Gratuity not a retirement benefit – Mokikan
BY VICTOR AHIUMA-YOUNG
SINCE the inception of the Contributory Pension Scheme, CPS, which came as fallout of the Pension Reform Act of 2004, there has been an unending controversy over continuity of gratuity as part of terminal benefits of employees especially in the private sector.
In this chat with Pension and You, Executive Director, Human Resources, 7UP Bottling Company Plc, Mr. Femi Mokikan, a lawyer, said Pension Reform Act, PRA, 2004 did not abolish gratuity and that negotiation between employers and organized labour remains the only way out.
Endless debate over gratuity: It depends on which company or sector of the company you are in. The two serve different purposes where they existed or where they still exist. Gratuity, the history of it was to encourage people to stay on in a particular employment. Ok, shortage of staff, it is difficult to get them, so the ones I get, I do not want them to leave. So, you work with me for 10 years, I will give you this, 15 years and so on and so forth. That was what gratuity was designed to do.
For me, gratuity is no more relevant. Even these young ones, do not want to stay in a place for too long, so why should I then be worrying about gratuity. The guy wants to move round, let him move. Secondly, the person discussing it will determine what manner of response you will get. Every employer of labour will tell you that gratuity is an added burden and I want to jettison it.
Of course, every employee including myself wants it because gratuity is an extra money in the pocket. So it would be a miracle if somewhere down the lane both the employer and employee agree. Let it not be too hard on the employer when it exists, and let it not also deprive the employee. Over time, it became a negotiable item.
Once you have negotiated it and reached agreement with the union, management cannot unilaterally pull out of it, except you want another crisis on your hand. I know a few companies that gave carrot. If you drop gratuity we give you this, so gratuity does not exist anywhere there anymore. But I know also of many companies where they tried many approaches but the staff said they wanted gratuity to continue.
So what they eventually decided was to reduce the burden by changing the way they used to compute it. Now, it is cumulative, before it used to be retroactive. I work with you for 30 years, my salary when I resumed was hundred naira, at the time, I retired my salary was 1000 naira. So every month, you will use the 1000 to compensate me for 30 years.
Today they are cumulating it, use the salary to determine gratuity and set it aside, so next year you add to it, and that makes it lighter. I think it does not meet both sides hundred percent, but it is an acceptable compromise for the two. The way gratuity was going at that time, if something did not change, believe me, a lot of companies would have suffer from it to a point where even the employees will not have anything to take.
So which one is better? Take less or take zero. It is better to take less, which is what we do in 7U. As I said, I am an employee, the more money you will give me, the happier I will be, but I do not want my company to go under to a point where I cannot get anything again.
So the pension reform act did not mention gratuity anywhere from the beginning to the end. What you have there is “retirement benefits”. Gratuity is not a retirement benefit. As soon as you have worked somewhere for five years, you should be entitled to gratuity, it can be 10, 15, 20. I can join 7 UP at 20 and retire at 25, and as soon as I am 25 I am entitled to gratuity. Since I am not retiring at 25, you cannot call it a retirement benefit. I can be here till thirty, meaning that I am entitled to ten years gratuity.
There is a difference between retirement benefit and end of service benefit. Service can end any time. Retirement means that retirement age is sixty, you have reached 60, go. If you have voluntary retirement, you must leave at sixty, and I say when you have put in 35 years, go. So whether I am fifty, after 35 years I can go. We do not even argue about it anymore.
Future of CPS
The people who will benefit from this reform are not in my generation, those people who have more than 10 years. I have less than ten years because the money I have put in is too small. Anybody who is twenty or thirty today, by time the person has worked for thirty years; they are the ones that will really benefit from it. The operators themselves are very flexible. If your contribution is N500,000 they give you everything.
Do you know that it is possible for some people to contribute up to N50 million? If your money is small because you are contributing small, you will complain. So we need to categorize even the beneficiaries themselves. Those of us who are contributing less than five years before we retire; anything we get, we should not think that it is the system itself that is wrong. Believe me, I do not know what it will be but anybody who will contribute more than twenty years in this scheme should be thanking God. Why? Your salary is going up at least every year.
If your salary is going up, your contributions are also going up. Just be adding it, every year, every year. By the time you sit back and you look at your contribution, it could be N25 million, although you can argue that the value of money at that time will also be something else. But compare that with nothing or with something that is significantly less.
At the end of the day, we are talking about percentage, whether there is inflation or not, you are still talking about percentage. So, let us start from somewhere and fine tune the process along the way. Take for instance, when I fully disengage, and I know that 7UP would pay me something and if after one month or two months, I did not get anything from 7 UP, it could kill a retiree.
But if I register with a Pension Fund Administrator, PFA, somewhere, and go through the whole process, let us say the process takes about five months, six months, at least, I am not looking for a new wife, my children, maybe the last one will be in Secondary school, and the investment in the elder ones who should also be working, they will remember their brother or sister. You know the last born is always the luckiest in terms of homes that have peace and unity.
They will say Daddy has tried for us, let us take over the last one. So it will be able take care of your health and what you will eat. And you know old people do not eat much, so it will be primarily about your health. If God favours you as he has favoured me, you won’t have any challenges. I think the future for employees is this new scheme. I am not saying it’s perfect. There are loop holes, as they come up, they should be addressed. But I think we are heading in the right direction as far as pension is concerned.