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‘Any innovation in the pension industry must not reduce or eliminate trust from pension administration’

by John Osadolor

October 24, 2017 | 12:41 am
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At the 2016 World Pension Summit-Africa Special, held in Abuja, former President, Olusegun Obasanjo advised National Pension Commission (PenCom) and other stakeholders in the pension industry to exercise caution in the quest for innovation in the administration of Pension funds in the country.

“Pension management innovations should be guided by sustainability . We cannot be too adventurous with the contribution of workers’ funds because when people work all their lives and save for their future, they should not be told stories when they retire at old age and when they want their money.

“That is why I insisted that in your discussion on managing pension with innovation, it must be guided by sustainability and security. We must never reduce or eliminate trust from the pension administration”, Obasanjo explained.

He was making serious effort to ensure that the essence of pension was not eroded on the altar of innovation such as the one being embarked upon by our representatives at the National Assembly.

For those who have not been following discussions at the National Assembly, there is a Bill that seeks to amend Section 5 (a) of the 2014 Pension Reform Act. The amendment touches the soul of the pension industry in Nigeria. It seeks to remove the Nigeria Police, Nigerian Immigration Service, Nigerian Customs Service, Nigerian Civil Defence and Security Corps, the Nigerian Prisons Service and Economic and Financial Crimes Commission (EFCC) from the Contributory Pension Scheme (CPS).

The bill passed second reading on May 16, this year, on the floor of the House of Representatives and a public hearing in which hundreds of stakeholders were in attendance was held a fortnight ago.

The promoter of the bill, Oluwole Oke, while leading the debate during plenary session said the bill is intended to exclude the paramilitary agencies from the application of the contributory pension.

According to Oke, the government had an important role to protect members of the security agencies, adding that the Housed passed a bill in 2010 excluding the Army from the CPS. The success of that endeavour, it is implied encouraged the new bill.

Unfortunately, the Armed Forces did not benefit from their removal from the CPS  as many military retirees took to the streets of Abuja recently demanding for their unpaid pension entitlements.

The military retirees had besieged the headquarters of the Federal Ministry of Finance lamenting the non-payment of their pensions.

While the military retirees battled the government demanding for the payment of their pensions, many well-meaning Nigerians and concerned institutions knowledgeable in the operations of pension have cried foul over the plan of the honourable members of the House of Representatives to upturn a system that had worked very well for all concerned in its 12 years of operation.

It is imperative that we remind ourselves of the import of the warning of Obasanjo in the renewed effort to be “innovative” with the management of pension in Nigeria. This is because the proposed amendment seeks to be innovative with the backbone of the pension industry and the reason for which PenCom itself was created – the Contributory Pension Scheme (CPS).

In the words of Obasanjo whose administration enacted the Pension Act, 2004 and the creation of the PenCom: “Many countries in Africa, like in other regions of the world, have been making efforts to reform their pension systems so as to entrench transparency, accountability and sustainability. It is apparent that competing demands for resources to address important issues such as education, environmental degradation, appalling security situations, to mention a few, have put a lot of strain on Government finances across Africa with the obvious fallout, being inadequate budgetary provisions, and in some cases, untimely release of budgetary allocations to pay pensions and related employee entitlements. The pension landscape in Africa has, indeed, been further undermined by the weak, inefficient, less transparent and cumbersome structures on which Defined Benefits Schemes have historically been administered. Poor coverage and non-inclusion of the private sector, particularly, the informal segment, which is increasingly becoming an important pillar of African economies are also issues which African countries are grappling with.

Thankfully, many national governments across the continent have started demonstrating commitment towards reforming their pension and social security systems, in line with global trends.

These reforms have birthed a novel institutional framework which requires that retirement benefits are fully and adequately funded. They follow the model introduced by the Chilean pension reforms of the early 1980s, which was aimed at stemming the growth of pension liabilities; reducing fiscal cost of pension to government; stimulating domestic savings and increased private investments; and generating long-term funds for financing developmental projects, a welcome corollary of these reforms. Recent legislative reforms are geared towards keeping administrative costs as low as is practicable, maximising investment returns and improving the quality of client-oriented services being offered by the various institutions that administer the schemes.

While in office, our administration was motivated by the urge to achieve these objectives and in 2004, after an extensive study of global trends in pensions, we introduced the Contributory Pension Scheme (CPS) in Nigeria. There is no gain saying that the CPS in Nigeria has earned public confidence and acceptability. Today, I am proud to say that 7.13 million employees from both the Public and Private Sectors in Nigeria have been registered under the CPS and have all opened Retirement Savings Accounts and the Scheme has so far accumulated about N5.73 trillion worth of pension assets.

I was made to understand that a large percentage of this money has been invested in the Nigerian economy. I am happy to mention that this modest achievement demonstrates that the National Pension Commission of Nigeria has achieved two of the objectives – coverage and generation of a pool of investible funds, for which the Government decided to reform the Nigerian pension system twelve years ago”.

There is fear among pension industry operators that the fears of the elder statesman may befall the country if innovations, including amendment of the relevant laws guiding the operations of the CPS and management of PenCom, are not done with caution.

“Any amendment or innovation that does not take into consideration the issues raised by Obasanjo at the summit is a threat to the CPS and a threat to all”, a pension industry practitioner told BusinessDay.   

John Osadolor

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by John Osadolor

October 24, 2017 | 12:41 am
  |     |     |   Start Conversation

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