Nigeria moved from Defined Benefit pension plan to Defined Contributory pension by enacting the Pension Reform Act of 2004 (PRA 2004).

Back then, the adoption of the Chilean model of Defined Contributory pension was the only responsible option that can easily address the associated problems of the old Defined Benefit Plan.

Essentially, the federal government embraced contributory pension because it was facing increasing budgetary pressure to cover deficits, outright fraud, diversion, ghost pensioners on record, the old scheme was unsustainable due to internal demographic shifts, and mounting failure to provide promised benefits to workers who have served the country among other reasons.

The Defined Benefit plans served it purpose years ago when workers stayed with the same employer for life. The employers paid their loyal employees when they turned 65, a monthly amount from the pension funds until the employee dies. Defined Benefit plans are outdated because no one works at the same place for 40 years anymore and employment contracts are mostly “at will”.

If you left or were fired you got nothing. And if the employer including all tiers of government fails to put enough money aside to cover all their retired employees for life, you may get a fraction of what you were promised.

In the private sector, employers played fast and loose with their employees and did not cover many employees in the company’s pension schemes. Those who covered their employees did not fund the schemes. Many pension schemes designed in house were neglected in favor of robust balance sheets.

Like everything Nigerian, the funded pension schemes became the piggy bank for fund managers and the trustees.

With this background, the federal government established the Contributory Pension Scheme (CPS), as a uniform pension system for “the public and private sectors of the economy. The National Pension Commission (PenCom) was established by law to regulate, supervise and have oversight functions over pension matters in the country. The scheme is managed by licensed Pension Fund Administrators (PFAs), while the custody of the pension fund assets lies with licensed Pension Fund Custodians (PFCs).

As usual, Nigeria as a country behaves as if it has no original thinkers. We always do wholesale lifting of other country’s ideas without giving localization a thought. A country overtaken by corruption, where capital markets is fraught with heavy insider trading and underhand deals, whose agencies with oversight functions are often complicit in inducement, connivance and fraud can only short-change its workers at the most vulnerable time of their lives. There are inherent problems with the new scheme and the proposed reforms. In a country where everyone is looking for ways to shaft another, future pensioners on the defined contribution scheme may get the rudest shock of their lives when retirement comes. Here are loopholes to ponder on:

Are remittances made promptly to the Retirement Savings Account (RSA) by firms, employers and employees?

What is the pedigree of Pension Fund Administrators and Custodians that have been licensed?

Were the licenses given based on competence, qualification and proven track record?

What is the average rate of return for income and capital gains as indexed to the capital market?

Is the rate of return for each fund published and widely available?

What are the legal frameworks to protect the scheme from political changes, grand looting and concealment of actual profits?

How are small and medium businesses monitored for compliance and effective implementation of penalties regardless of their owners status with the system?

What recourse is available to contributors if a PFA or PFC goes bankrupt?

As at June 2013, there are 5.61 million workers in the scheme, with N3.50 trillion contributions invested in various financial instruments of which N169billion is invested in state government bonds. States who issued the bonds have channeled the funds towards the provision of infrastructure in their various states (hopefully).

The Pension Reform Act 2004 had five major objectives: that every worker in public service or the private sector receives his retirement benefits promptly; to guarantee a comfortable retirement; streamline and ensure prompt pension payments; establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the public service and the private sector; remove pension liabilities from government.

My fear mounts on the fate of hard working Nigerians who may not have stolen enough to guarantee a dignified retirement that is not steeped in poverty.

There is a lot to fear based on the loopholes highlighted above by the Nigerian worker. A decade after, many states and local governments’ employees are not covered by the PRA 2004.

Almost every month, we are confronted with outlandish and contemptible amounts stolen from pension funds in this country.

Can it be stopped given that we have become inured to stealing as a national pastime? What protects pensioners from a would be looter determined to serve a small jail time? Who will save pensioners from pension funds that can declare a fraction of the rate of return on workers’ investments and pockets the rest?

In recognition of the mounting failures of the pension funds, the Pension Reform Amendment Bill of 2013 (PRAB 2013) was forwarded to the National Assembly.

The Reform Bill is to: strengthen PenCom’s oversight and enforcement functions and ensure the protection of pension fund assets; open up pension funds for use in national development (easy money); toughen sanctions on looters of funds; extend participation to the informal sector.

In addition, the reform bill proposes the framework for the adoption of the CPS by the states and local governments; new offenses and stiffer penalties for looters of pension funds; and an upward review of current contributions from 15 per cent to 20 percent.

Of this, 12 percent is expected to come from the employer and 8 percent from the employee’s paycheck every month. Analytically, the reform bill is already fraught with booby traps and clear channels for looting. With the government’s declining fortunes, pension funds provides for easy cash to fund “development”.

If money from crude oil sales was not used for development, what guarantees exists for money from pensions? If the government defaults in its obligations, who pays? Why should the years of experience for the Chairman and Director-General be an issue in a reform bill? Why should qualifications be subjected to the whims of the presidency? Why should a requirement be lowered just to favor one person? Why should cronyism come into play in a sensitive role handling the fate of people who have worked all their lives hoping for a peaceful retirement?

Thankfully, the Joint National Assembly Committees on Pension and Establishment Matters has recommended that any person to be appointed as the Director General of PenCom must be “fit and proper person with adequate cognate experience in pension matters”. Effectively, they removed the years of experience and replaced it with competency. For once our representatives did us right.

Happy New Year to you and yours. May you all find the totality of goodness, from within and from without this year and beyond. We must stay angry, desperate and purposeful; that we may not allow evil claim this land. In 2014, we must not forget that ” the price of freedom is eternal vigilance – Desmond Tutu”.

Source: AllAfrica.com