the future Pensions Commission
played active in the committee and the aftermath.
The Fola
Adeola team did extensive and commendable work and attempted to reform
the pension structure in the country due to the gross inefficiency and
poor administration of the previously launched schemes, culminating in
the enactment of the Pension Reform Act 2004 (PRA 2004). In line with
this, National Pension Commission (PenCom) was established to regulate
and supervise all pension matters in the country.
Some of the
highlights of the PRA 2004 are that the scheme would be contributory and
fully funded, mandatory for organizations in the private sector with
five staff and above, portable, provide full pension rights in the event
of dismissal and the contents of Retirement Savings Account (RSAs)
cannot be deducted by employers for any outstanding financial
obligations among others.
How the contributory pension scheme
works is that the employee contributes 7.5% of their income while the
employer provides a minimum of 7.5% of the employee's income into the
RSA of the employee. For a country like Nigeria with huge income
disparities and numerous low income earners, the total amount to be
accumulated by an employee who worked for about 30 years on the current
minimum wage of N18,000 monthly would roughly amount to N972,000.00 –
less than a million naira for a lifetime of employment unless the
contributions are invested in safe, but high yield investments that
would increase faster than the rate of inflation and exchange rate
deterioration.
The initiative, while laudable on paper and a
major improvement over the old, unfunded system, has still not
translated to alleviating the plight and hardship of current pensioners
in the country, many of whom are not covered by the scheme. A lot more
work has to go into the structure and manner in which pensions are
administered in order to achieve the desired aims. It is time to look at
the nearly ten years of experience of administering the PRA and enact
amendments to improve the operations of the sector, and abolish the
transitional arrangements that have led to the theft of billions of
Naira under the office of the Head of Civil Service of the Federation.
As
at 2012, 23.9% of the labor force was unemployed according to the
National Bureau of Statistics (NBS). This invariably implies that a
whopping 76.1% of the labor force is gainfully employed. According to
the CIA World Fact Book, the total labor force in the country was 52.5m
in 2011. Using 2011 statistics to calculate even though the numbers must
have risen giving the teeming population of graduates churned out daily
from our institutions of higher learning, the probable number of
employees in the country is nothing less than about 39.9m at present.
However,
of the total employed population across the country, only a paltry
13.2% (5.28 m) of workers had been registered under the scheme as at
September, 2012 since its inception in 2004 according to the immediate
past CEO of the commission. The statistics are bleak for the pace of
work carried out in the whole of 8 years, and more needs to be done!
In
addition to the snail pace at which the scheme is being executed, a
major issue with the pension administration in Nigeria is execution at
the state level. At the end of 2012, very few state workers were
beneficiaries from the scheme; mainly because the states are allowed to
enact their own laws and the PRA 2004 is not binding on them. So far,
about 21 states have adopted the contributory pension scheme while 14
others have initiated the process of enacting versions of contributory
pension schemes in their states. Lagos state is the only state according
to Pencom that has fully funded its pension obligation to its workers.
Katsina used to be another until recently when arrears have accumulated
without any justifiable cause.
Another noteworthy area is
private and informal sector participation in the scheme which has been
particularly poor. Many reasons come to the fore here. How do you
enforce an act when there is no data on the number of private companies
or informal businesses contributing to the GDP of the nation? Majority
of small businesses evade the scheme because of the cost to them and
minimal penalties for evasion. Pencom has barely been able to cover the
urban areas much less the rural areas. The implication of this is that
the scheme is highly imbalanced; focusing mainly on employees of the
Public Sector and urban dwellers while neglecting the private and
informal sectors as well as the rural areas.
To worsen
matters, the Pension Reform Task Team (PRTT) set up sometime in 2010 to
bring some sanity to the system and ensure that pensioners received
their pensions as and when due, rather than perform their tasks, only
succeeded in embezzling the funds at their disposal. While claiming to
have uncovered misappropriated funds, the committee itself depleted
pensioners' funds worth billions of naira on frivolities and corruption.
Pension
funds, the world over, are designed not just to provide respite to
employees in their post-retirement years but are meant to boost
economies by improving their financial markets, accumulate re-investable
savings and contribute to the GDP. Funds accumulated from pension
deductions ideally, would be channeled into creating employment
opportunities and financing infrastructural projects such as
electricity, transportation, housing e.t.c. As at September 2012, the
accumulated pension funds had amounted to some N2.94 trillion quite
impressively. Whether this will translate to visible infrastructural
development in the next few years is an entirely different matter.
It
is imperative that the government critically analyzes the pension
structure and make amends where necessary so that the scheme does not
die a natural death. Pensions could be a very important aspect of the
economy if done right with multiplier effects across many sectors. A
contributory pension scheme where pensioners die in the course of
claiming entitlements is definitely not a step in the right direction.
It will certainly hamper on employees' productivity while still active.
One where those at the helms of affairs are embezzling retirees' hard
earned funds, is without doubt a disgrace to the nation as a whole.
The
pension schemes adopted must take into cognizance our peculiarities as a
nation and those in our economy. It should not be implemented in the
typical fashion of other economic policies which are just cut and paste
models of those obtainable in the more advanced nations. It should be
tailored to the needs of the beneficiaries. The structure, direction and
sustainability of the scheme must be clearly articulated so that it
does not end up as another haphazardly implemented project. Most
importantly, it should achieve its purpose which is securing the future
of employees in the most convenient manner
PSN
