Source & Image: Daily Trust
For any reform process, the most important thing is to look at how the reform was implemented, how it has been accepted and what has been its impact. In other words, are the intended objectives being met? In terms of acceptability, I want to believe that both the employees and the employers accepted this and there has been a very strong buy-in and that’s why it has been sustained. Of course, we know we have some compliance issues, but all the key stakeholders, particularly the social partners, the labour organisations, the employers association and the government are working to ensure that there is a much wider coverage. Some of the objectives have been met. For instance, we have started seeing people being paid regularly after retiring. We never had that before. If you retire today and you have an account with a PFA, at a fixed date, you get your benefits. That is the most important achievement as far as the reform is concerned. In fact, the reform is intended to ensure that retirement benefits are available as at when due to everybody that has retired. The second issue is to have a more regulated and safe industry. There is no doubt about it that PenCom has been consistently ensuring that we have a safe investment. The structure of the industry is such that the additional safeguards are there to ensure that pensioners are protected. It has been a well-regulated industry. We have less incidences of risk associated with safety. The third issue is the ability to accumulate long-term funds. As you said, we now have an excess of N5 trillion, which is over $26 billion. These are funds that are available for investments. However, these are other people’s monies – you and I, including those that have retired. Both the operator and the regulators must ensure that assets are safe. And that’s why on regular basis, investment regulations are issued. People have been saying that there are no investments in infrastructure. But we have had regulations on infrastructure allowing pension assets to be invested in infrastructure for the last five years. However, like in corporate bonds, it is extremely difficult to get instruments where pension assets can be invested safely. It is the responsibility of the government and the private sector to generate and structure instruments that are safe because, as a pension fund administrator, I have a responsibility to you, as a contributor, and also to my shareholders. So, I have to run a very strong corporate governance to ensure that corporate funds are safe. There are no sentiments. Pension assets can be invested in long-term instruments if the instruments are available and if the instruments meet the minimum requirement for that kind of investment.
There are concerns that under the CPS, pension benefits payouts are not as rewarding as they used to be under the defined benefits scheme (DBS). How can PFAs diversify their investments and increase returns on investments? To date, returns on investments are robust. Any asset manager will target such investments largely because of the fact that federal government securities are still attractive. You will rather invest in treasury bills than keep your money in a savings account. The second issue about lower payouts is a function of three things. The level of your contribution is a function. If at the end of the day you are retiring, and the balance on your retirement savings account is not much, you don’t expect much. The people that are hard hit are federal government employees. The reasons are basically as follows: One, there have been substantial salary increases. There was a 15 per cent increase in 2007 and another 50 per cent increase in July 2010. But beyond that, the Armed Forces and particularly the paramilitary had an increase in excess of 300 per cent. Meanwhile, the old scheme was closed in June 2014 before those increases were done. Whatever you may have earned under the old scheme will be computed as at the time the old scheme was closed down and as that time, your salary was very low. So, obviously, if you are now retiring at a higher salary, you will not benefit from the higher salary because you are retiring under the new scheme and it is just your contributions. That seems to be one of the major issues with those who have lower benefits. But, essentially, the lower benefits have nothing to do with returns; it has to do with the fact that the period people started retiring by 2007 and the contributions that we started were from July 2004 to date. It was under 10 years. So in terms of the periods of contributions, it is still low and to that extent, you are unlikely to get as much as if you had retired under the old scheme. But the benefits are as follows: Reliability. Your benefits are not based on federal government budgets or the employers’ ability to pay. The example we normally give is that assuming you worked for an institution that was liquidated, like the Nigerian Airways, under the old scheme, you wouldn’t have gotten anything. But under the new scheme you have your benefits in your retirement savings account just like having an account with the First Bank. However, for those of you who are young, that have 20 to 35 years to retire, at the end of the day, your benefits will be far better than those who retired under the old scheme.
The Pension Reform Act 2014 has opened the window for contributors to withdraw some percentages of their contributions to access housing mortgage. Does this pose any risk to the objectives of the scheme? There are few countries that have done that. But there is nothing wrong in doing that. However, there must be safeguards. The reason is that naturally, as a human being, if you keep money aside, if you have access to that money, if you don’t invest that money, the tendency is that you will use it. The temptation is that if all of us are allowed to access our retirement benefits, we will access it. This means that at the end of the day by the time we retire, we won’t have anything. The idea is to encourage us to save so that when we retire, when we are unable to work, we have something to fall back on. However, as employees, the first thing you do after taking up a job is that you want to have a place to put your head. So, shelter is very important, particularly if you get married, start having children and you are about to retire. The way you will have access is the important thing, otherwise we run the risk of depleting the benefits.
Some states are yet to key into the CPS. What can be done to ensure compliance at the state level? The 2004 Pension Reform Act did not make it mandatory for states to implement the contributory pension scheme. In its wisdom, the then National Assembly felt they didn’t have the power to legislate on employee-related matters. What PenCom did at that time was to see how to cajole them to do that and we introduced some measures. I understand that as at today, only 10 have done that. However, in 2014, the National Assembly said they had the right to legislate and they have legislated and made it mandatory for states to follow. However, based on our experiences, employers at the states don’t want to go through the discipline of setting aside money. Their focus is on salary.