Nigeria’s Pension Reform Act 2014 (Amendment) Bill, 2022 is currently in the final stages of legislative proceedings.
Specifically, it has passed a second reading at the National Assembly and for next steps, the bill has been referred to the Committee on Establishment and Public matters to solicit public feedback ahead of implementation.
Consequently, a public hearing was held on February 22, 2022, by the House of Representatives Committee on Pension. This hearing was primarily focused on the dual objectives of the proposed amendments
- Firstly, the proposed amendments seek to exempt the Nigerian Police Force from Contributory Pension Scheme requirements of the Pension Reform Act, i.e., like the exemptions for the Nigerian Army.
- Secondly, the sponsors of the bill seek to enshrine into law, requirements enabling pension account holders to withdraw up to 75% of their account balances and punish undue delays for pension disbursements as criminal offences.
Unsurprisingly, the reactions have been mixed across the Nigerian pension stakeholder spectrum
- Proponents for the amendments argued that the exemption of the police and 75% withdrawals requirements are both in the immediate interest of account holders.
- Opposing views from PenCom, Centre for Pensions Right Advocacy (CPRA) strongly rejected the amendments as not beneficial for economic progress.
For those opposed to the new requirements, below is an outline of key concerns.
1. Why does the Police want to be exempted from CPS?
The proponents of exempting the Police from the current Contributory Pension Scheme, want more than just being exempt, rather the Inspector General of Police argued that police officers should get the same pension packages as the Nigerian Army to boost officers morale.
- “……exempting the police from the obnoxious contributory pension scheme could just be the magic to motivate officers and men of the force to go the extra mile and save the country”
Additionally, Hon. Francis Ejiroghene Waive argued that the police retirement benefits potentially needed to be increased by between 500% to 686%, simply to match their counterparts in other military agencies to boost morale.
”………For example, the highest retirement benefit of a Deputy Superintendent of Police under this obnoxious pension scheme is N2.5 million and that of Assistant Superintendent of Police is N1.5 million while their equivalent in Army (captain) and DSS are paid N12.8 million and N10.3 million respectively “……
2. What are the implications of providing the Police with an enhanced retirement package?
Admittedly every employee seeks to derive maximum benefits from his employers when an opportunity presents itself. However, during requests for a better package, several factors need to be considered including the financial cost of the requests, as well as prevailing Macroeconomic realities.
Financial Cost
Nigeria’s Pension Commission (PenCom) provided an estimate that the Federal Government would require N1.8 trillion to cover a defined benefit scheme for the 300 thousand police officers a broad estimate of additional N6million per person.
Notably, this estimate N1.8 trillion (or average of N6 million per police staff) is likely to be exceeded, especially when compared to the statement from Hon Francis Ejiroghene Waive that there is a gap of N9 to N10million per person between the Nigerian Police versus the Nigerian Army retirement package.
Macro-economic realities
The above request to provide members of the Nigerian Police with enhanced retirement packages costing over N1.8 trillion is in stark contrast with the realities on ground.
- Specifically, the Federal Government’s recently approved 2022 budget already has a deficit of over N6.2 trillion.
- This simply means that the Nigerian government needs to borrow N6.2 trillion to execute on critical infrastructure projects
- Furthermore, ongoing revenue challenges for the Federal Government means it is continually unable to execute on key initiatives as Debt Servicing continues to be a huge drain on resources.
Therefore, due to current realities, requests for non-capital expenditure of this magnitude is simply unaffordable. Especially at a time when it is critical to provide the Federal Government with fiscal capacity to fund capital expenditure which induces economic growth.
This amendment risks creating a pyrrhic victory for its supporters, whereby the FG picks up a huge liability which it simply won’t be able to meet whilst the Nigerian Pensions savings Industry gets decimated by the exemption of the Police
3. Are there alternatives to outright exemption of the Police Force?
Analysts have suggested that a comprise to this issue of the Police being dissatisfied with their retirement balances is to ensure that the Police force is paid a more competitive salary for their services AND simultaneously improve customer service experience and mitigate data protection concerns.
This alternative is notable because adjustments to the Police Officers’ monthly salary provides higher disposable income and allows officers to save a more reasonable amount which ultimately enhances the balances in their retirement savings account.
Furthermore, this approach ensures that the accountability of contributing to retirement remains with the individual police staff. This protects the Federal Government from the risks of having huge unfunded retirement obligations.
Finally, this alternative avoids a return to the 2004 Pre- Pensions reform scenario which was bedevilled with unlimited instances of retirees waiting endlessly for a retirement check that was not forthcoming largely driven by over N2 trillion of pension liabilities.
- Research analyst, Demiola Oju stated that Nigeria doesn’t need additional financial responsibility. she said “over the last few years, the contractual debt service load has increased. What the government doesn’t need right now is another future contractual obligation on monies it doesn’t have, especially because it has a structure in place to deal with this under the Contributory Pension Scheme.”
- Damilola stated further that, withdrawing funds from the Nigerian Police PFA would imply disinvesting and unwinding investments in long-term bonds, corporate debt, and illiquid real-estate investments before maturity. Because the financial ecosystem is interconnected, this will place a strain on the financial system.
4. 75% lump sum payment to pensioners on retirement will make them worse off
With regards to the proposed amendment to enable retirees withdraw 75% lumpsum payment. The proposal may seem noble, especially given that from a retiree’s viewpoint, persistent angst of sub-inflation returns, and sub-optimal customer service experiences are noteworthy.
However, from a macro-economic perspective, the opportunity costs can be immense and enabling a 75% lump sum withdrawal may not be a proportionate response to the challenges faced.
Specifically, decimating the Nigerian savings industry by encouraging large scale fund withdrawals will deprive the economy of the benefits of domestic investment mobilization.
Most economists agree that the degree of savings in any country is a key driver of growth of in that economy. There is even a formula:
- National savings rate = (Income – Consumption) / Income. But that is beyond the scope of this topic
However, the core point is that a country’s domestic savings is used to drive investments which stimulate economic growth and then future consumption.
Conversely, if a country does NOT encourage savings (i.e. if a country has a high marginal propensity to consume), the result is that the country will eventually need borrowings to sustain itself.
If this issue sounds familiar (i.e. high propensity to consume which decimates savings culture and ultimately results in higher borrowing for critical projects) then you are probably thinking about the recent Federal Government experience of decimating its Excess Crude Oil Savings account. From a high of $17billion to just under $35million as at January 2022.
- An investment analyst, Ayo Bamidele, stated that 25% of the pension fund is NOT sufficient to sustain pensioners in the long term. Specifically, he said “if we are advocating for a larger lump sum payment of at least 75% as proposed under this bill, then we need to ask if the 25% remaining is enough to sustain you periodically for the rest of your time on earth. The answer is a resounding NO.”
In conclusion
Both amendments may appear noble, however, from a macro-economic perspective, the proposals have huge potential to decimate Nigeria’s fragile retirement savings industry and creating financial risks to the economy due to lower domestic savings.
The idea of regulatory reform should always be to make things better for all stakeholders and the Nigerian economy at large. Therefore, rather than looking to decimate Nigeria’s savings culture by increasing the number of exempt groups such as the Police, as well as, expanding eligible withdrawals, the focus should be directed to how to grow returns and benefits available to retirees.
This can be accomplished by enabling the Pension’s industry to seek more opportunities to participate in real sector development and growth. Alternatively, the retirement account holders can be given the flexibility within the existing Pensions structure to utilize their existing account balances for certified low-to-medium risk investment opportunities
- Examples of what the accounts can be used for is unlimited such as Mortgages, Real Estate investments, or individuals be allowed to buy USD assets which get custodied by domestic custodians or even using the fund balance as a source of loan or collateral for a loan.
- The basic premise is that individuals can access their accounts for certified investments but keep within the AUM balances rather than full scale withdrawals.
Interestingly, in advanced economies, retirement accounts form the basis of wealth creation and individuals are encouraged to tap into these balances for further investment opportunities such as buying a house or buying a small business (i.e., folks can use their retirement balances rather than taking out personal or business loans at high-interest rates).
My first question to those opposing the 75% lump sum:-
1. Is it their money?
2. Are they considering time value of money?
3. Why can’t they also propose investment opportunities to the pensioners? If i want my money give me. If i want to keep with you, i do
Exactly, before PENCOM Nigerian economy was being run according to set parameters. Why is the pensioner money always the focus of this economic gamblers whose aim is to protect the businesses of their masters. Money taken by the pensioners will definitely be able to fund small scale businesses who are the immediate patronages of an average pensioners. Will grassroot businesses not grow that way?. Those opposing this amendments just what money in hands of big investors who have continuously kept the monies away from the poor masses among which we have about 70% of Nigerian pensioners.
Why are you people removing comments that do not agree with your line of thought. Those opposed to the act amendment are benefitting from the pension scam and are doing their best to maintain the status quo. What is the benefit of the trillions declared by PenCom when the owners of the money are suffering and dying poor. This write up doesn’t make sense at all. Block my comment if you like.
I am not surprised if the writer is doing a paid job. Am sure he is not an employee. Contributory pension scheme is a scam. It should go.
Retirees should have 100% control of their savings. Bankers should negotiate with pensioners on the investment opportunities and negotiate. PFAs have been in control of the RSAs for 10 to 30 years. Pension law should not cage pensioners money for the benefits of PFAs and bankers. Pensioners are dying daily because of wicked pension law. Give pensioners 100% access to their money after retirement.
Thanks.
If PENCOM wish the POLICE WELBEING without any hidden agenda, they should support the removal of POLICE FROM CONTRIBUTARY PENSION SCHEME like their Military/DSS counterparts. What is good for the gueese is also good for the guanda.
Contributory pension policy is good but does not favour low income earners .when the law says that if one have saved up to N550 000 and has attained the age of 60 years he can only access 25% and the balance is spread over a period of 15years by this he or she will earn N3000 monthly as pension.under current economic realities.is this not wicked
The proponents of this writeup are wicked and vicious. They derive immense joy in milking the Pensioners of their hard earned money. The 75% lump sum is the best way out for a Pensioner to utilize his life long savings and get out of poverty.
Greed , what about the money stolen by the PENCOM boss ?
By the way is the federal government now saving from the people who had serve 35years in this country.
Is PENCOM now the ministry of finance and budget , planning etc. ?
Please , remove your vested interest on the RETD police men account now.
So much have stolen from PENCOM yet no enquiry , no purging of of the staff of PENCOM carried out that’s why the PENCOM boss is still wagging.
If nothing is done to burger you of very rotten eggs in this government watch out the nest government that will take up the coming steps.
Is PENCOM now ministry of finance/ budget planning ?
You guys are their mismanaging pensioners money because the present government is not seeing the rot in PENCOM . The money stollen by PENCOM boss should be a reason for a sitting government to dismantle anything like PENCOM . Ok, if it’s not done now watch the nest government coming . Most of the unrevealed will be revealed for most you turning PENCOM to finance to make uncomfortable refund with despatch to avoid what your first boss is facing now , watch out
I commend the sponsors of this well researched ‘rubbish’. Some pertinent questions beg for answers. 1 Why would anyone keep referencing our manifestly corrupt economic clime with those of the saber western World, even in the face oddities and absurdities? 2. Was the NPF established as a revenue generating institution for govt? 3. If pension savings are for the benefit of pensioners, what role does any law in Nigeria give to pensioners, who truly are the owners of pension fund. In the management,control and accountability of the funds? 4. To whom is PENCOM accountable? 5. Who are the shareholders of PENCOM? 6. PENCOM allegedly embarks on sundry business ventures. On whose behalf and authority dies it run these chains of businesses? What happens to the profits made, every year, from 2004 till date? 7. Those who see PENCOM as the bastion if the Nation’s economy, how would they explain the massive thievery involving colossal and humongous amounts, going on in PENCOM? 8. The population of the Nigeria Police is approximately 400,000 citizens; and permit me to put the population of COS retirees at 180,000. Are these ‘killer prophets’ of savings culture telling the whole world that Nigeria’s economy should depend on the savings from police retirees. Only police personnel are trained and wired to be martyrs if Nigeria’s economy that sustains over 200 million people. So exit police retirees from COS today and Nigeria will collapse? This is fallacious. I can go on and on. But, the more questions I ask, the more frustrating pictures I get. Is it now DG PENCOM knows that the police pay package is insignificantly negligible? What a self-aggrandizing opinionated avarice on display! Anyway, the police will exit CPS. I want to witness Nigeria’s economy and savings culture capitulate in bankruptcy. Fleecing petroleum money, resources from agric. and solid mineral sectors, are now, not enough for these monumental thieves. It is police retirees’s contributions they want to satisfy their glutinous raguery with. Fellow citizens who served in the security sector are exempted on bases of jib risk and arms bearing, only the policeman who also falls into both factors, is good to torture to death through deliberate hunger policy of PENCOM. I am disappointed in the arguments if these satanic butchers who must know exterminate police retirees, for the offence of serving fatherland as policemen. Oppression, indeed, makes a wiseman mad. These demagogues must know that ‘to deprive a man if his right and to subvert the cause of man in the sight of the Lord, the Lord dies not approve of it. We shall not labour in vain, neither shall we bring forth for trouble . We shall not plant for another to reap; neither shall we build for another to inhabit. For who is he that says and it comes to pass, when the Lord has not so commanded? In gathering, they shall gather; but not by the Lord and so, they shall fall for our sake. They shall come in one way, but shall be scattered in seven ways. The labourer is worthy of his wages. The Lord is on our side. We shall celebrate our victory…..
It appears that the PENCOM, PENOp and other analyst who are against the exit of the police from this obnoxious pension arrangement have something to hide which they are not willing to tell the globe. If the payment of police retirement benefits alone will unsettle the functionality of the pension industry and create a huge financial burden on the government, I believe the government is steering towards scraping the force which is impossible. In conclusion, those who are against the exit of the police from the CPS arrangement never mean well for the police and they are enemy of this great country.
The pension scheme is a scam.. Owners should be allowed to decide ultimately. Employees struggle with wages that are never enough, yet the funds employees would’ve use to diversify opportunities are held by autocratic schemes in the name pension.
Ordinarily, I would like to think the idea of the pension is to save from an abundance for an uncertain future. But what good is the future if one is living miserable in the now.
If i say all that is in my mind, that will give you people the excuse not to public my reply to this article. Obviously the writer is economical with truth and wicked because he valued economic indices above humanity. Retirees dying of hunger when they have money in their RSA is of no concern to him. Current CPS is a scam and everybody knows it. If i can withdraw 75% of my money at retirement and invest it in mutual funds with 10% interest p.a. The monthly pay out will be more than the planned monthly pay out by Pencom. And my capital will remain the same till death leaving enough money for my dependents to share. Anything less than 100% access to my money at retirement is unacceptable. Refuse to publish my response if you like. The truth shall come out one day. God is great.