Governor Oshiomhole of Edo state recently approved an executive order to abolished 35-year retirement policy for Edo workers as the state workers are now to retire at the age of sixty (60) regardless of whether they have put in 35 years in the state civil service. Late last year, china tried to review its one-child policy and currently, it’s raising standard retirement ages currently 50 or 55 for women and 60 for men by five years each. Russia currently has a demographic work force which is largely occupied by the Ageing population and a limited young work force.
Russia has shown interest in reviewing its retirement age because a large number of its work force is occupied by its ageing population. Raising the age of retirement may be necessary but it will surely be unpopular. Current experience has shown that more Nigerians get into a stable employment and starts paying pensions at early 30’s of their age. Nigeria recently celebrated 10 years of its Contributory Pension Scheme (CPS) that resulted in a paradigm shift in pension administration in the country.
The value of pension asset in Nigeria has grown from 1.47 percent to 9.57 percent of GDP from 2006 to 2013 respectively, and about 25 percent of the Sovereign Wealth Fund (SWF). Ten years of the CPS implementation in Nigeria, 6.02million employees from both the Public and Private sectors have adopted the scheme.
It’s high time we identify pension related aging problem primarily from a fiscal perspective. The fundamental questions to be asked are the following; what are the fiscal implications of alternative reform approaches towards alleviating the effects of aging on public pensions? Is the pension industry operator ready to meet with these future challenges? How can a sustainable financial system ensure that it is equipped for an ageing population? How would the prospective demographic pensionable elderly affect pension outlays? And what would be the size of the fiscal burden? etc.
It would be safe to justify that a large number of the workforce actually joined the CPS at the middle or towards the end of their work force. Many have advised abolishing the 35 year retirement policy and increasing the standard retirement ages by five years in order to maintain the strong pension asset in the medium/long term. A policy combination such as extending the retirement age and modifying indexation arrangements would in most developing countries like Nigeria suffice to contain potential adverse fiscal developments.
It is important we understand that funded pension provisions particularly when part of a multipillar structure are crucial to enriching retirement income, but they are not immune to population aging. A substantial increase in retirement age would primarily increase the Recurrent expenditure of the budget but would also enhance the growth of pension asset, which in the long run would enhance the circular flow of income especially if the National Pension Commission adopts investing pension assets in our housing deficit. Depending on which side of the curve you stand, viz; demand or supply, increasing the retirement age can serve as a strong policy tool in safeguarding the future of pensions in Nigeria.
SANNI MUHAMMED OZOVEHE
