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Re-echoing the safety of the contributory pension scheme

By ROSEMARY ONUOHA

The Contributory Pension Scheme, CPS, was established nine years ago by the Federal Government.

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It is meant to ensure that improvident individuals save in order to cater for their livelihood during old age, establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits to workers in both private and public sectors and that retirees get their pension as at when due.

Before then, what obtained in the public sector was a defined benefit non-contributory pension scheme whereby retirees were paid from budgetary allocations. In the private sector, there were different types of pension schemes depending on individual employers and their agreement with in-house unions where they existed.

With the enactment of the Pension Reform Act, 2004 (PRA), the Federal Government arm of the public sector embraced contributory pension by January 1, 2005 while it was made mandatory for the private sector by July 1, 2005.

Structure of Contributory Pension

The National Pension Commission (PenCom) was established in line with provisions of the pension reform law.  It is statutorily empowered to regulate the pension sector from the scratch and to create structures for the smooth operation of the scheme and it licensed 18 Pension Fund Administrators (PFAs), 7 Closed Pension Fund Administrators (CPFAs) and 4 Pension Fund Custodians (PFCs).

Under the scheme, employers deduct 7.5 per cent of individual workers monthly salary and contribute at least the same amount which is credited into the workers’ Retirement Savings Accounts (RSAs). The respective PFAs chosen by individual workers then manage the accumulated funds, which is under the custody of the PFC chosen by the PFA.

Giving an update on the scheme, the Acting Director General of PenCom, Mrs. Chinelo Anohu-Amazu said Nigeria’s contributory pension scheme between 2004 and last year grew at an average rate of 27.05 per cent annually and from inception succeeded in reversing and plugging the N2.6 trillion pension hole that weighed down defined benefits schemes in the country and accumulated almost N4 trillion as at February 2014.

Also, the Pension Fund Operators Association of Nigeria (PenOp) confirmed that the number of contributors under the scheme rose to 5.9 million last month and forecasted that half a million workers would join the scheme this year.

Setbacks for Contributory Pension

The residual defined benefits non-contributory pension scheme in the country has continued to pose serious threats to Nigeria’s contributory pension scheme in its tenth year.  Fraud in the administration of the residual defined benefits schemes have persisted while retirees under the rested schemes suffered hardships and various forms of dehumanisation.

Even with the assurances of contributory pension, every report about fraud and mismanagement in the residual schemes rubs off negatively on the new scheme since many Nigerians do not really understand that the two schemes are like two parallel lines that can never meet.

Two years ago, while PenCom and pension operators were shoring up confidence for contributory pension, the National Assembly uncovered massive fraud in the residual scheme.  This discovery threw spanners into the works of contributory pension stakeholders and the image of the scheme dipped seriously.

While some members of the public blamed top government functionaries for pilfering retirees’ stipends put under their custody, pension operators blamed the media for misrepresenting facts that emerged from the probe.  The fallout of the crisis forced stakeholders back to the drawing board, in an attempt to reposition the sector with a view to build a strong brand of the new contributory pension scheme.

And as they count their blessings, news of another pension scam enjoyed wide publicity last week and like previous ones it was erroneously reported that it took place in the office of the contributory pension regulator, PenCom.

The Chairman of the Independent Corrupt Practices and Related Offences Commission (ICPC), Mr. Ekpo Nta was reported as having said that his organisation apprehended a Clerk in PenCom who opened 50 different bank accounts with different names and signatures and banked over N450 million in these accounts.

These reports generated a lot of bad comments from Nigerians who could not hide their disappointment following this discovery that has cast aspersions on all the assurances of security and sanctity of pension fund under contributory pension scheme.

Reacting to the reports, the Head of the Communications Unit at PenCom, Mr. Emeka Onuora came out strongly in defense of PenCom saying “the commission wishes to state categorically that no official of PenCom is involved in any form of looting of pension fund.”

Investigations also confirmed that PenCom does not engage clerks and as such, none of its employees goes by that designation even as it denied having been informed by any agency that its employee was being investigated or prosecuted for looting pension fund.

The ICPC chairman later denied saying the culprit works in PenCom and clarified that the apprehended junior officer works in the civil.

Safeguards

PenCom has continued to beat its chest about the safeguards put in place under the contributory pension scheme to ensure safety of contributors’ money.  Some of these safeguards include the anti-fraud mechanism laced around its operation even as the commission ensures that loopholes that fraudsters who intend to corner the fund could take advantage of are plugged to a very reasonable extent.

Giving more assurances, Onuora said “There are safeguards to protect the pension funds from all forms of misappropriation with the functions of custody and administration of the funds clearly delineated. While the PFCs are in custody of the funds, the PFAs manage and administer them.”

He highlighted the fact that PFAs and PFCs are also mandated by the Commission to maintain high levels of transparency and accountability and to give contributors unfettered access to any information relating to their accumulated pension savings.

In addition, PenCom has in place strict regimes, which include daily monitoring of the investment activities of PFAs and the institution of strict pay-out authorisation requirements.  These ensure that PFAs are not reckless in their investment decisions, while ensuring that only the right beneficiaries would have access to pension money.

Some other measures include the guarantee to the full sum and value of the pension fund and assets held by Pension Fund Custodians as mandated by the regulator as well as risk rating for instruments that pension funds could be invested in.

In addition to the engagement of a Compliance Officer (CO) who is saddled with the responsibility of ensuring compliance with the provisions of the law regarding pension matters, PenCom reviews the internal rules and regulations of operators, keeps track of the activities of pension operators and gets regular reports on their activities.

Every PFA is also required to maintain a Statutory Reserve Fund, into which shall be credited annually with 12.5 per cent of the net profit after tax or as stipulated by PenCom to meet claims.

The Commission also imposes legal and administrative sanctions for non-compliance with rules and regulations as any operator found wanting is sanctioned in line with the law among other things.

“These checks and balances were embedded in the law to give the contributors rest of mind and encouraged workers not to be skeptical about the new contributory pension scheme. The pension reform has addressed problems of past pension schemes to a large extent,” PenCom assured.

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