PenCom’s Comments on the two Bills to Amend the Pension Reform Act 2014, a Special Publication by PenCom

The National Pension Commission (PenCom) participated at a public hearing organized by the House of Representatives Committee on Pensions on two Bills aimed at amending the Pension Reform Act (PRA) 2014.

The Public Hearing, which held on February 21, 2022 at Abuja, was attended by several stakeholders including pension operators, the Nigeria Police Force (NPF) and Labour, amongst others. The PenCom Management Team was led by its Director General, Mrs. Aisha Dahir- Umar.

The Committee sought and collated stakeholders’ positions on a Bill for an Act to exempt the NPF from the Contributory Pension Scheme (CPS) and a Bill for an Act to further amend the PRA 2014 to, among other things, provide for a retiree to withdraw a lump sum of at least 75 percent from the Retirement Savings Account (RSA) and to criminalize undue delay in the payment of pension and for related matters.

Declaring the Public Hearing open, the Speaker of the House of Representatives, Femi Gbajabiamila, said the expectation was that the two bills would lead to critical interventions to improve the welfare of retirees and enhance the pension industry. Represented by the Deputy Leader of the House, Peter Akpatason, the Speaker reiterated the House of Representatives’ commitment to the welfare of retirees.

It is noteworthy that the proposal to exempt the personnel of the Nigeria Police Force has been a recurring proposal which featured since the 6th National Assembly and declined on all previous occasions.

Since the main reason for the agitation appears to be low pensions at retirement, the PRA 2014 has mitigating provisions such that it allows an employer to pay additional benefits to the employees upon retirement. Therefore, the Federal Government may decide to provide any additional payment such as gratuity to retiring Police personnel.

In a submission to the Committee, PenCom noted that the Federal Government issued a White Paper on the Report of the Presidential Committee on the Restructuring and Rationalization of Federal Government Parastatals, Commissions and Agencies accepting the Committee’s recommendation that the practice whereby certain categories of retirees were opting out of the CPS should be stopped. The Federal Government also noted that it would be unable to sustain pension payment under the Defined Benefits Pension Scheme and directed no further exemptions from the CPS aside the Military and intelligence services which were already exempted from CPS by virtue of Section 5 of the PRA 2014.

PenCom also noted that exemption of the personnel of the NPF would imply additional financial burden on the Federal Government by way of unsustainable pension obligations. 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 exemption of NPF from the CPS would also disrupt the Federal Government’s fiscal policy and financial system stability. Instructively, about 63 percent of the over N13 Trillion pension funds are invested in Federal Government securities. Exempting the NPF would therefore, result in material divestment before maturity with attendant ripple effects on the finances of Government and the entire financial system. The foregoing are amongst several other negative implications of the proposed exemption.

PenCom however, supported the resolution of issues noted by the NPF under the ambit of the PRA 2014. It called for the implementation of the upward review of the rate of Pension Contributions for Police Personnel, which was increased by Section 4(1) of the PRA 2014 from a minimum of 15 percent to a minimum of 18 percent of the employee’s monthly emolument.

The Contribution Rate stipulated under Section 4(1) of the PRA 2014 is only a legal minimum, which can be enhanced through Collective Agreement between employer and employees. An employer may also elect to bear the full burden of contributions.

Thus, if the current contribution rate of 10 percent payable by the employer (FGN) is inadequate for the Police personnel, the Government may consider increasing the employer portion of the pension contribution to a more sustainable level.

In their presentations, the Nigeria Labor Congress (NLC) and the Pension Fund Operators Association of Nigeria (PenOp) objected to the two Bills. They argued that the Bills, if passed into law, would erode the gains of pension reforms in Nigeria and cause more challenges for retirees.

The NLC President, who was represented at the Public Hearing by the Head of International Relations, Uche Ekwe, said exemption of the personnel of the NPF would imply additional financial burden on the Federal Government by way of unsustainable pension obligations. It opined that the Federal Government may not be able to provide for the additional liability in the national budget, which is hardly sufficient to fund other commitments, including healthcare and social security.

However, the Inspector General of Police, Usman Baba Alkali, represented by Deputy Inspector General of Police, Sanusi Lemu, supported the Bill for the exemption of the NPF from the CPS.

Similarly, the Chief Executive Officer of the Pension Fund Operators Association of Nigeria (PenOp), Oguche Agudah, said the Bills would take Nigeria back to the dark ages before the pension reforms when retirees had to depend on a defined benefit system where the federal government paid monthly pensions to retirees directly from its coffers.

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