In an apparent response to complaints over the inadequate monthly pensions paid to retirees under the new pension scheme, the National Pension Commission (PENCOM) recently proposed an increase in the minimum rate of pension contributions by employees and their employers, from the present 15 percent to 20 per cent. The national pensions agency made this proposal in memos to the Senate Committee on Establishment and Public Service, and the House Committee on Pensions, in the bid for an Act to Repeal the 2004 Pension Reform Act (PRA) and enact the Pension Reform Act (PRA) 2013.
Reports on the PENCOM proposal to the two committees quoted the agency to have said: “Stakeholders have observed that the minimum pension contribution of 15 per cent of employees’ monthly emolument is not adequate to generate the required retirement benefits for the workers.” It further argued that the equal 7.5 per cent of emoluments currently paid by both the worker and the employer to make up the present 15 percent of monthly emolument of workers contributed to the scheme is “not equitable because the employer has a stronger financial muscle.”
PENCOM has, therefore, proposed in the PRA 2013 “an upward review of the rate of contribution and the proportion of the rate payable by the employer and the employee. It, thereafter, requested that the proposed minimum rate of 20 per cent be made up of 12 per cent contribution by the employer and 8 per cent by the worker.
We support the bid by PENCOM to institute a framework to increase the retirement benefits payable to workers under the new pension scheme. Right now, the scheme is plagued by complaints over the paltry sums paid to workers that retired under it. The monthly pensions paid to retirees, after the initial lump sum payment of 25 per cent of the entire pension savings, are so small. In many instances, they hardly amount to a tenth of workers’ salaries at retirement, and are therefore inadequate to serve the purpose of pensions, which is to guarantee reasonable basic living for retirees.
Although PENCOM has severally explained that the low pensions paid now result from the fact that the scheme started just a few years ago and the workers retiring now have not had the opportunity to contribute reasonable amounts into their pensions savings account, it is still necessary to try to increase the savings to ensure that workers can receive pensions that are worth the effort whenever they retire.
It is good, also, that the agency has proposed that the larger part of the increased saving should come from the employers, who can more easily bear the responsibility.
This bid to increase pension contributions has, however, thrown up the issue of the refusal of many employers to comply with the Pension Act by ensuring payment of 15 percent of employees’ monthly emoluments into their pensions savings accounts. This refusal to comply with the Act is pervasive both in the private and public sectors.
The argument has been made by some Pension Fund Administrators that PENCOM, instead of trying to increase pensions savings by those who have keyed into the scheme, should rather be working on how to bring all employers and workers in the country on board to build a critical mass for the contributions. While the need to bring all employers and workers in the country into the scheme cannot be controverted, and it should, indeed, engage the attention of PENCOM and all levels of government in the country with a view to ensuring compliance, this should not detract from the need to make the scheme worthwhile for those who are already complying with its provisions.
The objective of ensuring that retirees who have contributed religiously into their pensions savings accounts for many years are paid reasonable pensions that can guarantee a decent living, so that they can live with some dignity when they retire in their old age, must be kept in sight. As a matter of fact, the pensions agency and the National Assembly, in the process of reviewing the Pension Act should consider the inclusion of a clause on minimum payment that could be paid to any retiree that has contributed to the scheme for upwards of, maybe, ten or 20 years. Such an amount should not be lower than the national minimum wage, which, in any case, cannot even ensure any reasonable living standard for anybody. Making retirement benefits payable to retirees under this scheme reasonable and attractive will go a long way in encouraging more workers to participate, and also demand compliance with the scheme from their employers.
One other good way to increase pensions payments is to ensure that workers’ contributions are invested in a way to ensure increased returns to retirees. It is necessary to grow pension savings in the safest way possible to ensure better returns to retired workers. This bid to increase pension contributions is a wise step. It deserves the support of all workers and we encourage the National Assembly to incorporate it in the Pension Reform Act 2013.