BORNE out of necessity, the Contributory Pension Scheme (CPS) was meant to address the failures of the old Defined Benefit Scheme which squeezed out virtually all that was required for gratuity and pensions from government’s coffers. Yet, the CPS has failed to wipe the tears of Nigerian workers owing to myriads of challenges akin to jumping from ‘frying pan to fire’.
Currently, not a few Nigerian workers see the CPS as a rip-off, a situation made worse by the apparent recklessness and brigandage of the major stakeholders. The situation is seen to be bad enough that if given a choice, many participants in the scheme would not touch it with a long pole.
The challenges have to do majorly with compliance and legal interpretation that makes the claim that it offers the best form of financial security for workers hardly tenable. The country’s pension system underwent a significant transformation with the enactment of the Pensions Reform Act (PRA) in 2004, later replaced with an amendment in 2014. Both employers and employees in the public and private sectors are required to contribute a percentage amount to their retirement benefits.
The National Pension Commission (PENCOM) which regulates the industry always scores itself very highly, for instance telling anyone who cares to listen that “Within 20 years of its implementation, the CPS has stemmed the growth of outstanding pension liabilities of the federal government, reduced fiscal cost to government, stimulated domestic savings, generated pool of long-term funds for developmental projects and increased private sector investments in Nigeria.
According to PenCom, as at March 31st, 2024, the sum of N19.7 trillion pool of long-term pension assets has been accumulated by the CPS and invested for the economic development of Nigeria.
But even here lies a challenge. Retirees under the CPS often face inadequate retirement and financial planning due to the existing modalities on paying retirees. The PFAs baby-sit the funds while at retirement, pay the workers paltry sums at
the end of every month, which is hardly enough to cater for their basic needs, not to talk of expensive medical expenses on sundry health challenges that comes with age.
There is also the seeming struggle to fund accrued rights and the transition from the old Defined Benefit Scheme to the CPS has not been smooth for all retirees, while many workers are unaware of the CPS’s workings and possible benefits.
Budgetary shortfalls has also led to delays in paying pension benefits to retirees, while private sector employers often delay or don’t remit pension contributions. Other challenges include low capital formation, non-inclusion of the informal sector, overlapping regulations and coverage. What about incessant exit agitations and pension liabilities?
The National Pension Commission (PenCom) should rise to the occasion having been established to regulate and supervise the pension industry under the CPS. Its primary role is to ensure the effective administration of the CPS and ensuring that pensions are paid to retirees on time.
To make the CPS worthwhile, PENCOM should urgently set better guidelines for pension fund investments, ensuring that funds are managed in a way that balances return with security.
Additionally, it should monitor the industry to ensure that Pension Fund Administrators (PFAs) remain accountable to contributors.
What is the use of a pension scheme when workers are not availed of substantial amounts of their lifetime savings to build a future of financial security for themselves? Rather, they depend on monthly handouts by PFAs where the latter thrives on permutations that border on expected life expectancy of the retiree. This must stop and workers allowed to make the best use of their savings, lest the pension reforms in the country would seem to be a failed experiment.
