Move by the Police to exit the Contributory Pension Scheme (CPS), generated heated debate for and against, among stakeholders at the Public Hearing organised by the Senate Committee on Police Affairs last Friday. TAIYE ODEWALE reports
Contributory Pension Scheme (CPS)
Contributory Pension Scheme (CPS), managed by the National Pension Commission (PenCom), was brought about by the reform of Nigeria’s pension landscape by the federal government in 2004 towards achieving a system that is sustainable and has the capacity to achieve the ultimate goal of providing a stable, sustainable, predictable and adequate source of retirement income for employees in both the public and private sectors in the country.
This resulted in the enactment of the Pension Reform Act 2004, which introduced a mandatory Contributory Pension Scheme (CPS) for employees of the federal government, the Federal Capital Territory and the private sector organisations with five (5) or more employees.
After 10 years of implementation, the 2004 Act was repealed and re-enacted as Pension Reform Act 2014, which seeks to strengthen the Contributory Pension System and address some of the challenges identified during the implementation period.
Available statistics from PenCom, show that as at 31 December 2022, the number of registered contributors under the CPS has grown to 9.8 million (5.8 million from the private sector). This represents about 9.5% of the total working population in Nigeria while the total pension fund assets under the scheme has grown to N14.79 trillion as at 30 November 2022, which is equivalent to about 7.53% of the Nigerian GDP.
As authoritatively gathered from PenCom, 60% of the total pension assets of N14.79 trillion belongs to employees of the private sector, while the balance of 40% belongs to public sector employees.
Over the years, the pool of pension funds generated by the CPS has aided in deepening the Nigeria’s financial sector and provided a platform for attaining strategic programmes of government in the areas of infrastructure, housing and the development of the real sector of the economy.
To this end, 63.68% of the total pension assets have been invested in federal government securities (FGN Bonds, Treasury Bills, Sukuk and Agency Bonds) as at 30th November 2022. The remaining investments are in money market instruments (14.61%), corporate debt securities (10.41%), quoted equities (6.50%) and other asset classes (4.80%).
CPS being fully funded as against the pre – 2004 system funded only through budgetary provisions, has guaranteed payments of employees’ pension benefits upon retirement.
Generally going by realities on ground, objectives of the 2004 Pension Reform as well as the amended 2014 Act, have been largely achieved in the areas of accumulation of long-term savings for Nigeria, as well as transparency and efficiency in funds management and benefits administration.
Move by the Police to exit the scheme
Despite claims of achievements made by PenCom on management and administration of pensions of retirees through the CPS scheme by the various Pension Funds Administrators (PFAs), serving and retired police personnel felt being shortchanged by way of impoverisation when compared to how their counterparts in the military are treated by the Military Pension Board.
To be on the same page with pensioners from the military, the Nigeria Police through a bill sponsored by Senator Elisha Abbo (APC Adamawa North), sought for establishment of Police Pension Board.
Expectedly, at a public hearing organised on the proposed board by the Senate Committee on Police Affairs five days ago, precisely, Friday last week; while the sponsor of the bill, the Police and retirees from the Force, supported the move, PenCom, pension administrators and the Nigeria Labour Congress (NLC), kicked against the move.
First to make case for the bill was its sponsor, Senator Elisha Abbo, who said the special treatment given the military through the Military Pension Board should be extended to the officers and men of the Nigeria Police Force as far as retirement benefits and pensions are concerned.
“It is not good for retired police personnel to be impoverised in retirement going by poor remunerations and benefits being collected under the CPS managed by PenCom while their counterparts in the military are better treated through a special pension fund management and administration body, set up for that purpose.
“What is good for the goose, is good for the gander. The proposed Police Pension Board, should be allowed to see the light of the day”, he said.
The Inspector – General of Police, Usman Alkali Baba represented by Deputy Inspector General Sanusi Lemu, followed suit in support of the proposal by saying that the Police required a distinct board on its own for management and administration of pensions of retired Police personnel in the mode of the Military Pension Board.
His words: “The Police as clearly stated by the title of the bill “Police Pension Board Establishment Bill 2022”, deserve to have a separate body for management and administration of Pensions of its retirees.
“Exiting the Contributory Pension Scheme (CPS), being run and managed by PENCOM, is long overdue for the Police on account of poor services being subjected to.
“The proposed board will boost the morale of Police Personnel to dispassionately discharge their duties of fighting crimes”.
Arguments against Police move
But their position was kicked against by the Director – General of PenCom, Aisha Dahiru who said allowing the Police to exit CPS, will amount to taking the country back to the dark ages of mismanagement of pension fund which landed the country with N1.6trillion liabilities in June 2004 when the scheme started.
The PenCom boss who was represented by Mr Clement Oyedele Akintola, said: “Distinguished Chairman and members of the Senate Committee on Police Affairs, may wish to note that the reasons that informed the decisions of the Federal Government, as well as the 6th and 8th National Assembly to respectively decline the request to exempt the personnel of the Nigeria Police and other paramilitary agencies from the application of the CPS are still valid.
“Indeed, the arguments against the exemption of personnel of the Nigeria Police are compelling and reinforced by economic, fiscal, social and public policy reasons as highlighted below thus:
“Exemption of the personnel of the NPF would imply additional financial burden on the Federal Government by way of unsustainable pension obligations. For instance, as at 30 November, 2022, there were 307,154 police personnel based on IPPIS data.
“An actuarial valuation revealed that the retirement benefits (pension and gratuity) liability of these personnel under the defunct Defined Benefits Scheme would amount to about N1.84 trillion. This liability is expected to significantly increase with the proposed yearly recruitment of 10,000 personnel into the police force.
“The FGN’s liability under the CPS for the same NPF personnel is made up of N213.4 billion as accrued pension rights and monthly employer pension contributions of about N2.2 billion.
“It would be recalled that accrued pension right are retirement benefits of FGN employees who were in service before July 2004, prior to the enactment of the PRA 2004, and this liability will cease by year 2039 when the last employee entitled to such benefits would have retired.
“The Federal Government is already overburdened with the payment of pensions under the Defined Benefits Scheme as illustrated by the 2023 Appropriation Act, which made a provision under the Service Wide Vote for the sum of N854.8 billion as total allocation for pension and gratuities.
“This includes allocations to Military Pension (N244.6 billion), NIA (N10.4 billion) and Department of State Security (N18.5 billion) representing 29%,1.2% and 2.2% respectively.
“Allocations to these agencies represent 32.4% of the total proposed allocations for pension and gratuity. Meanwhile, only N268.7 billion was proposed for payment of accrued rights under the CPS for the 2023 prospective retirees of FGN treasury funded MDAs.
“It is evident that the Defined Benefits Scheme is not sustainable as exempting the Military, Department of State Security and the Nigeria Intelligence Agency has resulted in very high allocation of resources to fund their retirement benefits.
“From the various Appropriation Acts from years 2013 to 2023, the combined allocations for these Agencies ranged from 41.9% to 49.4% of total allocations for pensions respectively.
“Consequently, it would be fiscally imprudent to increase the number of this category of retirees under that Scheme. It would also render the retirees financially vulnerable and insecure.
“Exemption of Nigeria Police Force from the CPS would result in the dismantling of the institutions, systems and processes that Government had put in place in the last few years towards the implementation of the pension reform programme.
“This would also negatively affect the culture of national savings, as well as efforts to eradicate the structures that encouraged corruption under the Defined Benefits Scheme.
“Another immediate negative impact of the proposed exemption of the NPF is to unsettle the FGN’s fiscal policy and financial system stability. It is imperative to note that as at date, about 63.68% of the N14.79 trillion pension assets, as at 30 November 2022, are invested in Federal Government securities. Exempting the NPF would lead to material divestment from FGN securities before maturity, which would have ripple negative effects on not only the finances of Government, but also on the entire financial system.
“It is also important to note that the exemption of the NPF and any other Agency from the CPS would erode the pool of long-term investible funds accumulated under the CPS. That would undermine the process of funding the huge infrastructure gap in the country.
“Indeed, it is noteworthy that the pension industry has significantly contributed to the provision of finance for infrastructure development in Nigeria through investments in infrastructure bonds (including sukuk) to the tune of N211.16 billion and real estate to the tune of N232.34 billion as at 30 November 2022”.
Also kicking against the proposed board, the Chief Executive Officer of Pension Fund Operators Association of Nigeria, Oguche Agudah, admonished the committee and by extension the Senate, not to legislate liabilities.
He said since the proposed body will be solely funded by budgetary allocations, avoidable burden, will be placed on the federal government currently battling with N10.7trillion budget deficit in 2023 fiscal year.
“We cannot in good faith, legislate liabilities”, he stressed.
“Under the contributory pension scheme, what you get at retirement is based on what is contributed by the employer and employee during the work life and investment returns over the period. It goes without saying that if the contributions are increased, the pension received will be increased.
“We propose a general increase in salaries of members of the police force as this would boost their pension contributions and subsequently pensions at retirement.
“The current system has instilled confidence within the system, ensured professional fund management, introduced world class practices, and has proven to be safe and working for the millions of contributors.
“Whilst the system is not perfect, what needs to be done is to work on re-engineering the system to make it work for various people groups, rather than choosing to disintegrate a system that’s working”, he added.
President of the Nigeria Labour Congress (NLC), Ayuba Waba, in his presentation hammered on prompt payment of gratuities of retired police personnel or those who died in active service.
The proposed Police Pension Board though well envisioned, but the problem is sustainability as regards funding, he posited.
“Mistake of moving from known to unknown, should not be made”, he stressed.
Expectedly, in his closing remarks at the session, the Chairman Senate Committee on Police Affairs, Senator Dauda Haliru Jika, said all the divergent views expressed at the session, would guide the committee in preparing its report.
