States and the Contributory Pension Scheme

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THE plan by the National Pension Commission (PENCOM) to ensure full implementation of the Contributory Pension Scheme (CPS) in all states of the federation is a worthy initiative. All states should be made to comply with the pension scheme alongside the public and private sector organisations in the country, to protect the interest of their workers.

 

The PENCOM plan is coming on the heels of a recent report on compliance status regarding the contributory pension scheme.  The report showed that only 21 states have enacted their pension laws, while only 12  out of the 21 have  commenced remittances of employees’ contributions into their Retirement Savings Accounts. Fourteen states are said to be at various stages of deliberations on compliance  with the scheme. PENCOM is currently seeking the support of the National Assembly and the individual  representatives of the states in the Senate and House of Representatives to improve compliance.
The PENCOM plan is a piece of good news. We support the bid to make states comply with the requirement to bring their employees under the Contributory Pension Scheme. This move, however, can only be effective if the pressure on the states to comply is sustained. It is important that all workers in the country are brought under the national pension scheme. The absence of a credible pension programme is one of the causes of corruption in both public and private sectors of the economy. Many workers resort to defrauding their employers to save for the future. The frequency of such frauds would be greatly minimized if a reliable pension sheme is in place to take care of the future of the retirees.
In supporting the PENCOM plan, it needs to be stated that the key objective of a pension scheme in virtually all countries of the world is to ensure that retirees who have worked for the required number of years have something to live on after retirement. Sadly, retirement has been an awful experience for most pensioners in Nigeria, especially at the state level. This is largely because the country did not have a good pension scheme in place to protect their interest until the new pension scheme was instituted some years ago.
Even then, PENCOM must do all it can to make the new pension scheme attractive to workers to reduce the stress it is undergoing to bring recalcitrant state governments and other employers who are yet to comply on board. In recent times, there has been a deluge of complaints over the inadequate monthly pensions paid to retirees under the current pension scheme. This development probably prompted PENCOM to propose an increase in the minimum rate of pension contributions by employees and employers, from the present 15 percent to 20 percent. But, if this is to be actualized, the 2004 Pension Reform Act must be repealed.
We, therefore, support the provision for “an upward review of the rate of contribution and the proportion of the rate payable by the employer and the employee” in the proposed Pension Reform Act 2013. PENCOM wants the proposed 20 percent to include 12 percent contribution by the employer and 8 percent by the employee. The proposed Pension Reform Act, which is now before the National Assembly, covers more employers and will require all affected employers and employees to pay more. For instance, in a company with a salary structure in which basic, housing and transport allowances account for about 50 percent of total compensation, the employees may have to make additional contributions of over 100 percent of their current contributions while for the employer, it would be over 200 percent increase.
We urge the National Assembly to incorporate the new framework into the proposed Pension Reform Act, which should also be approved by the States’ Houses of Assembly, for state goverment retirees. Increase in pension contributions will help to ensure that retirees receive more reasonable monthly pensions when they retire. Such an amount should be adequate to provide their basic living needs. If this is done, it will encourage more workers and their employers to get involved in the scheme. The relevant authorities should make compliance with the PENCOM Act worthwhile, and there will be an explosion in subscribers to the scheme.  This has become necessary because refusal to comply with the Act is commonplace in both the private and public sectors.
It is good that PENCOM is working on how to bring all employers and workers on board to build a critical mass for the pensions contributions. This move to ensure countrywide implementation of the contributory pension scheme needs the support of all stakeholders. The future of Nigerian workers is at stake.

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1 Comment

  1. Kaycee Ndi Oji on

    The proposal to increase contribution is well accepted but the inhuman treatment that are being meted to the workers in the private sector is another way of sending the workers to their early grave. PENCOM should as a matter of urgent attention change the rate for which they are paying retirees whose contribution amounted to =N=550,000.00 and above
    as a lump sum being 25% of what they have contributed to at least 50-60%, while the balance be spread to atleast 10 years as against 20 years to make the take home while on retirement meaningful. The issue of paying a staff in private sector whose contribution is over =N=1,000,00.00 or above the sum of =N=6,000.00 per month after the first 25% is not only ridiculous but a mockery of the savings. They should know statistically that average life expectancy of West African people is highest 65-75 years so why add 20 years to somebody who has retired? as if PENCOM is god. They ensure that this portion should urgently adjusted for the sake of those in the private sector.

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