NPF and the imperative of contributory pension

By Funmilayo Sadiku

The federal government had in 2004 embarked on the reform of Nigeria’s pension structure aimed at introducing a sustainable system with the capacity to ultimately provide a stable, sustainable, predictable and adequate source of retirement income for employees in both the public and private sectors in Nigeria.

This had resulted in the enactment of the Pension Reform Act 2004, for which a mandatory Contributory Pension Scheme (CPS) was introduced for employees of the federal government, the FCT and the private sector organisations with five or more employees. Implementation of the Act, however, proved a sort of tall order, leading to the Act being repealed, whereupon the Pension Reform Act 2014 was re-enacted with a view to strengthening the CPS and addressing some of the challenges identified during the ten-year implementation period, chiefs of which were embezzlement of pension funds and delay in the payment of retirement benefits to retirees.

For upward of 18 years, the Nigeria Police Force (NPF) has sought to be exempted from the Scheme in addition to making, among other things, provision for its retirees to withdraw at least 75 per cent from the Retirement Savings Account (RSA) while also criminalising undue delay in the payment of pension to the retirees.

The NPF has equally sought the exemption in conjunction with the Army, the Nigeria Intelligence Agency and the Department of State Security, all of whose personnel are exempted from the CPS.

But the National Pension Commission (PenCom) has a different opinion. NPF’s exemption from the CPS cannot stand to reason. PenCom submitted a memorandum to the House Committee on Pensions at a recent public hearing. The aim was unmistakable: stop the NPF from pressing further to be spared adherence to the CPS.

According to PenCom, the NPF’s position is indefensible because it has not presented any new or superior ground that would necessitate a review of the previous parliamentary and executive decisions on the matter or that, in fact, the arguments against the proposed exemption are more compelling today and further reinforced by economic, fiscal, social and public policy reasons.

PenCom was vehement that exemption of the personnel of the NPF would imply an additional financial burden on the federal government through unsustainable pension obligations. It further argued that as of September 2021, there were 304,963 Police personnel based on IPPIS data with valuation revealing that the retirement benefits and liability of the personnel under the defunct Defined Benefits Scheme, comprising pension and gratuity, would amount to about N1.84 trillion – a liability that is expected to significantly increase with the proposed yearly recruitment of 10,000 personnel into the Police Force.

Evidence shows that as at 30 September 2021, the number of registered contributors under the CPS grew to 9.4 million (including 5.5 million from the private sector), representing about 9.5 per cent of the total working population in Nigeria, while the total pension fund assets under the scheme also grew to N13 trillion in the same period, representing about 8.53 per cent of the country’s GDP. It is however noteworthy that 60 per cent of the total pension assets of the N13 trillion belonged to employees of the private sector while the public sector employees took the balance of 40 per cent.

It can safely be argued that the pension fund generated by the CPS has aided in deepening Nigeria’s financial sector and providing a platform for attaining strategic programmes of the government in the areas of infrastructure, housing and the development of the real sector of the economy. In specific terms, 63.17 per cent of the total pension assets had been invested in federal government securities (FGN Bonds, Treasury Bills, SUKUK and Agency Bonds) as at September 30, 2021, with the remainder poured into money market instruments (17.6 per cent), corporate debt securities (7.44 per cent), quoted equities (6.71 per cent) and other asset classes (5.08 per cent). Despite all the encouraging statistics, there would still be deficits, owing to growing developmental demands.

It is not impossible that this reality had motivated PenCom to oppose the position of NPF at the National Assembly to stop its effort at securing CPS exemption with the amendment of Section 5(1) of the PRA 2014 through the insertion of the phrase “The Nigeria Police Force”, such that the Police personnel would be among the categories to enjoy that CPS relief. It is worth recalling that a private member’s bill was previously sponsored at the 6th National Assembly, seeking to exempt the Police and other paramilitary agencies of government from the CPS. The major reason for the agitation for exemption was dissatisfaction with the quantum of benefits payable to such personnel under the CPS. After careful legislative scrutiny, the 6th Assembly resolved that the issue of quantum of benefits can be addressed by an upward review of the rate of pension contribution under the CPS and not by exemption.

Consequently, the proposal to exempt the Nigeria Police Force from CPS was rejected. Between 2011 and 2012, the Nigeria Police High Command made a case to the federal government for the exemption of their personnel from the CPS. The matter was referred to the then Secretary to the Government of the Federation, who constituted a Joint Committee comprising the National Salaries, Income and Wages Commission, the Nigeria Police and PenCom to consider the submission and present a position to the government. After considering the report of the Joint Committee, the government decided that the personnel of the Nigeria Police Force should continue to be covered under the CPS, effectively closing the case, as it were. The NPF was further directed by the federal government to liaise with PenCom to draw-up modalities for addressing all areas of concern.

Consequently, the Nigeria Police registered the NPF Pensions Limited, applied for and was granted a Pension Fund Administrator (PFA) licence in August 2014. The 8th Assembly would also not see any reason to accede to the NPF’s request, based obviously on the “existing protocol”. Indeed, as at September 2021, the NPF Pensions Limited had registered 537,848 Police personnel and had total assets under the management valued at N685.53 billion.

NPF’s position on CPS exemption may sound good to the promoters, but it would result in the dismantling of the institutions, systems and processes that the government had put in place in the last few years towards the implementation of the pension reform programme, in addition to unsettling the government’s fiscal policy and financial system stability. It could also lead to some foreign investors questioning the government’s commitment to pension and other reforms. A system is in place and it is working very well. Why fix what is not broken?

Ms. Sadiku is a Lagos-based financial analyst