Budget deficit worsens crisis in pension administration

The declining capacity of the Federal Government to meet the obligation of remittances is frustrating the Contributory Pension Scheme (CPS) as more retirees have not been able to access their pension even on presentation of bonds issued to them by government, findings have shown. The situation is not any different in the 36 states that make up the federation.
On one hand pension administrators clearly heap the blame on a shortfall of N41bn hole created in the 2016 budget, following appropriation of N50 billion in the budget for payment of Federal Government employees’ accrued retirement benefits.
The amount was against N91 billion required to fund the scheme called Retirement Benefits Bonds Redemption Fund (RBBRF) Account. But on the other hand affected retirees fear that the country may be in for another form of pension fraud.
The shortfall in this year’s budget is compounding the plight of more retirees who are unable to access their retirement benefits, with already an unremitted accrued benefits right of N20 billion for 2015.
The affected retirees are Federal Government employees who had four years or more to retire at the commencement of the CPS, but had been part of the old pension scheme (Defined Benefit Scheme).
The Pension Reform Law mandates the Federal Government to set aside five percent of its total monthly wage into a retirement savings bond account so that upon the retirement of the affected individuals, this bond will be redeemed and then paid.
Section 15(1) (a) (b) of PRA 2014 states that the transfer entitlement (the accrued rights to retirement benefit) for any non-exempted public service employees who had been under any unfunded DB pension scheme existing before the commencement of PRA 2004, shall be recognised in the form of a bond to be known as Federal Government or Federal Capital Territory Retirement Benefits Bonds (RBB) issued by the Debt Management Office (DMO).
Confirming the development during an interaction with journalists in Lagos, Director General of National Pension Commission (PenCom), Mrs Chinelo Anohu-Amazu, said it is a worrisome development, pointing out that the process had been smooth until last year, when the economy started facing serious difficulties.
“The free-fall in oil prices, our major revenue and its attendant impact on Federal Government revenue, beginning from last year, affected government remittances.”
“This has been going well until the past year when there was a clear shortage in the funds because a lot of the country’s budget is dependent on oil revenue and the slump in oil revenue is affecting everybody across nations. This is the first time there has been a difficulty in meeting this accrued benefit.
“It is not as if the government is not willing, but it has been affected by the situation in our economy”, she said.
Anohu-Amazu, however stated that government must do everything it can to meet this obligation, as not giving retirees access to their pension benefits as at when due, would undermine the achievements of the scheme.
Government, she stated, had embarked on bailouts for payment of salaries, and wondered why it could be replicated in the case of pension.
“We don’t mind if Federal Government go borrowing; the pension arrears must be paid because the pensioners are vulnerable than those presently in employment.
‘’The government must pay these accrued rights once and for all,” she said.
She explained that the commission had requested N91 billion for civil servants that would retire in 2016, ”but to our surprise, we only saw N50 billion in budget, this means there is N41 billion deficit.
The PenCom boss had informed that, at the beginning of the reform, there was a cut-off date and those who had three or less years to go did not have to join the scheme, while those who had four or more years to go, joined the new scheme.

“Already, they were mid way into their careers and so, had some rights due them. So the law says, those rights are to be computed as though they had retired in 2004 and then converted as bond to be redeemed at the time of their retirement.
“This is the issue, and the PFAs saddled with managing RSA under the CPS are unable to pay because the payment schedule says they will need to add both the accrued rights and the contributions together so that there will be agreement on whether it is for lump sum, programmed withdrawal or it’s for annuity.
“It will have to be a totality of what is due you; otherwise, it will not be a realistic payment.”
The Pension Fund Operators Association of Nigeria (PenOp) recently said the CPS has been working perfectly, but the delayed accrued rights payment by government is dragging the shadow of the old scheme into the new scheme; making it look ineffective.”
Narrating his ordeal, a 63 years old retiree under the Contributory Pension Scheme (name withheld) said: “When I retired from one of the federal ministries three years ago after 35 years in service, I was advised to approach my Pension Fund Administrator (PFA) (name withheld) for my retirement benefits.
“ My PFA said the balance in my Retirement Savings Account (RSA) as at that time was a little over N8 million and that I can only take about N2.5 million as lump sum. The rest will be paid to me as monthly pension.
“Last year, I developed a life threatening illness, heart problem. My Doctor said I will need about N5 million for surgery abroad to save my life. I returned to my PFA to ask for the balance in my RSA to enable me pay for treatment abroad and I was told that I can’t take my money.
“They said it is what the National Pension Commission approved for me and there is nothing they can do about it. I went to PenCom but they said their hands are tied, that it is what the law said.”
“I contributed into the RSA so that I can take care of my needs in retirement. Unfortunately, now that it matters most, when my life is hanging on a balance; they are telling me that I cannot take my own money to save my life.
“They are telling me to leave my money for them and go and die so that they can steal my money like they have been stealing pension fund all along.
Meanwhile Pension Fund Administrators and insurance companies paid a total sum of N100.5bn to the dependants of deceased workers who subscribed to the Contributory Pension Scheme since the inception of the scheme in 2004 and March this year.
A report from PenCom on the approval of death benefits, the sum covered both the pension and the group life insurance benefits of the deceased contributors.
“Cumulatively, a total of N100.52bn was paid as death benefits (including life insurance) of 34,410 deceased employees from both the private and public sectors as of March,” It stated.
Out of the 34,410 contributors, 26,394 were Federal Government workers, 1,846 worked for the different state governments, while the remaining 6,170 were from the private sector.
The CPS commenced in the country in 2004 backed by the Pension Reform Act, which was amended in 2014.
The law mandates employers with at least three workers to put the scheme in place to provide financial security for the employees in retirement.
According to the PRA 2014, the employer is expected to contribute 10 per cent, while the worker contributes eight per cent of the total monthly emolument into the Retirement Savings Account of the employee.
In addition, the law also mandates employers to purchase group life insurance cover for the workers.
The essence of this is to enable the dependants of a deceased worker to get three times the annual total emolument of the employee.
Under the PRA 2004, the PFAs were not allowed to pay out such benefits if the deceased worker did not leave a Will behind unless the dependants could produce letters of administration of the dead worker’s estate.
This provision made most dependants of deceased workers to forgo the benefits because they are unable to go through the stress of obtaining letters of administration as a result of the fact that their breadwinners did not leave Wills behind.
However, under the amended PRA 2014, the requirement for a Will was removed for the settlement of group life insurance claims but retained for pension benefits.
The PRA 2014 also stipulated that the PFAs should pay the pensions of the deceased contributors, while life underwriting companies should pay the insurance benefits.
The removal of the requirement for a Will has enabled a lot of deceased contributors’ dependants who were hitherto finding it difficult to get the insurance benefits to go for them.
The Director-General, Nigerian Insurers Association, Mr. Sunday Thomas, said the delays that used to characterise the transfer of the benefits from insurance firms to the PFAs when under a group life insurance arrangement and the demand for letters of administration had been removed.
“The provision of the insurance law regarding payment of claims is now being implemented, which means that the main beneficiaries will be paid directly, and that reduces the delay that occurs in claims settlement,” he said.