The Pension Reform Act 2004 as amended in 2014 established the Contributory Pension Scheme (CPS) with one of the main objectives being to ensure that every person that worked in either the public or private sector in Nigeria receives his/her retirement benefits as and when due.
The main difference between new CPS and the old Defined Benefit Scheme is that most of the old pension schemes were not fully funded. Therefore upon retirement there were no ready funds to pay the pensioners, but this has been addressed by CPS which is fully funded through contributions by both the employer and the employee.
The Pension Reform Act 2004 provided for a minimum 7.5 percent contribution of an employee’s total monthly emoluments by the employee and 7.5 percent by the employer, and with with the amended of the Act in 2014, these moved 8 percent by the employee and employer 10 percent.
Employees who were in the public service of the Federation and the Federal Capital Territory, before the commencement of the Pension Reform Act 2004, have accrued rights to retirement benefits protected through the issuance of Federal Government Retirement Bond. The Bond is to be redeemed upon the retirement of the employee. The Federal Government established a Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria. The Federal Government by law is expected to pay into the Fund, an amount equal to 5 percent of the total monthly wage bill payable to all employees of the Federal Government and the Federal Capital Territory.
On retirement, an employee is expected to be paid a lump sum and monthly pension collected either through a programmed withdrawal or an annuity purchased from an insurance company, from the balance in his/her Retirement Savings Account (RSA).
These entitlements are paid from the balance in the employee’s RSA on retirement. The balance is made up of the total contributions of the employee and employer, the return on investments of the contributions over the years and the accrued pension rights for employees who were already in service before the commencement of the Pension Reform Act 2004 in June 2004. The accrued right is gotten through the redeeming of the Federal Government Retirement Bond through the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria.
Here then lies the problem. If the Federal Government is in default of remitting into employees RSAs contributions deducted from the monthly salaries of employees and its own monthly contributions now running to ovwe a year and five months, then the Government has failed to comply with the provisions of Section 11 (3) of the Pension Reform Act 2014, which provides that “The Employer shall (a) deduct at source the monthly contribution of the employee; and (b) not later than 7 working days from the day the employee is paid his salary, remit an amount comprising the employee’s contribution under the paragraph (a) of this subsection and the employer’s contribution to the Pension Fund Custodian specified by the Pension Fund Administrator of the employee. Apart from not complying with the provisions of the Act, the Federal Government is short circuiting federal public servants because there will be no money in their RSAs to be invested on their behalves.
Secondly, the implication of the Federal Government’s remittance of deductions from employees’ salaries and its own contributions as an employer, is also not adequately funding the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria. If the Account is not being adequately funded, there will not be money to pay the accrued pension rights of employees who were in the Federal Public Service before the commencement of the CPS. The bulk of pension money for those who have put in over twenty years of service is in the accrued pension rights.
Lack of sufficient money in the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria is the current cause for the delays in paying the pension of retired Federal Public Servants.
Fears, are therefore that we are gradually returning to the pre pension reform era, where under the Defined Benefit Scheme, retired public servants and pensioners were not sure when their retirement benefits and pensions will be paid. The question therefore is what can be done to avoid the drift to the inglorious past, in the face of current economic challenges facing the nation.
The CPS introduced through the pension reform apart from being a vehicle for the eradication of old age poverty, has proven to be a very viable means of accumulation of long term investable fund. The pension industry, a no existing industry before the Obasanjo’s pension reform in 2004, is now an industry to be reckoned with when discussing long term fund for development.
The benefits of the reform have surpassed reform expectations. The Federal Government must therefore harness her multiple roles in the industry, first as the single largest employer in the country, then as the regulator and finally as the manager of the economy, to develop the political will to sustain the reform by ensuring that all those concern especially States Governments, key into the CPS and comply with the provisions of the Pension Reform Act 2014 and the various pension laws being enacted by the various States Governments. Part of the contributions by the Centre for Pension Rights Advocacy:
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