Analyzing Geometric Progression Of Nigeria’s Contributory Pension Scheme

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In this analysis Yemisi Izuora looks at articulated initiatives of the National Pension Commission, PENCOM, that laid the foundation of growth of the Contributory Pension Scheme.

Without doubt the Contributory Pension Scheme, CPS, has generated appreciable pool of long term investable funds for the first time in Nigeria.

The CPS, a product of the Pension Reform Act 2004 which was enacted by the 2nd National Assembly and signed into law by the then President Olusegun Obasanjo.

It was precisely enacted on 25th June 2004 and came into effect on the 1st July 2004, and terminated the previous fraud fraught Defined Benefits Scheme (DBS) characterized by inadequate and non-released annual budgets with attendant implications for pensioners in terms of delayed payments, pension arrears, subsequent pension diversions and pension deaths.  

The 2004 Act made it compulsory that both the employer and employee pay 7.5 percent of pay emoluments to Retirement Saving Accounts (RSA) managed by Pension Fund Administrator of the employees choice and in line with the best global practice in which employer pays more than employee, 2014 Act amendment increased the contributory rates to 10 and 8 per cent for the employers and employees respectively. 

Through the robust public-private pension administration system, PenCom’s managed Contributory Defined Contribution Scheme (DCS) has systematically changed the pension narrative for the better. 

However, before CPS came into effect, the DBS had a reported pension deficit of about N2.3trillion at 2004. 

But with the zeal and commitment of the pioneer director general, DG of the Commission, Mr Muhammed K. Ahmad from 2004 to 2012, a solid foundation was laid. This was greatly supported by the pioneer chairmen, Fola Adeola and late Chief Oluwole Adeosun and great pioneer four commissioners and commission secretary/legal adviser. 

Their expertise and innovations progressively moved upward is succession the Net Assets Value (NAV) under the management of pension operators from N2.9 trillion in 2012,  N 4.61 trillion in December 2014, N5.3 trillion as at the end of 2015, to as much as N7. 4trillion in December 2017.  

One of the strong features of the Scheme which is its Corporate Governance arrangements differed it from the past largely mismanaged DBS.

The success story of the CPS have resulted in a fully funded pension scheme that delivers on the promise of timely payment of retirement benefits to retirees, as opposed to the inefficiencies of the past.  

From licensed 26 Pension Fund Administrators (PFAs), at inception, 7 closed Pension Fund Administrators (CPFAs) and 5 Pension Fund Custodians (PFCs), it is presently reduced to 21 PFAs due to mergers and acquisitions. The number of registered contributors which stood at 6.02 million as at the end of March, 2014 has also increased to 7,710,564 workers in 2017, far from PENCOM’s  20 million target contributors by 2019. 

Although, experts says that the successes notwithstanding, the pension scheme is still work in progress especially in the area of Corporate Governance which challenges the Commission to be active on data update and visible on pension matters as much as CBN is on money matters. 

So far the Agency has produced two substantive Director Generals. 

Stakeholders gives credit to Ahmad fondly called MK’s in the industry whose engagement encouraged reluctant private sector employers and private sector unions to embrace the Scheme.

The Commissions second director general, Mrs. Chinelo Anohu-Amazu, 2014 to 2017, who was also the pioneer secretary of the Agency toed the part of MK to become part of the success story at inception. 

Anohu-Amazu came in with fresh ideas that launched the Scheme into international lime light.

She was instrumental to the amendment of the Pension Reform Act in 2014. 

The amended Act also expanded the scope of coverage to include the informal sector, tightened sanction for non-compliance and reviewed upward the rates of contribution making the rates equitable with employers paying more than the workers. 

Equally, PENCOM shored up the Retirement Savings Accounts (RSAs) subscriptions from 5.39 million to 6.89 million within a period of three years and there was also a successful establishment of PENCOM offices in the six geopolitical zones to make the office easily accessible to workers for enquiries rather than traveling to Abuja. 

Having laid a new foundation for growth Anohu-Amazu, proudly showcased new trends in Nigeria’s pension industry to more than 350 delegates from 40 countries who attended the 2013 World Pension Summit in Amsterdam, Netherlands.

While addressing delegates at the summit, she informed that pension assets had shifted from a growing deficit of N2.6 trillion prior to the inception of the Contributory Pension Scheme to an accumulation of N3.73 trillion pension assets within the nine years of its existence.

Anohu-Amazu, who led a delegation comprising Mrs. Grace Usoro, the General Manager/Head Public Sector Pensions Department and Ms. Olusola Odufuwa, Head Corporate Counseling Unit of PenCom to the summit, also told the delegates that the Contributory Pension Scheme is sustainable, fully funded and privately managed by operators licensed by PenCom.

The legal and institutional frameworks established by the commission, she stated, have led to the registration of over 5.8 million members and the pool of pension assets generated has aided the deepening of the nation’s financial sector.

She added that the pool of pension assets generated has also provided a platform for the provision of infrastructure and the development of the real sector, thereby reinforcing the transformation agenda of President Goodluck Jonathan.

The World Pension Summit is an annual event dedicated to ongoing and advanced learning for senior pension professionals and it also offers comparative analysis of pension experiences in participating countries, insight into the impact of emerging trends on pension arrangements and ample room for peer-to-peer discussion among delegates.

The summit brought together pension professionals, experts and key authorities in the field of retirement solutions management with specific focus on pension fund strategies, social security and employee benefits. The theme of the summit centered around pension investment, risk management, pillars for pension scheme administration, communication/information management and strategies for stimulating growth in pension portfolios.

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