Outstanding pension liabilities of the federal government were a major challenge in the implementation of the Contributory Pension Scheme (CPS) for some time until President Muhammadu Buhari recently approved N123.133 billion to offset the accrual.
The challenge was in two folds: outstanding accrued pension rights of federal government’s retirees and unpaid 2.5 percent increase in the rate of employer pension contributions as provided for in the Pension Reform Act, 2014 (PRA, 2014).
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Until the recent presidential intervention, many federal government employees who retired from active service under the CPS were yet to receive their pensions due to non-payment of their accrued rights.
Recently, the Director General of the National Pension Commission (PenCom), Aisha Dahir-Umar, said the problem started in 2014 due to “the appropriation of insufficient amounts for payment of Accrued Pension Rights of federal government retirees that was further aggravated by late or non-release of full appropriated amounts.”
The accrued pension rights represent an employee’s benefits for the past years of service up to June 2004, when the PRA (amended in 2014) and birthed the CPS, came into effect.
Data sourced from the National Pension Commission (PenCom) showed that the federal government’s outstanding accrued rights and unpaid 2.5 per cent increase in the rate of employer pension contributions accumulated to billions in the past seven years leading to delay in the payment of retirement benefits to retirees.
However, details obtained from PenCom showed that Buhari approved and made available funds for payment of the outstanding accrued pension rights, estimated at N43.317 billion for enrolled federal government’s retirees/deceased employees of treasury-funded Ministries, Departments and Agencies (MDAs) from March to December 2020.
The president also approved the payment of a 2.5 percent increase in the rate of employer pension contributions, which is estimated at N79.815 billion for federal government employees/retirees in line with Section 4 (1) of the Pension Reform Act, 2014.
He approved the payment of 2.5 percent differential in the rate of employer pension contribution for FGN retirees and employees, which resulted from the increase in the minimum pension contribution for employers from 7.5 percent to 10 percent, inline with Section 4(1) of the Pension Reform Act (PRA) 2014.
The presidential approval entails that subsequently, the federal government continues with the payment of the 10 percent rate of employer pension contribution for its employees, thus ensuring remittance of at least 18 percent monthly (employer 10 percent and employee 8 percent) as provided by the PRA, 2014.
The presidential approval covered the payment of outstanding accrued pension rights for verified and enrolled retirees of treasury-funded MDAs that are yet to be paid their retirement benefits, as well as the backlog of death benefits claims due to beneficiaries of deceased employees of treasury-funded MDAs.
By the approval, funds were made available for the settlement of the pension liabilities.
Implementation of the intervention
A breakdown of payments made so far, as obtained from PenCom on August 9, 2021, showed that out of the N43.317 billion approved for payment of outstanding accrued rights, N36.407 billion has been paid into 7,473 Retirement Savings Accounts (RSAs) of the rightful beneficiaries in line with the approval.
“The remitted amount was transferred to the respective RSAs of retirees. The remitted amount was transferred through the Pension fund Custodians (PFC). The balance would be utilized to offset the outstanding accrued rights of deceased employees,” PenCom records, seen by Daily Trust showed.
Similarly, out of the N79.815 billion approved for the payment of the 2.5 percent shortfall in the rate of employee contribution, N10.654 billion have so far been remitted into the RSAs of 79, 508 beneficiaries.
PenCom said the payments made so far for the 2.5 percent shortfall in the rate of employee contributions are for employees who retired between July 2014 and December 2020.
“Payments for active employees are being processed. PenCom has obtained data from Integrated Personnel and Payroll Information System (IPPIS) for active employees that migrated to the IPPIS platform for validation and computation of the 2.5 per cent shortfall,” PenCom’s records showed.
As of 2019, PenCom estimated that it would require over N62 billion to clear the backlog of accrued rights and in line with the commission’s request, President Buhari had directed the Minister of Finance, Budget and National Planning, Zainab Ahmed, to appropriate and release in full a total of N62.83 billion to clear the liabilities in 2020, 2021, and 2022.
A letter signed by the then President’s Chief of State, Abba Kyari, directed the Budget Office of the Federation to include N12.83 billion, N25 billion, and another N25 billion in the budgets of 2020, 2021, and 2022 respectively to settle the outstanding Accrued Pension Rights.
However, PenCom disclosed in a statement yesterday that in addition to the president’s approval to clear the backlog of the Accrued Pension Rights, he also authorised the payment of 2.5 percent differential in the rate of employer pension contribution for federal government retirees and employees, which resulted from the increase in the minimum pension contribution for employers from 7.5 per cent to 10 percent in line with Section 4(1) of the PRA 2014.
PenCom had said the payments for retirees and existing employees would take effect from July 2014.
Legal backing for accrued rights, pension contribution rate
Session 15 (1) of the PRA, 2014 provides that “as from 25 June 2004, being the commencement date of the Pension Reform Act, 2004, the accrued pension right to retirement benefits of any employee who is already under any pension scheme existing before the commencement of that Act and has over 3 years to retire shall – (a) in the case of employees of the public service of the federation where the scheme is unfunded, be recognized in the form of an amount acknowledged through the issuance of Federal Government Retirement Benefits Bonds by the Debt Management Office in favour of the employees.”
It further said, “The bond issued under this subsection shall be redeemed upon the retirement of the employee in accordance with Section 39 of this bill and the amount so redeemed shall be added to the balance of the retirement savings account of the employee and applied in accordance with the provisions of Section 7 of this bill.”
Sub-section (C) provides that “in the case of the employees of the public service of the federation, Federal Capital Territory or in the private sector, where the scheme is funded, credit the Retirement Savings Accounts of the employees with any funds to which each employee is entitled and in the event of an insufficiency of funds to meet this liability, the shortfall shall immediately become a debt of the relevant employee and shall have priority over any other claim.”
Until the recent presidential approval, the federal government had fallen short of full compliance with the above provision.
Similarly, the PRA 2014 has revised the rate of pension contribution (from 7.5% contributed equally by the employer and employee under the old law) to 8% for the employee and 10% for the employer; bringing the minimum total contributions for both parties to 18% compared to 15% previously.
However, the federal government flouted the above provision of the law for long, but the recent presidential directive has revised the anomaly.
A great feat for workers, retirees
The fundamental objective of the pension reform is to ensure that every worker receives his/her retirement benefits as and when due.
However, there are some federal government’s employees who retired that are yet to receive their pensions due to non-payment of Accrued Pension Rights for their past service up to June 2004 when the Contributory Pension Scheme (CPS) was introduced.
This challenge, which started in 2014, was essentially engendered by the non-provision of sufficient funds for payment of accrued pension rights by the federal government.
Recently, PenCom indicated in a statement that the settlement of the outstanding accrued pension rights of verified and enrolled federal government retirees would result in reversing a major challenge that has lingered since 2014.
Furthermore, the commencement of payment of the reviewed monthly pension contribution rate by the federal government is another significant step in ensuring compliance with the PRA 2014.
It is noteworthy that the payment will affect both serving employees and retirees who are to be paid up to their last working month prior to retirement. These payments would undoubtedly boost the RSA balances of the beneficiaries towards a better life in retirement.