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THE CONTRIBUTORY PENSION SCHEME AND THE PENSION REFORM ACT 2004:
Implementation, Emerging Challenges and Prospects
BY
Comrade Hyginus Chika Onuegbu*JP, ACTI, FCA
STATE CHAIRMAN
TRADE UNION CONGRESS OF NIGERIA (TUC)
RIVERS STATE COUNCIL
Presented to
The Association of Senior Civil Servants (ASCSN)
Rivers State
VENUE: Conference Hall, DATE: November 12, 2013
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PROTOCOLS!
DzPensions do not evolve in a vacuum. They reflect a broad range of social, societal and economic parameters. Among these are the economic outlook (stability, growth,
whether of slowdown or recession, the state of public deficits and debts); the
demographic outlook; and the labour market outlook, especially the economic activity
rate and, more importantly, the employment and unemployment rates of all gender
and age cohorts.dz( Sarfati &Ghellab, 2012, p. 46)1
1. Introduction
I want to thank the leadership of the Association of Senior Civil Servants of Nigeria(ASCSN)
Rivers State for organising this seminar. The timing of this seminar is apt as it will enable trade
union leaders and the Nigerian workers to share their thoughts on the state of the Pension Laws
in the country as well as participate in the under going review of the 2013 Pension Reform Bill.
Permit to inform us that Association of Senior Civil Servants of Nigeria(ASCSN) is one of the key
affiliates of Trade Union Congress of Nigeria (TUC) . It is the affiliate of the current
President-General of TUC, Comrade Bobboi Bala Kaigama . Also the affiliate of over two-third of TUC State
Chairmen in Nigeria. In fact it is difficult to find a TUC State Council that the State Chairman or
the State Secretary is not a member of Association of Senior Civil Servants of Nigeria(ASCSN). In
addition, the ASCSN is the only Council 1 in the Joint Public Service Negotiating Council in Nigeria
and in all the States of Nigeria. And its members include Civil Servants on Grade Levels 07 and
above including those of them in the Personnel Assistant Cadre (formerly Executive Officer
Cadre) except those who are Typists/ Stenographers, Nurses and Midwives, Pharmacists and
Medical Technologists( See NIC 2006 Judgement on ASCSN vs. RVSG anor; also the Trade Unions
Act).
Consequently capacity development in ASCSN is very crucial to TUC as a labour centre , the
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Permit me to use this opportunity to congratulate, once again, the new leadership of the ASCSN
in Rivers state led by Comrade Austin Jonah. I want to re-assure them of the support of TUC
Rivers state under my leadership.
As we are all aware, Trade Unions(as labour unions) are organisations of workers whose basic
interests remain the protection of workers rights and privileges, improvement in the welfare of
workers and the advancement of the socio- economic and political interest of workers and
ordinary citizens generally . A key part of that workers right is the right to pension and gratuity.
Pension and gratuity are essentially deferred compensation or payments to employees payable
upon retirement or severance in line with the conditions of service, collective bargaining
agreement and/or the law. They are part of employees salary which is set aside to meet the basic
financial needs of the employees upon retirement. Hence they are paid when the employee
leaves the employment in line with the condition of service, collective bargaining agreement or
the law. They are therefore the rights of the employees.
The origin of pension in Nigeria can be traced to the 1951 Pension ordinance which was
retroactively effective from January 1, 1946. The law provided for the payment of pension and
gratuity to public servants.
This law remained operative until the 1970s when decrees were made to provide for payment of
pensions. First was the Basic Pension Decree 102 of 1979(retroactively effective 1974); the Local
Government Pension Scheme established by Military Fiat in 1977; the Armed Forces Pension
Decree 103 of 1979 with retroactive effect from April 1974;the Pensions Rights of Judges Decree
NO.5 of 1985 as mended by Amendment Decrees Nos. 51 of 1988, 29 and 62 of 1991. Also the
Police and other Agencies Pension Scheme Decree No: 75 of 1993 retroactively effective from
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These decrees were therefore the enabling laws for pensions to public servants and military
until June 2004 when the Pension Reform act became effective. Permit me to mention however
that these decrees were nevertheless modified by several circulars and regulations over the
years. Permit me to refer to all the pensions arrangements that existed in the public service
before the 2004 Pension Reform Act as legacy pension arrangement.
Unfortunately, pensions being deferred payments were faced with so many challenges in Nigeria
under the legacy pension arrangement, namely : financial crises; abysmally low coverage ratio;
the covered federal and state civil service workers were owed over N2 trillion or 25% of the GDP
of Nigeria (Okechukwu & Ugwu, 2011). Other challenges include massive frauds , irregularities
and all manner of financial abuse with regards to the administration of the pensions . Also
Government at all levels did not fund the pension obligations as they essentially operated an
unfunded Defined Benefit Pension Scheme, on a Pay -As-You-Go basis, at best unduly relaying
on the annual budgetary process.
The end result of all these was the inability of successive governments at all levels in Nigeria to
meet their pension and gratuity obligations to the retired and retiring workers (Odia & Okoye,
2012). Consequently Retirees ,who as senior citizens should enjoy their retirement in dignity,
were subjected to all manner of physical abuse, mental and emotional torture before they could
get their pensions, if they ever got them. Painfully, some of them died without getting the
pensions or while passing through the excruciating and degrading process to get their pension
paid to them.
It therefore became very clear that government at all levels could not continue with the legacy
pension arrangement. There was need for a new pension arrangement that will effectively
overcome the challenges with the legacy pension arrangement. This need gave rise to the
enactment of the Pensions Reform Act (PRA) of 2004 by the administration of His Excellency
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Rivers State through the enactment of the Rivers State Pension Reform Law 2009 by the
administration of His Excellency Rt. Hon. Chibuike Rotimi Amaechi.
2. The Overview of the Pension Reforms Act 2004:
The objectives of the Act are to : ensure that every person who has worked in either the public or
private sector receives his retirement benefits as and when due; help workers save to cater for
their livelihood during old age; establish a uniform set of rules and regulations for the
administration and payment of retirement benefits in both the public and private sectors; and
stop the growth of outstanding pension liabilities.
The Act introduced a contributory, supposedly fully funded pension. The pension is based on
individual accounts which are privately managed by Pension Fund Administrators with the
pension funds assets held by Pension Fund Custodians.
The Pension Reforms Act 2004 is a 39 page document, with 103 sections arranged in 14 Parts.
Part1( sections 1 to 13 ) covers: establishment of a contributory pension scheme for employee in
the public and private sectors; objectives of the scheme; withdrawal from retirement savings
account; retirements benefits ;death of an employee; missing employees; retirement benefits to
be exempted from tax; exemption from the scheme; rate of contribution to the scheme;
contribution under the scheme to form part of tax deductible expenses; retirement savings
account and remittance of contributions, etc.; transfer of entitlement from defined benefits
scheme into the scheme; and transfer from one employment to another.
This part also provides, in section 9, for life insurance policy in favour of the employee for a
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Part 2 (sections 14-19) deals with establishment and composition and tenure of office of
membership of the national pension commission, etc. Part 3(s.20-21) - functions and powers of
the commission , while part 4(sections 22) deals with the secretary and other staff of the
commission. Part 5(sections 23-28) deals with financial provisions ,power to accept gift and
power to borrow by the commission.
Part 6(sections 29-38) deals with transitional provisions for the public sector , while
Part 7(sections 39-43) deals with - transitional provisions for the private sector.
Part 8(sections 44-71 ) pension fund administrators and pension assets custodian. Part
9(sections 72-78) deals with investment of pension funds. Part 10(sections 79-84) covers
Supervision and examination of pension fund administrators, etc.; power of the commission to
order a special examination and the duty to produce information to examiners, etc.
Part 11(sections 85-91) covers - offences, penalties and enforcement powers ; part 12(92-94)
deals with dispute resolution; part 13(section 95-96) deals with procedure in respect of suit
against the commission and service of notice. Part 14(sections 97-103) covers power to make
regulations other miscellaneous provisions.
2.1 Highlights and key provisions of the act include:
2.1.1 Contribution
Section 9.-(1) the contribution for any employee to which this Act applies shall be .
(a) In the case of the Public Service of the Federation and Federal Capital Territory (I) a minimum of seven and half per cent by the employer;
(ii) A minimum of seven and half per cent by the employee; or (b) In the case of the Military
(I) a minimum of twelve and a half per cent by the employer; (ii) A minimum of two and half per cent by the employee; (c) In other cases
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Section 9 (2): Notwithstanding the foregoing, an employer may agree or elect to bear the full
burden of the Scheme, provided that in such a case the employer's contribution shall not be less
than 15% of the monthly emoluments of the employee.
Please take note that the Act defines "monthly emoluments" as the total sum of basic salary,
housing allowance and transport allowance.
2.1.2 Compulsory Life Insurance
Section 9(3): In addition to the rates specified in sub-section (1) of this section(i.e. section9),
employers shall maintain life insurance policy in favour of the employee for a minimum of three
times the annual total emolument of the employee. Please take note that the Act annual total
emoluments mean the total sum of basic salary, housing allowance and transport allowance in a
year.
2.1.3 Fully Funded ?
It is the aim of the Act that the fund should be fully funded since the contributions are deducted
immediately from the salary of the employee and transferred to the relevant retirement savings
account, that the pension funds exist from the onset and payments will be made when due. Hence
the fund is said to be fully funded. Perhaps the participants are in a better position to confirm if
this is truly the case?
2.1.4 Retirement Savings Account
Each employee should open a Retirement Savings Account in his name with a Pension Fund
Administrator of his choice. This individual account belongs to the employee and will remain
with him through life. He may change employers or pension fund administrators but the account
remains the same. The employee may only withdraw from this account at the age of 50 or upon
retirement thereafter. This withdrawal may take the form of:
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• A purchase of annuity for life through a licensed life insurance company with monthly or
quarterly payments; and
• A lump sum from the balance standing to the credit of his retirement savings account: provided that the amount remaining after the lump sum withdrawal shall be sufficient to
procure an annuity or fund programmed withdrawals that will produce an amount not less
than 50% of his monthly remuneration as at date of his retirement.
2.1.5 Privately Managed Fund:
The Act provides that Pension funds should be privately managed by Pension Fund
Administrators (PFAs) and Pension Fund Custodians (PACs). Pension Fund Administrators
(PFAs) have been duly licensed to open retirement savings accounts for employees, invest and
manage the pension Funds in fixed income securities listed and other instruments as the
Commission may from time to time prescribe, maintain books of accounts on all transactions
relating to the pension funds managed by it, provide regular information on investment strategy
to the employees or beneficiaries and pay retirement Benefits to employees in accordance with
the provisions of the Act.
Pension Fund Custodians are responsible for the warehousing of the pension fund assets. It is
envisaged that at no time will the PFAs hold the pension funds assets.
The employer sends the contributions directly to the Custodian, who notifies the PFA of the
receipt of the contribution and the PFA subsequently credits the retirement savings account of
the employee. The Custodian will execute transactions and undertake activities relating to the
administration of Pension fund investments upon instructions by the PFA.
2.1.6 Exemptions:
Section 8.-(1): Any employee who at the commencement of this Act is entitled to retirement
benefits under any pension scheme existing before the commencement of this Act but has 3 or
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Section 8 (2):The categories of person mentioned in section 291 of the Constitution of the
Federal Republic of Nigeria 1999 shall be exempted from the Scheme. That is judicial officers
listed in that section of the 1999 constitution.
3. Overview of the Rivers State Pension Reform Law 2009:
Following the enactment of the Pension Reform Act 2004, the Government of Rivers state
domesticated the law through the Rivers state Pension Law 2009. Consequently the relevant law
governing pension for workers in the public service of Rivers state government is the Rivers
State Pension Reform Law 2009. The law was amended in 2012.
The aim and objectives of the Rivers state pension law is essentially the same with that of the Pension Reform Act 2004. However the following highlights some of areas of differences :
A. The rate of Contributions under the 2009 Rivers state pension law(section 13) was minimum of 17% for the employer and 5% by the employee. However the 2012 amendment (section 4) of the Rivers State pension law changed the rate of contribution to Minimum of 7.5% by the employer and minimum of 7.5% by the employee.
B. Section 76, provides that if any state law relating to pensions is inconsistent with the Rivers state pensions law 2009 as amended, the Rivers State pension law shall prevail.
C. Commencement date: There is no mention of commencement date in the Law. Therefore the rule under the Interpretation act shall apply. This means that the Law is effective from the date it was assented to by the executive Governor of Rivers state in 2009.
D. Exemption: Section 12.-(1): Any employee who at the commencement of this Act is entitled to retirement benefits under any pension scheme existing before the commencement of this Act but has 7 or less years to retire shall be exempted from the scheme. This was however changed to 3 years in the 2012 Amendment act (section 3). Also judicial officers as listed in section 291 of the 1999 constitution.
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F. Section 17(11): The Pension Fund administrator shall send to a holder of a Retirement savings Account a monthly statement of his account to update him of his monthly contribution.
4. Implementations and Challenges of the Pension Reforms Act 2004 and the Rivers State Pension
law:
A number of challenges have beset the implementation of the pension Reform act 2004 and the
Rivers state pension Law 2009. Some of these challenges include:
1) Poor understanding of the Pensions laws and processes by workers
2) Cumbersome process of pension payment. Indeed even the pencom has requested in
the 2013 Pension Reform Bill that that payment of pensions should be made by the
Accountant General of the Federation AGF directly into beneficiaries pensioners
bank accounts rather than go through the usual long processes during which the
monies disappears in transit (Komolafe, 2013).
3) Coverage. The minimum requirement for employers with at least five employees means
that a lot of people in the informal sector will NOT be covered.
4) State and local governments employees are not covered by the Pension Reform Act
2004. States are expected to domesticate or pass into law their own Pension laws.
Therefore the laws are not uniforms especially the rate of contributions. I encourage
ASCSN Rivers state to find out the rate of contributions among the 36 States in Nigeria
and compare them with the rate in the 2012 Amendment to the Rivers state Pension
Law.
5) Inability of PenCOM to adequately regulate the pension operators.
6) Inadequate contribution by the employer. It is doubtful if 7.5% of total sum of basic
salary, housing allowance and transport allowance is adequate contribution by the
employer. In fact the total 15% in an environment where minimum wage is just
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the River state pension Law 2009 as amended are in for a huge shock as the dream of a
secured retirement life is delusionary.
7) The scheme is more or less a compulsory savings scheme.
8) Emphasis is not placed on the life assurance as provided in the Pension Reforms Act
section 9(3) and the Section 14 of the Rivers State pension law as amended. Can you
beat your chest that there is life assurance for you as provided for in these Laws?
9) Workers and their unions should be worried about the removal of military from the
Pension Reform Act . Also the exemption of Judicial officers. If the Scheme is indeed
very good, these categories of workers and officers would have put pressure to be part
of the scheme.
10) Non remittance of deduction from workers salary in line with the Pension Reform
Act and the Law. Are the amounts to the credit of each worker in the retirement saving
account reflective of the commencement date of the act? Are deductions remitted as
stipulated by law?
11) Borrowing from the Pension fund by government to fund infrastructural projects.
This is very dangerous because the federal and state government are dependent on
revenue from oil and gas. If there is a sharp and sustained drop in the oil price or
quantity of oil sold, the ability of the states and federal governments to repay the
amounts borrowed will be severally impacted. We may go back to the legacy era of
non-payment of pension!,
12) Gratuity have been surreptitiously buried . This is evil and a great betrayal of the
Nigerian workers by the political class.
13) Do you as a worker know how much is standing to the credit of your retirement
saving account? Does it agree with the deductions that have been made? Is it in line
with the laws?
14) Inadequate funding of the State Pension board to enable it carryout her
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laudable objectives of the Rivers state government in enacting the Rivers state Pension
Law 2009 as amended.
5. Recommendations and way forward:
1) Education of the workers and union leaders
2) Raising of the rate of contribution by the employer to at least 25% of the gross consolidated salary
3) Government at all levels should take advantage of the 2013 Pension Reform Bill to clearly and unambiguously restore gratuity. The payment of gratuity should be compulsory and unambiguous.Infact in the State Governments should not wait for the 2013 Pension Reform Bill, they should immediately amend their various State pension laws to clearly and unambiguously restore gratuity.
4) More transparency and accountability
5) Simplifying the process for the payment of the retirement benefits 6) Adequate funding and monitoring of the Rivers state pension s board.
7) Review of the Trade Unions act to allow the senior servants and other senior staff associations have their own Pensioners union. This is very important because the Nigerian union of pensioners as currently constituted, with all due respect and humility, cannot be effective. For instance, it will be difficult for a director to participate actively after retirement in a union of pensioners led by his driver .
6. Conclusion:
Trade unions and the workers they represent must recognise that pension and gratuity are
deferred payments and therefore earned emoluments of the workers. Consequently an
important right of workers. Until they do so, they will not be dedicated to the struggles for fair
pension and gratuity that will guaranty a good retirement life to the Nigerian workers. Also,
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Therefore it is in the best interest of workers to seek for pension reforms that are enduring, just
and fair. The politicians have done a better job , in the provision of retirement benefits for
themselves , than the workers and their unions. This is very sad and unfortunate!
Thank you.
Comrade Hyginus Chika Onuegbu JP, ACTI, FCA
7. Reference
Odia, J.O., & Okoye, A.E. (2012). Pensions reform in nigeria: a comparison between the old
and new scheme. Afro Asian Journal of Social Sciences, 3(3.1).
Okechukwu, E., & Ugwu, S. C. (2011). The laws and administration of retirement in nigeria:
a historical approach. Kuwait Chapter of Arabian Journal of Business and
Management Review, 1(2).
Komolafe, B. (2013, October). PRA 2013 Bill: Consolidating gains of pension reforms. The
Nigerian Vanguard.
Sarfati, H., & Ghellab, Y.,(2012). The political economy of pension reforms in times of global crisis . International Labour Office, Industrial and Employment Relations Department. - Geneva: ILO, (DIALOGUE working paper, No.37)
