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| Pensioners |
By NIKE POPOOLA
Stakeholders seem confused since the uncovering of some fraud cases in the old pension scheme, leading to skepticism about the pension industry. NIKE POPOOLA reports the differences between the old and new schemes being operated in the country
At present, two pension schemes are operational in the Nigerian pension industry. They include the Pay-As-You-Go Pension Scheme and the Contributory Pension Scheme.
In the former pension scheme, the three tiers of government in the country, including federal, state and local government, were responsible for the payment of pensions to public servants, while some other corporate bodies also had special pension programmes for their workers.
To develop the industry, the National Provident Fund was established under the Act of Parliament in 1961 to regulate private sector pension scheme in the country. Under this scheme, the monthly contribution was six per cent of basic salary, subject to a maximum of N8.00 to be contributed in equal proportion of N4.00 each by the employer and the employee.
The NPF was later converted to a limited social insurance scheme and administered by the Nigeria Social Insurance Trust Fund in 1993.
The NSITF operated a defined benefits scheme. The initial monthly contribution of members was 7.5 per cent of basic salary, shared in the proportion of 2.5 per cent by the employee, and five per cent by the employer. But it was later revised in 2002 to 10 per cent of gross salary (comprising basic salary, transport and housing allowances), shared in the proportion of 3.5 per cent by the employee and 6.5 per cent by the employer.
Under the former Pension Act of 1979, pensioners were subjected to very challenging conditions as they faced non payment of their pensions, and where they were to be paid, they queued for days to claim their benefits.
This scheme was not being funded by the government, which led to mounting pension liabilities that became unsustainable. Besides, the scheme was not regulated and there was virtually non existence of pension schemes across all sectors, thus, leading to difficulty in accessing benefits.
Unfortunately, setbacks in the scheme led to the repeal of the 1979 Act and the subsequent amendment of the Nigerian Social Trust Fund Act of 1993.
The failure of this old scheme, known as the Pay-As-You-Go pension scheme, led to the promulgation of the 2004 Pension Reform Act, which ensured a contributory scheme for the payment of retirement benefits of employees in the public and private sector.
However, the old scheme is still expected to go on side by side with the new scheme, until the last retiree under it dies, after which it would be folded up.
The new Pension Reform Act, 2004, established a Contributory Pension Scheme for the payment of retirement benefits of employees in the public service of the federation, the federal capital territory and the private sector.
The Director-General, National Pension Commission, Mr. Muhammad Ahmad, said that there were two different pension schemes existing in the pubic service of the federation today.
According to him, they are the defunct Pay-As-You-Go and the Contributory Pension schemes.
He said that the old pension scheme covered pensioners existing before the introduction of the PRA 2004 and workers exempted from the defined contributory pension scheme.
He added, "The scheme is being administered by the six pension departments in the Federal Civil Service; the Military (Pension Departments); the Nigerian Police; Nigeria Customs Service; Nigeria Immigration Service; and Nigeria Prison Service pension departments."
Funding for these pension departments, he said, came from the budgetary provisions by the Federal Government.
Ahmad said, "The defined CPS is based on individual Retirement Savings Account, which is managed by the Pension Fund Administrators. Funding for the scheme is on monthly deductions from the employees’ salaries and the equivalent contribution by the employer."
He, however, added that the alleged fraud in the pension department might not likely occur under the new pension dispensation because the system had been predicated upon structures imbued with adequate in-built control mechanisms to prevent such.
Under the new system, he said, pension funds were not left with the employers, "but are credited directly to the individual RSA of the beneficiaries, and neither the employer, the commission nor even the PFAs has access to the money."
According to him, the CPS has in-built safeguards to protect the pension fund from all forms of misappropriation with the functions of custody and administration of the funds clearly delineated.
While the Pension Fund Custodians handle the custody of the pension funds, he noted that "the PFAs handle the administration."
The PenCom boss said that the PFAs and the PFCs had been mandated by the commission to maintain high level of transparency and accountability, thus enabling individual RSA holders to have full access to any information relating to the pension contributions.
According to him, the commission has also put in place strict regimes, which include daily monitoring of the investment activities of PFAs by the commission, and the institution of strict payout authorisation requirements to ensure that the PFAs are not reckless in their investment decisions.
Ahmad also described the scheme as ensuring that only the right beneficiaries would have access to the pension funds.
"It is pertinent to note that there are enough safeguards for contributors fund under the CPS, which PenCom directly regulates and supervises," he stressed.
The Managing Director, Oak Pensions Limited, Mr. Mike Olayinka, explained that the old pension scheme was the Pay-As-You-Go scheme, which was mostly done by the government (federal and state) for public servants and some big organisations, like multinationals.
He said, "The old scheme is non-contributory and as such was solely funded by the government or the organisation. It was always characterised by inadequate funding and pensioners are not readily paid. This old scheme was and is still managed by the federal departments, with little or no supervision from PenCom."
"On the other hand, the contributory pension scheme is, as the name indicates, contributory in nature.
Under this scheme, he explained that the contribution required 7.5 per cent of basic salary, housing and transport allowances, deductable from the employees’ salaries and an equivalent amount added by the employer to make a total of 15 per cent.
According to him, this is paid into the RSA of the employee every month,and the retirement benefit of the account holder is determined by the amount in his account at retirement.
He said that it would enable the employees and the employer to contribute to the terminal benefits of the staff.
Olayinka tressed the need to note that under the new scheme, fraud and delay in benefits payments were almost non-existent due to the structures and controls in place for securing the funds and managing the accounts and also that the accounts were always fully funded.
The Chairman, Pension Fund Operators Association of Nigeria, Mr. Dave Uduanu, said that the CPS would bring solution to hiccups experienced in the past pension schemes in the country.
He, therefore, urged workers to have confidence in the scheme because it had a secure mechanism to protect their financial future.
He said, "The new pension scheme called the Contributory Pension Scheme is a very simple antidote to the complexities in the past scheme, which will ease the problem of retired workers going through hell to get their retirement benefits."
According to him, the CPS is robust, safe and poised to help retirees live well after their active employment life.
To a large extent, he said that the new pension scheme had placed in the hands of the contributor, the responsibility for the contribution available in the Retirement Savings Account.
Upon retirement, he said contributors would have to take their destiny in their hands, which remained a major difference between the new system and the previous system
Source Punch
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