As 25 abandon workers group life insurance

By Rosemary Iwunze

The fate of workers in 22 states appears to be hanging in a balance over their retirement entitlements as the affected states may have abandoned the implementation of the Contributory Pension Scheme, CPS, about 17 years after the mandatory law was enacted.

The total amount that may have been trapped in this state of affairs across the states is put at about…, just as the various states are currently struggling to honour their basic obligations to the workers in terms of salaries, wages and allowances.

Under the Pension Reform Act 2004, which created the CPS, the employers (states) and the employees were mandated to contribute a total 17.5 per cent of the amount in credit to the Retirement Savings Accounts, RSAs, of the individual workers, maintained with the Pension Funds Administrators, PFAs.

This contribution is made up of 10 percent from the employer and 7.5 per cent deducted from the employee’s salary.

Financial Vanguard findings last week indicated several variants of non-compliance. While some states were not contributing their 10 per cent creating a huge shortfall in the workers’ RSAs, some were deducting the 7.5 per cent from their workers and refusing to remit same to the RSAs.

Also some states have completely abandoned both sides of the contributions while others have introduced some amendments to the existing federal legislation and yet refuse to implement their own law.

Consequently, several millions of workers have retired from the states’ civil service without receiving their full entitlement since the CPS regime.

Only eight states which are Benue, Kaduna, Delta, Edo, Ekiti, Lagos, Ondo, as well as Osun, are implementing the CPS for their workers.

States yet to key into any pension schemes are Kogi, Kwara, Nasarawa, Plateau, Bauchi, Borno, Gombe, Taraba, Katsina, Sokoto, Zamfara, Akwa Ibom, Bayelsa, Cross River, Oyo, Abia, Ebonyi, Enugu, Imo, Adamawa, Gombe as well as Rivers.

In addition to these failures, Financial Vanguard also gathered that 25 state governments have no Group Life Insurance Policy (GLIP) for their workers as mandated by the Pension Act. Only five states including Kaduna, Edo, Lagos, Ondo, as well as Osun are implementing group life insurance for their workers.

Stakeholders worry that the non-implementation of a pension scheme in these states have pushed retirees into old-age poverty, even as workers that are still in active service are gearing up to retire into poverty, coupled with the fact that their family members will not get any compensation in the event of the death of the worker while still in service or out of service due to these non-compliances.

Experts are of the view that Section 188(2)(b) of the Constitution provides that a Governor or Deputy Governor may be removed from office if the holder of such office is guilty of gross misconduct in the performance of the functions of his office.

According to experts, the 1999 Constitution (as amended) guarantees the right of pension for employees of state governments. Section 210(1) of the Constitution provides, subject to the provisions of subsection (2) of this section, the right of a person in the public service of a state to receive pension or gratuity which shall be regulated by law. Subsection (2) provides that any benefits to which a person is entitled in accordance with or under such law as is referred to in subsection(1) of this section shall not be withheld or altered to his disadvantage except to such extent as is permissible under any law including the Code of Conduct.

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Partial compliance

Meanwhile, further analysis of the status of implementation of pension schemes in states reveals that some states have commenced some form of implementation but with hitches.

For instance, Niger State enacted a Law on the CPS in 2006. It suspended implementation of the CPS in April 2015 but amended its Law in 2017 to extend its transition period to exempt some employees from the CPS. The state resumed deduction of 10.5 per cent for employer and 7.5 per cent for employee pension contributions in June 2020 but remitted for only June and July 2020. It is currently deducting employer and employee pension contributions but not remitting same to employee RSAs.

Kebbi State on the other hand has enacted a law on the CPS and is remitting only 7.5 per cent of employee pension contributions.

Ogun State enacted a law on the CPS, deducted 7.5 per cent for employer and 7.5 per cent for employee pension contributions but stopped remitting same since 2015.

Anambra remitted employer pension contributions up to December 2017 and employee pension contributions up to August 2020 for the state employees. It remitted employer and employee pension contributions up to August 2018 for the local government employees.

States with other schemes

Meanwhile, some states are operating their own pension scheme as mandated by the Pension Act.

For instance, Jigawa State enacted a law on the Contributory Defined Benefit Scheme, CDBS, in 2005 and further amended the law in 2015. It is remitting 17 per cent for employer and eight per cent for employee pension contributions. The state remitted employee and employer pension contributions for December 2020 to March 2021, but yet to remit the backlog of employee and employer pension contributions for May 2020 to November 2020.

Yobe state is operating the Defined Benefit Scheme, DBS. However, a Committee has been inaugurated on the adoption of the CPS in February 2020.

Kano enacted a law on the CDBS in 2006 and implementing the scheme.

The Pension Reform Act

The pension reform brought about the enactment of the Pension Reform Act 2004, which introduced the Contributory Pension Scheme (CPS). Section 99(1)(a) of the Act, repealed the Pension Act 1990 that was of universal application in the federal, states and local governments public services. The Pension Reform Act No. 2, 2004 as amended, was repealed and replaced with Pension Reform Act 2014.

Section 4(5) of the Pension Reform Act (PRA) 2014, stipulates that every employer shall maintain a Group Life Insurance Policy (GLIP) in favour of all employees. The GLIP should be a minimum of three times the annual total emolument of the employees.

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Regulator’s position

Speaking on the issue, Head of Corporate Communications, National Pension Commission, PenCom, Mr Peter Aghaghowa, said that the autonomy that states have over their own pension schemes have been a challenge bedeviling the smooth operation of pension in states.

Aghaghowa said: “The implementation of pension in states is a different kettle of fish because of the autonomy they have over it. This is unlike what is obtainable in the federal pension scheme where we have a tight grip on.

“Unfortunately it is the workers that will bear the consequences of the default in remitting pension contributions because whatever benefit they are going to get at retirement is dependent on what is in the retirement savings account.

‘‘So imagine how it will be if money is not going into their retirement account now.

“However, PenCom has not been resting. We have been engaging the state governments on regular basis. We have even gone as far as paying courtesy visits to some of them and taking the issues to the state governors themselves.”

Experts’ comments

Speaking on what necessitated the reform of the pension industry, Executive Director of the Centre for Pension Right Advocacy, Mr. Ivor Takor, said that the reform was necessitated by many problems that confronted both the public and private sector pension schemes.

He said: “The public sector, federal, states and local governments, operated the ‘Defined Benefits Scheme’ under the Pension Act 1990, which was of universal application in the whole public services in the country. The scheme was unsustainable due to lack of adequate and timely budgetary provisions and increases in salaries and pensions. There were also demographic shifts due to rising life expectancy; thus, pensioners were beginning to live longer. Pension administration in the sector had been largely weak, inefficient, less transparent, very corrupt and cumbersome.

“The reform, therefore, sort to introduce measures aimed at developing a system that is sustainable and has capacity to achieve the ultimate goal of providing a stable, predictable and adequate source of retirement income for each worker in the country. In a nutshell, this was what led to pension reform, which gave birth to the pension industry as we know it today.”

Also speaking, Mr. Lanre Laoshe, a former member of the House of Representative said: “The Contributory Pension Scheme, unlike the old Defined Benefit Scheme that it replaced, has inbuilt safeguards meant to protect the fund from mismanagement and fraudulent practices.

“The scheme is fully funded through monthly contributions, which are put into Retirement Saving Accounts (RSAs) owned by employees. Employers cannot access the funds. The funds are warehoused by Pension Fund Custodians and managed by Pension Fund Administrators. The law established the National Pension Commission, among other objectives, to regulate, supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria.”

The way forward

Speaking on the way forward, Takor said: “The governors, past and present of the affected states, have demonstrably shown that they have no regard for the provisions of extant labour laws.

“Moreover, they ran, and continue to run, their states in grave violation or breach of the provisions of the constitution of the country, which they swore to uphold. Section 188(2)(b) provides that a governor or deputy governor may be removed from office if the holder of such office is guilty of gross misconduct in the performance of the functions of his office. Subsection 11 provides that: ‘In this section, gross misconduct means a grave violation or a breach of the provisions of this Constitution or a misconduct of such nature as amount in the opinion in the House of Assembly to gross misconduct.’ Failure to come up with a law on pension for state’ workers and withholding of their pension is a grave violation or breach of the provisions of the constitution, which makes it an impeachable offense.”

Also speaking, Laoshe said: “It is absolutely immoral for governors to consistently fail to key into the pension scheme. It is even more immoral for those who fail to remit pension deductions of their workers to seek to borrow from the funds contributed by others, mostly by private sector and Federal Government workers.

“State governors and other political authorities should drastically lessen corruption, improve transparency in the financial processes of their states, be more creative in the drive for IGR, and look more in the direction of projects that are both socially beneficial and economically viable.”

Vanguard News Nigeria