How workers can maximise benefits of pension

How workers can maximise benefits of pension

Having lived with the ugly saga where pensioners suffer and even die in a bid to collect their pensions, the government introduced the contributory pension scheme which allows employers and employees contribute toward a safe retirement of workers. CHUKS UDO OKONTA examines the efforts of regulators and operators in ensuring that workers retire in a safe haven.

The labours of our heroes past; shall never be in vain is a major line in the national anthem. But upholding this has been a major challenge in our developmental process, as most of the hero who served the country meritoriously are subjected to herculean tasks before they pension are paid.

Many retirees did not live to enjoy their pension as they die in the cause to process or collect their pension entitlement. To reverse this tread, the government in 2004 introduced the contributory pension scheme to ensure that employers and employees contribute toward a better retirement of workers. In the scheme, public sector workers contribute a minimum of 7.5 per cent of their monthly emolument, public sector contributes 7.5 per cent on behalf its workers, while employers and employees in the private sector contribute a minimum of 7.5 per cent each. An employer is obliged to deduct and remit contributions to a custodian within seven days from the day the employee is paid his/her salary, while the Pension Fund Custodian (PFC) shall notify the Pension Fund Administrator (PFA) within 24 hours of the receipt of such contribution.

In spite the uniqueness of the scheme, it is still clogged with challenges such as weak business environment, reluctance of some employers due to perceived increased personnel cost, non or irregular funding of contributions, remittance without correct schedules, the large informal sector, low salary/purchasing power, low financial literacy level, inadequate marketing drive, customer/service delivery, inadequate coverage and dearth of investment outlet.

Operators perspective

Stakeholders said the challenges should be tackled effectively to ensure that the objective of the scheme is achieved and lives of workers improved in their retirement.     

Chairman Pension Operators Association of Nigeria Mr Dave Uduanu, called on the National Pension Commission (PenCom) to open the transfer window to give contributors the option of changing their pension fund administrator, increased supervision and regulatory vigilance to weed out weak operators, improve the Institutional framework of the industry by encouraging consolidation amongst marginal players, constantly reviewing the investment guideline to enable pension fund administrators invest in secure instruments that engage in impactful but profitable investments.

He also called for the decentralisation of the activities of PENCOM by creating regional offices in each of the six geo-political zones of the Country, needs to collaborate effectively with other regulators in the economy like National Insurance Commission (NAICOM), Security and Exchange Commission (SEC) and Central Bank of Nigeria (CBN) to ensure that regulatory goal congruence is achieved especially in the areas of policy formulation and implementation.

“Most importantly, there is the need to work closely with NAICOM to ensure full compliance in group life insurance which is one of the strong pillars of the PRA 2004. The risk management techniques of insurance firms that provide retirement annuities should also be closely monitored with such standard practices as biannual actuarial valuations, strict investment guidelines similar to what is applicable to PFAs and the separation of the annuity funds from their other insurance funds to ensure that pension assets are well-protected. It is also important to ensure that assets are not co-mingled and any deficit in valuation must be met immediately. In addition, since Insurance companies unlike pension fund aAdministrators bear the investment risk in annuities, it is important to tie the size of their annuity funds to the shareholders fund of the parent Insurance Company. It will therefore not make sense to have an insurance company with N2billion in equity manage an annuity fund of N20billion. It must have adequate capital to underwrite potential investment losses,”” he said.

 Uduanu urged pension operators (PFAs, PFCs and Closed Pension Fund Administrators (CPFAs) to continually improve on their service delivery, adding that this is necessary to retain the confidence of not only the contributors but all other stakeholders in the industry. He noted that this will also reduce the pressure from dissatisfied segment of the contributing public to exit from the scheme.

“As a means of sustaining the benefits of the scheme, the operators need to have a physical presence in all parts of the country. The retail nature of the pension business calls for close contact with contributors. There is a need for significant investments in information technology and other operating infrastructure so as to deliver good services and therefore retain the confidence of scheme subscribers. Operators must have relationship Managers to liaise with both contributors and their employers to ensure that issues and conflicts are resolved promptly. The amount of un-credited contributions in the industry must be reduced significantly from what it is now to an acceptable level,” he added.

He called on operators to ensure reduction in the turn-around time for paying retirees and the estate of deceased contributors, ensure that remittances received from contributors are promptly credited to respective RSA accounts, ensure that investment returns are competitive and consistently above inflation on an annualized basis, capacity building to train their staff in best in class standards of customer service, others include invest in brand building, communication and advertisements to project the image of both their organization and the industry positively in the estimation of the public and carry out customer education in the areas of pensions, investments and retirement planning to ensure that contributors are better informed of the scheme.

“Operators must also run highly ethical organization and be prepared to compete on the basis of service quality rather than cut corners to achieve short term gains. In addition, Operators must band together through the Umbrella of PENOP to advance the industry, achieve a collective solution to industry problems and form a common front against any emerging threat to the survival of the scheme.

Unnecessary bottlenecks between the Operators and the Regulators that serve as blockages for services being offered to the customer must be avoided. The plan by PENCOM to establish regional offices in each of the geo-political zones will lead to a quick resolution of issues especially those requesting minor approvals. This will impact greatly on service delivery standards in the industry,” he added.

He urged contributor to update their knowledge of the scheme and its various guidelines to enable them make informed choices regarding the PFA to use, issue of transfer or change of PFA, the Fund to buy when the multi-fund regime comes into place and the withdrawal option between programme withdrawal and annuities.

Managing Director First Registers Nigeria Limited, Mr Bayo Olugbemi, Said the benefits from pension are enormous, therefore operators and workers must play their roles effective to achieve their set goals.

“It is worthy to state that the new contributory pension scheme is undoubtedly a new dawn for pension fund management in Nigeria with obvious benefits for employer, employees, government and the economy as a whole,” he said. 

Regulator perspectives

Director General PenCom Mr Mohammad Ahmad, said the commission has aggressively intensified its compliance mechanism by taking legal action against defaulting employers. He noted that compliance by the informal sector received a major boost last year as the 2 million membership of the National Union of Road Transport Workers (NURTW) signified their intention to embrace the scheme and the industry is working towards registering them into the Scheme. He also called on organisations in the informal sector to subscrib to the scheme as it is a veritable source of income for all categories of employees after retirement.

Board Member National Pension Commission (PenCom) Mr Ivor Takor, urged organisation to have a robust payment package for their workers, adding that workers can only generate sufficient savings for retirement through improved remuneration.

Takor, noted that to guaranty and sustain the financial well being of retirees, pension reform should be lined with social security reform such as those of housing and health.

He said the pension reform is to recent for better evaluation especially as regards the effect on the financial well being of retirees, adding that only after a relative long period of time will it be possible to know the real impact of the reform on the living conditions of retirees.

“There is however, a fundamental matter, which is creating conditions for workers to generate sufficient savings in their Retirement Savings Accounts (RSAs). Such an environment can only be derived through higher levels of work-related revenue or other forms of remuneration,” he said.

He note that non compliant in remittance of contributions by organisations, would affect their workers when they retire.

He called on organisations to embrace the pension scheme, remit their contributions promptly to forestall bleak future for their workers. He said pension is the most visible program of any social security scheme, which provides protection to citizens from old age poverty.

He said until the enactment of the Pension Reform Act 2004, pension in Nigeria had a limited coverage, covering only workers in the formal sector, leaving workers in the informal sector without any pension protection.

Takor noted that the reform in the pension sector is still too recent for a better evaluation regarding the effects on the financial well being of retirees.

 “Only after a relative long period of time, will it be possible to know the real impact of the reform on the living conditions of retirees. There is however, a fundamental matter, which is creating conditions for workers to generate sufficient saving in their retirement saving accounts. Such an environment can only be derived through higher levels of working related revenue or other forms of remuneration. There is also a need to link pension reform with a more encompassing social security reform, including those of health and housing if the financial well being of retirees is to be guarantee and sustained,” he added. 

Commissioner Technical, National Pension Commission (PenCom), Ms Eyamba Henshaw, noted that for workers to maximise the benefits of pension scheme, issues such as weak business environment, semi formal nature of most businesses, perceived increase personal cost should be addressed.

She said PenCom has intensified efforts to educated organisations on the need for them to embrace the scheme to forestall incidences where people retire and have nothing to leverage on.

She urged pension operators to intensify efforts in their market drive, customer serviced and branch expansion to boost awareness on the scheme, adding that the nation stands to benefit tremendously if the scheme is effectively entrenched. She also called on operators to keep their customers abreast of trends in their operations.

Head, Compliance and Enforcement, PenCom Mr Mahammad Umar, said pension is addressing the challenges confronting the pension scheme through developing a comprehensive employer data base, engagement of consultants for recovery of outstanding monthly contributions, introduction of the framework for voluntary contribution and informal sector participation in the CPS, increase capital base to N1 billion with a deadline of June 2012, review of the PRA 2004 to address identified lapses and working with other regulators to develop financial market and create alternative investment securities

increase public awareness.

He urged employers to comply with the scheme to forestall a bleak future for retirees. He said the level of implementation of the CPS by the 36 State of the Federation as at November is as follows: Commenced full implementation  six, partial implementation 11, pension bills with State Assemblies 17 and no action states two. He many private operators are being encourage to embrace the scheme.

Conclusion

According to PenCom, the RSA registration by age distribution of participants shows that the number of contributors in the age bracket “30 – 40” accounted for the highest proportion of RSA holders in 2010. It noted that this age category accounted 35.24 per cent of RSA holders in the year. This was closely followed by those in the age category “less than 30 years”, which accounted for 28.14 per cent of RSA holders in 2010. These age categories together accounted for 63.38 per cent of RSA holders in both the public and private sectors in 2010.

PenCom noted that the Nigerian working population is relatively young and that the issue of ageing is not yet a concern for Nigeria as it is in many other African countries. It said a large percentage of contributors still have at least more years of contributions under the compulsory pension scheme before they can enjoy pension. It also suggests that pension funds can be successfully invested in long-term instruments in line with the reviewed pension fund investment guidelines.