The Contributory Pension Scheme, under the 2004 Pension Reform Act, was introduced to replace the former pension scheme, which reportedly failed to meet the expectations of workers after retirement. NIKE POPOOLAwrites on the achievements and setbacks of the new pension scheme, more than seven years after its introduction.Allover the world, the pension scheme has remained a cogent means used by different governments to protect the future of workers in their vulnerable old age, especially when they would no longer be in paid employment.In countries where this scheme is efficiently managed, the old citizens live comfortably without placing their financial burden on their children, as they continue to earn constant income.Unfortunately, the former pension scheme in the country failed to meet these expectations, a reason which necessitated the repeal of the former law and the promulgation of a new law. An analysis of the pension industry can be viewed from the historical background of old to new scheme, the merits and demerits of the new scheme, the regulations as well as safety measures put in place.Under the old pension scheme, the National Provident Fund was established by the Act of Parliament in 1961 to regulate private sector pension scheme in the country. It ensured monthly contribution from the basic salary of workers, to be contributed by both the employee and the employer.The NPF was later converted to a limited social insurance scheme and administered by the Nigeria Social Insurance Trust Fund in 1993.A new Pension Act was enacted in 1979 to consolidate all enactments on pensions and gratuity scales designed for the public sector.The Pension Act of 1979 and the NSITF, which administered the old scheme, subjected pensioners to very challenging difficulties as they faced nonpayment of their pensions, which was exacerbated by queuing for days to claim what they believed they were owed. Many retirees died in the process of trying to get their pensions.This scheme was reported not to be well funded, which led to mounting pension liabilities that became unsustainable. It was much unregulated; there was non existence of pension schemes in many sectors, coupled with difficulty in accessing benefits.The unfortunate setbacks in the scheme led to the repeal of the 1979 Act and subsequent amendment of the NSITF Act of 1993.In June 2004, the 2004 Pension Reform Act was promulgated and it ensured a contributory scheme for the payment of retirement benefits of employees of the public service of the federation, the federal capital territory and the private sector.The Act states that the Pension Fund Administrators should manage the pension funds, while the Pension Fund Custodians hold the funds and assets.By virtue of Section 11 of the Act, every employee is to maintain an individual Retirement Saving Account account in his name with any PFA of his choice and notify his employer of the identity of the retirement savings.Employees and employers are under the obligation to contribute 7.5 per cent each into a PFA account making a total of 15 per cent.Upon retirement, section 4 of the Act provides that on attaining the age of 50 or at retirement stage, which is stipulated by the employees organisation, RSA savings shall not be withdrawn but shall be utilised either as programmed withdrawal or as annuity.Under the programmed withdrawal, the retiree gets his pension on monthly or quarterly basis by calculating how he wants it to be paid by his PFA, based on an expected life span, while the annuity is paid on monthly or quarterly basis, by insurance companies till the retiree dies.More than seven years after the scheme was introduced, it had been trailed by both positive and negative critics.At the positive sides, the pension scheme had continued to record growing funds which are available for long term developmental purposes.The Head, Investment Supervision Department, PenCom, Mr. Ehimeme Ohioma, disclosed that the total pension asset rose from N815.18bn, N1.1tn, N1.5tn and N2tn as at December 2007, 2008, 2009 and 2010 to the current status of N2.4tn on which it stands. Also, he added, the number of contributors in the scheme now stands at 4.9m, of which 2.7m are from the public sector; while 2.2m are from the private sector as at November this year.He noted that to ensure the safety of the funds, the commission had continued to review its approved asset classes for investment of the pension funds. The currently approved classes, according to him include quoted equities, open and closed end funds and unit trusts. Other are money market instruments, Federal Government of Nigeria securities, corporate bonds, supranational bonds, infrastructure fund and private equity fund.He said that the industry recorded19.37 per cent, 0.34 per cent, 11.41 per cent and 11.64 per cent average returns on investment of RSA funds in 2007, 2008, 2009 and 2010.In the 2010 annual report, the commission said, a total of N1.1tn had been invested in seven approved assets.According to 2007 annual report of PenCom, by December 2007, many state governments had commenced the processes of implementing the scheme because the 2004 PRA did not make it mandatory for state governments.Also, the 2008 annual report of PenCom revealed that the number of PFAs stood at 26, while another PFC was given a new license bringing the number to five.According to the 2009 annual report, pension funds were more invested in bond market rather than the stock market as the capital market witnessed volatility and sharp fluctuations in share price index and stock value of quoted companies on stock exchange.However, in 2010, a PFA and a PFC returned their operational licence to PenCom, which reduced the number of Pension providers.Also, in 2010, PenCom ordered the PFAs to raise their capital base from the initial amount of N150m to N1bn minimum. The deadline for this exercise has been fixed to end in June 2012.When the global financial crisis started in 2008 and the bears came calling on the stock market, there was skepticism that the pension funds invested in the stock market might have been eroded.However, the Director- General, PenCom, Muhammad Ahmad, had reassured stakeholders that there was no need to fear. He had said that due to the proactive and risk focused investment regulation earlier issued by the commission, which stipulated quantitative limits on equity investments to 25 per cent, only nine per cent of the RSA assets were invested in quoted equities as at the end of 2008.Pension funds being long term in nature are expected to recoup the unrealised losses incurred due to the meltdown with the expected recovery in the capital market over time, Ahmad said.According to him, most of the contributors would not be affected by the effects of the meltdown as about 85 per cent of the contributors were below 50 years and would stay in active service, long enough for the market to make a full recovery before they start accessing their retirement benefits.The first sets of retirees started accessing their benefits in the new scheme in 2007.However, as at May 31 this year, no fewer than 33,304 pensioners were already earning their income under the scheme. Out of this number, 33,116 were already accessing their benefits through programmed withdrawal, while 188 were using annuity.Statistics from PenCom also revealed that a total of N183bn was paid to the pensioners.As the funds have been growing, many workers and retirees are already feeling irritated with the services being offered by the pension providers. Also, the fate which collapsed the former scheme, in which workers retired without having any pension benefits are already reoccurring in the present contributory pension scheme.Investigations by our correspondent revealed that many contributors in the new pension scheme were already retiring with little or nothing in their RSA because their employers, who had been deducting their monthly emolument, have not been remitting such to their PFAs.According to figures from 2010 annual report of PenCom, the commission had addressed such cases of employers with at least, 10,068 workers under them, mostly in the private sector as at 2010.Contributors and retirees have also continued to complain that the PFAs, who deal directly with them, appear to be less equipped to handle the increasing demands from their clients.Mrs. Ibukun Ayoade, who also lodged her complaint to the Punch said, I registered with my PFA since 2007 and my account still reads zero till date. I have gone to their office but they say the fault is from Abuja. I have no access to PenCom.Though, PenCom had asked displeased workers and retirees to forward complaints to the commission, feedbacks from complainants after several attempts to access the commission had not been fruitful. This may not be unconnected to the fact that PenCom has its only office in Abuja.A worker, Mr. Dapo Adeosun, whose employer had been deducting his monthly contributions, complained that his PFA was not sending him the statement of his account until he had to personally visit its office.I was working with a security company before and they were deducting my money every month for five years. When I later went to my PFA, I realised that I had only N20,000 in the RSA. I left the companyonly to discover that my monthly deductions were not reflecting in my account. I dont know how to address the problem, he lamented.Another retiree, Mrs. Titi Ajayi, said, When I retired, my PFA simply instructed me to opt for programmed withdrawal. I have, however, found out that this does not guarantee me constant payment for life.I did not see any insurance company to offer me annuity after I learnt that this could guarantee life payment. Those insurers dont seem to be ready to offer this product to pensioners.A retiree, Mrs. Grace Agboola, who complained to the Punch, said, I retired in August 2010. I was not asked how I wanted my money disbursed, the PFA simply decided to give me 25 per cent of the balance in my Retirement Savings Account; yet, my monthly pension was less than one third of my salary before retirement. Why'However, this violates Section 1.2.9 of the 2004 PRA regulation on the administration of retirement terminal benefits which states that a PFA shall not impose, coerce or influence a retiree on the choice or mode of withdrawal.The Director-General, Nigerian Insurers Association, Mr. Sunday Thomas, however, said a situation where the PFAs held on to the pension funds and also provided programmed withdrawal had placed the insurers in a tight corner to reach the retirees.He emphasised the need for insurers to be more aggressive in marketing annuity to the retirees.To the President, Pension Operators Association of Nigeria, Mr. Davies Uduanu, although the pension laws make provisions for the computation of lump sum payment and periodic pension withdrawals, there is the need for the PFAs to consult the retirees on the methods of effecting payment.Due to the large number of retirees, he noted that some PFAs might not have the required capacity to attend to all the retirees individually.The Chief Executive, Riskguard Pension and Insurance Consultant, Mr. Yemi Soladoye, noted that while PenCom had put in adequate measures to protect the funds, three key factors, including security, profitability and diversification, were cogent.He said, Measures that has been put in place to protect the pension funds overemphasized the security to the detriment of yield and diversification.Dr. Abel Awe, of the Departmentof Economics, University of Ado-Ekiti, has however stressed the need to enhance regulation of the PFAs and ensure that the funds are not wrongly invested.He said, If the investment crashes, the contributor suffers, like what is happening in the stock market now. Anything can happen to any investment in the country, investment is very risky.He warned that if the PFAs were not following the necessary guidelines in investing the funds or were not getting adequate returns, the pensioner would be at the receiving end of any loss.
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