August 21, 2017

FG pension liabilities to rise by N20bn with exemption of paramilitary from CPS

FG pension liabilities to rise by N20bn with exemption of paramilitary from CPS

Nigerian elder statesmen on the queue during Pension verification exercise.

Operators list adverse implications

By Rosemary Onuoha

AS the federal government continues to grapple with means of settling its huge pension deficit, an additional N20 billion liability would be added to the stack upon passage of the bill for the exemption of the Police and other paramilitary agencies from the Contributory Pension Scheme, CPS.

Financial Vanguard findings show that the Federal Government made a provision under the Service-Wide Vote for the sum of N200.17 billion as total pension and gratuities allocation in 2016   whereas total pension liabilities was N388.32 billion, leaving a shortfall of N188.15 billion.

A cross section of pensioners

A bill was sponsored by Honourable Oluwole Oke on May 16, 2017 seeking to amend the Pension Reform Act 2014 to exclude members of the Nigeria Police, the Nigerian Security and Civil Defence Corps, Nigeria Customs Service, Nigeria Prison Service, Nigeria immigration Service and the Economic and Financial Crimes Commission from the application of the CPS and other related matters.

A similar bill scaled through and became law in 2011 and the Military, Department of State Security and the Nigeria Intelligence Agency were exempted from the CPS and returned to the old system of Defined Benefit Scheme DBS.

However, while this development, Financial Vanguard findings show, has resulted in increasing pension liabilities year-on-year since 2013, budgetary allocation of to meet the requirements have been on decrease. The allocations which had been going down from 49.4 per cent in 2013 to , 49.1 per cent in 2014, 45.1 per cent in 2015, 41.99 per cent in 2016 before rising to 43.1 per cent in 2017.

The Pension Reform Act (PRA) 2014 repealed the 2004 Act. In the 2014 Act, the government is mandated by law to contribute 10 per cent for its employees, while the employees contribute eight per cent, amounting to 18 per cent. Since 2014, the government is yet to comply with the mandate.

PenCom’s position
According to the National Pension Commission, PenCom, in the last 10 years, the number of FGN employees that retired under the CPS from the six agencies sought to be exempted are 50,730.

The total accrued benefits of these personnel amounted to N208.22 billion, which had been redeemed by the F ederal Government, paid into their respective Retirement Savings Accounts (RSAs) and consolidated with their monthly pension contributions to fund their retirement benefits.

Head Research and Corporate Strategy Department of PenCom, Dr. Farouk Aminu said, “These retirees are currently receiving their retirement benefits promptly as and when due. Exempting them from the CPS would imply that government would shoulder the huge financial obligation of payment of their pensions as well as that of future retirees through budgetary provisions, with no guarantee of availability of funding or timeliness of payment.”

He stated further: “Out of the N388.32 billion pension liabilities of the federal government, the sum of N255.89 billion constituted unfunded liability, which was inherited by the Pension Transitional Arrangement Directorate, PTAD, mostly due to outstanding payments for 33 per cent pension arrears to pensioners under the DBS.
“Indeed, the Federal Government pension liability burden under the DBS is much higher than the PTAD proposals in view of the provisioning of about N74.53 billion for the Military Pension Board, N7.64 billion for the State Security Service and N3.71 billion for the National Intelligence Agency.

“Consequently, it would be fiscally imprudent to increase the number of this category of retirees under that Scheme. It would also render the retirees financially vulnerable and insecure.”

Operators’ position

Chairman of the Pension Fund Operators Association of Nigeria (PenOp), Mr. Eguarekhide Longe, who is also the Managing Director of Aiico Pensions, said that a complete pull-out of the paramilitary services is certainly not the answer to the problem especially given the current state of public finances in the country.

“Permitting this bill to gain root as the Armed Forces Amendment Bill did, will spell doom for the public sector segment of the contributory pension system in Nigeria and for the entire industry ultimately as other groups within the Scheme will follow suit,” Longe explained.

He stated: “If the paramilitary is pulled out from the CPS where we have a history of government being behind in payment of benefits, then it will be chaos. It means going back to long queues, going back to verification and all of that. That does not make any sense. I think that people who are supporting this bill have totally taken their minds from there and focusing on very porous issues. The rank and file of the military, many times, have come back to stakeholders in the contributory pension system to say that they will be happy to come back to the scheme.

“Exemption of the personnel of the Police and other Paramilitary Agencies indicates, by implication, the dismantling of the institutions, systems and processes that government had put in place in the last few years towards the implementation of the pension reform programme, including the culture of national savings as well as the efforts to eradicate the structures that encouraged corruption during the pre-pension reform era.

“This is contrary to the policy thrust of the current administration of diversification of the economy and fight against corruption. An immediate negative impact of the exemption of the Police and other Paramilitary Agencies is to unsettle the government’s fiscal policy and financial system stability.

Immediate negative impact

“It is imperative to note that as at date, about 70% of the N6.4 trillion pension assets are invested in Federal Government securities. Exempting some government agencies would lead to divestment from FGN securities before maturity, which would have negative ripple effects on not only the finances of government, but on the entire financial system.

“Another immediate negative impact of exempting these agencies is the erosion of the pool of long term investible funds accumulated under the CPS, which is suitable for economic development of any nation as illustrated in other jurisdictions including developed economies. This would undermine the process of the attainment of development initiatives in the infrastructure, housing and real sectors of the economy, which are largely hinged on the utilization of a portion of the pool of pension fund assets.