Despite an estimated N2.8 trillion total contribution by 4.3 million workers under the new pension scheme, there are rising concerns over default in remittance, poor return on investment and several other challenges
When a letter was dispatched to Johnson Adewale, not real name, recently by Stanbic IBTC Pension Managers, notifying him that his company had defaulted in remitting contributions by its employees for 12 months, he was not bothered at all as he was still battling to pay his workers the previous month’s salary. And for Adewale, a director of administration of a communication company in Lagos, when a lifeline came the way of the company soon after, the salaries of workers were paid first instead of remitting the pension contributions to the pension fund administrator, PFA. “I would rather pay my workers first and worry about the pension remittance later,” Adewale said emphatically.
Adewale’s disposition sums up the attitude of many executives of private organisations towards the new pension fund. For several companies in the private sector, after deducting the mandatory pension contribution from salaries of workers, they fail to remit same to the PFAs citing harsh operating environment, which has negatively impacted many companies. It is believed that the pace of economic activities has slowed down, compounding the woes of companies in the manufacturing sector. In the words of Sam Ohuabunwa, former managing director, Neimeth International Pharmaceuticals, Nigeria’s economy is still in the woods, and its expected growth may not be achieved, with the multifarious problems like decayed infrastructure, energy crisis and sectarian violence, staring the country in the face. According to Ohuabunwa, as at June 2009, 53 companies in Lagos had folded up, with others just barely hanging on. In addition, he noted that sectors, such as real estates, banks, telecoms and those engaged in import business, which were doing pretty well some years back, are not singing the same tune anymore, “because they are now directly exposed to the impact of the liquidity squeeze within the money market.”
Stephen Akinlotan, a retired schoolteacher, explained that the reality of the Nigerian economy made it difficult for many companies to comply fully with the requirements of the new pension scheme. “If a company is not doing well, and can hardly pay salary as and when due, how do you expect such a company to remit money collected as contributory pension, into the coffers of the pension administrators, when what would be their main concern will be to pay salaries,” he said.
Workers in the private sector are the most affected by non-compliance with the reform act. For instance, Tayo Olaleye, a pensioner at SOS Village, Isolo, Lagos, received the shock of his life, when upon retirement three years ago, he attempted to withdraw savings from his PFA. He was told to present an affidavit indicating when he started work and some other documents to verify the authenticity of his claim. It took the intervention of Muhammad Ahmad, director-general, DG, National Pension Commission, PenCom, before his full benefits were paid. The fear of non-payment of claims discourages a lot of Nigerians from dealing with insurance companies, some of which are administrators of the pension fund.
Irked by the non-remittance of pension deductions, PenCom recently took measures to enforce compliance by threatening to prosecute defaulters. Citing over 200 companies in the banking, oil and gas industry, as well as hospitals and media organisations, as those guilty, Ahmad, said he had begun discussions with the attorney general of the federation to make laws that would empower the commission to prosecute defaulters in all the states of the federation. According to Ahmad, “the most surprising thing is that most notable companies in the country are also involved in such shabby deals.”
Ahmad is particularly agitated that non-remittance of pension fund contributed by the workers will in the long run make a mess of the efforts of the commission to appropriately invest the contribution of workers. “When monies are not remitted, how will those appointed as PFAs, as well as the Pension Fund Custodians, PFCs manage and invest the fund?” Ahmad wonders.
The challenges faced by companies in view of the harsh economic environment not withstanding, employees of several companies contend that non-remittance of the pension deductions amounts to deprivation as the contribution ought to be invested on their behalf by pension managers to generate returns. Adamson Adeolu, a staff of a private company, believes that delaying remittance does not free up cash to invest on behalf of the contributors, meaning that he is being shortchanged.
Despite the poor response of companies in remitting contributions, about 4.3 million workers have so far contributed N2.8 trillion, being total remittance to PenCom so far. But there also concerns by workers about the safety of this fund. This gives Ahmad the confidence to dismiss the views of those condemning the new pension reform scheme. He reiterates that the reform objective is to empower the worker and assist him or her to save in order to cater for their livelihood during old age. He also said that retirement benefits of the old scheme were discriminatory, whereas they are uniformly applied under the new scheme. The DG explained that when a worker was dismissed from service, he was not entitled to any pension benefits, under the old scheme, whereas, under the new scheme, he gets his full pension rights. More so, under the old scheme, benefits can be subject to deductions especially by employers on any outstanding financial obligations on the employee, while under the new scheme, contents of the Retirement Savings Account, RSA can be used for payment of retirement benefits only.
A major challenge faced by the administrators of the new pension scheme is determining the total accrued pension liabilities and funding the shortfalls in pension assets in the private sector, as well as quantifying and transferring legacy funds and assets hitherto managed by employers, insurance companies and fund managers. Unfortunately, those challenges are not the immediate concern of contributors, many of whom are only bothered about how their monies are invested. After the volatile nature and record losses of the stock market in the last three years, not a few investors are wary of where to invest their money. But it appears such investors need not worry much, as the bond market has been declared a safe haven for pension funds and a growth window for new investments.
According to financial experts, the bond market, trading mainly on federal government of Nigeria, FGN bonds, saw growth in investment of pension funds rising to 134 per cent in 2010 against that of 2009. According to PenCom, the money market is not a viable alternative investment window due to negative returns. Buttressing his commission’s stance, Ahmad, in the 2010 annual report and accounts of the commission, said that, “the bond market continued to serve as safety alternative for the investment of pension funds, which were mostly put in FGN bonds with term to maturity of below seven years.”
Although the bond market is profitable, that has not stopped the commission, through the PFAs, in seeking long-term investment of the contributed funds. The PFAs are investing in areas like consumer and retails, energy and power, financial services, health care, real estates, transport, and telecommunications, to name a few. On another hand, to help the commission achieve its main objective, plans are on the way to strengthen the PFAs, through shrinking its numbers through recapitalisation. Come June 2012, the commission has directed that all PFAs should increase their capital base to N1 billion from N250 million.
The Pension Reform Act 2004 established a contributory pension scheme for all employees in the public service of the federation, Federal Capital Territory, FCT, and the private sector with a minimum of five employees. Section 9(1) of the Act provides that the contribution for any employee to which this Act applies shall be made in the following circumstances relating to his monthly emoluments: in the case of the public service of the federation and FCT, a minimum of 7.5 per cent by the employer; and a minimum of 7.5 per cent by the employee; in the case of the military, a minimum of 12.5 per cent by the employer, and a minimum of 2.5 per cent by the employee; whereas in other cases, a minimum of 7.5 per cent by the employer, and a minimum of 7.5 per cent by the employee. In administering this fund, the PFA opens and administers RSA, for every employee in liaison with PenCom and appoints pension fund custodians, PFC. It also manages and invests the pension funds. On its own part, the PFC receives the total contributions and holds pension fund assets in safe custody on trust for the employers and beneficiaries of the retirement benefits, while also executing transactions and undertaking other related activities on behalf of PFAs.
For all the key stakeholders, the new pension scheme, with its obvious benefits, is fraught with several obstacles, which are mainly surmountable. But it is generally believed that the scheme would be boosted by an overall improvement in the economy.