Pension Reform: End of a Turbulent Era

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The presidential assent to the Pension Reform (Amendment) Bill last week marked the end of an era for pension thieves and a new dawn for retirees. Omololu Ogunmade enumerates essential features of the Pension Reform Act 2014

The  curtain has finally fallen on the turbulent era of anguish under which retirees queued for hours in the sun to collect their pensions, as President Goodluck Jonathan last week assented to Pension Reform Act 2014. The bill, which was passed on April 9 by the Senate and followed by House of Representatives’ concurrence, seeks to terminate the pain and anguish of retirees. With the presidential assent, it is hoped that the nation will be spared tragic news of pensioners slumping and dying while awaiting their pensions.
Similarly, it marks the end of an era for the staff of pension management departments who have over the years fed fat on the retirement benefits of elderly men and women by denying them their deserved pensions while exploiting their fortunes to live in affluence. To this end, memory is still fresh on the discovery of N273 billion pension fraud by the Senate in 2012.

Defined Benefits Scheme
The Pension Reform Act 2014 has phased out the method of pension payment known as defined benefits scheme and instead provides for the existence of pension administrators who will serve as custodians of pensions through the opening of a retirement savings account (RSA) for both the senior citizens and every current employee in both the public and private sectors.
An essential feature of the Actis the provision for the creation of Pension Transition Arrangement Departments (PTADs). PTADs are empowered by the bill to take over the payment of pensions to pre-pension reform retirees in government departments such as Police Pension Office; Customs and Immigration Pension Office as well as the Civil Service Pension Department. Events of the past decades have only shown the notoriety of these departments for pension fraud.

Against this background, PTADs will ensure that seniors citizens who retired under the old pension scheme before the first enactment of Pension Reform Act 2004, which the National Assembly has just amended, have their pensions transmitted directly into their bank accounts and no longer through a third-party, that is, pension departments, as had been the case over the years.
Although Section 30 (2a) of the Pension Reform Act 2004 had provided for the existence of PTADs, there was no move to bring it into fruition until the coming of Mrs.  Chinelo Anohu-Amazu as Acting Director-General of Pension Commission (PenCom). This initiative prompted the recent appointment of the first Director-General of PTAD by the president.

Contributory Pension Scheme
Another aspect of this pension reform is the contributory pension scheme. A pension administrator will be duty bound to operate under the contributory pension scheme involving both the employer and employee by remitting such contributions into the latter’s accounts. Under this scheme, both the employer and employee will contribute 20 per cent. While the employer will contribute 12 per cent, the employee will contribute 8 per cent of his earnings. This is an upward review of the scheme from 15 per cent contribution in the repealed Act in which both the employer and employee contributed 7.5 per cent each.

But just as pension is payable only after retirement, even so an employee under the reform, will be denied access to his pension until he retires or attains 50 years of age. The only exception will occur when there is job loss as the Act grants every contributor an access to his/her RSA after four months in the labour market with unsuccessful attempts to secure another job.
To safeguard the interest of prospective pensioners therefore, the Act provides for years of imprisonment as penalty for any pension administrator who misappropriates or diverts pension funds. It also stipulates that anyone found guilty of embezzling pension funds will pay thrice the value of what he has embezzled.

The Act also provides for five years imprisonment or N10 million fine for any pension administrator who fails to remit profits earned from an investment made with the fund of a contributor.  It also provides for a fine of N500,000 daily for any agency administering pension affairs which fails to abide by provisions of the law.
The enactment of Pension Reform Act (Amendment) 2014, which among others, seeks to put paid to the era of impunity and widespread corruption in various pension departments, is expected to enhance the operations of PenCom as the sole regulatory authority and as well  foster the efficiency of the commission to provide greater oversight on PTADs. It is also expected to reposition it for greater efficiency and accountability in the administration and payment of pensions under the old pension scheme otherwise known as Defined Benefits Scheme.

Besides, in preparation for effective operations of PTADs, following the passage and assent to the Pension Reform Bill, the leadership of Anohu-Amazu in PenCom is said to have established branches of PTADs in four geo-political zones, specifically in places such as  Calabar (South-south), Ilorin (North-central), Awka (South-east) and Kano (North-west), leaving only two zones of South-west and North-east still awaiting the establishment of PTADs. Establishing PTADs in each geo-political zone is aimed at reducing the risk and inconveniences that pensioners go through in the effort to resolve their pension issues by frequent trips to Abuja. Instead, a pensioner will only visit a nearby PTAD in his geographical zone.
It is therefore cheering news for traumatised pensioners that henceforth, PTADs will be enabled to take over the payment of pensions directly into pensioners’ RSAs without having to queue under the scorching sun for pensions any longer.

Relief for Stakeholders
Following the passage of the bill with the intention to entrenching the desired reform in pension administration in Nigeria, stakeholders hailed federal lawmakers for this perceived patriotic move. Notable among such stakeholders was Federal Universities Pensioners Association (FUPA) which said the passage was long overdue, “especially given the diligent and eye-opening investigation by the legislature into sharp practices in various pension departments,” adding: “Such lootings have brought untold hardship and untimely deaths upon pensioners.”

The group was quoted as saying through its president, Dr. Ayuba Kura, that the move to reposition the pension system through an executive bill by Jonathan’s administration was a notable move to reform pension management in Nigeria. It also praised the legislature for evolving harsh penalties against pension culprits.
“In particular, we commend the Senate for providing for the creation of new offences and for harsher penalties against the infractions on pension law and all forms of mismanagement or diversion of pension funds and assets under any guise. Those who steal pension funds do not have mercy on the elderly and the weak deserve harsher punishment which this law has tried to entrench.

“We commend the Senate for endorsing the move to properly establish the Pension Transition Arrangement Departments (PTADs) to now take over the payment of benefits to pensioners who retired under the old or Defined Benefits Scheme from the various Pension Departments. This will enable pensioners under this to now receive their pensions directly without the funds passing through third parties, being the various Pensions Departments,” the group said.

Qualification for Office of DG
The group was also excited by the decision to reduce the minimum years of experience which anyone seeking appointment as the Director-General of PenCom must possess. From the initial 20 years provided in the repealed bill, the National Assembly reviewed it to 15 years. The group however, added that it would have been happier if the lawmakers had reduced it below 15 years “in line with local and international best practices in pensions and financial regulatory agencies,” adding: “The issue of experience in Nigeria is sometimes taken beyond all reasonableness. It is not how long you have stayed in the office that makes you an experienced or honest person. Integrity and sound and creative contributions to the system matter most.”
Further, the group said: “We urge the House of Representatives to urgently respond to the suffering of pensioners and emulate the Senate in passing the bill immediately.”

Penalties for Pension Fraud
Speaking with journalists after the bill was passed, Chairman of the Senate Committee on Establishment and Public Service, Senator Alloysius Etok, elucidated on the bill.
“With the enactment and passage of this bill today (yesterday), when assented to by the president, all the penalties and all the prescriptions contained in this Act would be followed. We have penalties ranging from 10 years imprisonment and below.
“For even failing to give proper information, you have to pay N500,000 daily. And if you embezzle pension funds now, you will pay not less than three times the amount of funds you embezzled. That is how serious this bill has treated pension funds.

“If you embezzle N10,000 you are bound to pay a minimum of N30,000 and in some circumstances, the presiding judge has the right to make you refund and even go to prison,” he said.
With the pension reform in operation, every Nigerian under paid employment will benefit from the scheme as the bill mandates every employer within the public and private sectors to ensure that their staff partake in the scheme while making it a crime for any employer who disregards this move.

Specifically, Section 101 of the Act stipulates that any pension custodian who contravenes the provisions of the Act commits an offence and shall be liable on conviction to a fine of not less than N10 million with each of its directors or principal officers also liable to a fine of not less than N5 million or to a term of not less than 5 years imprisonment or to both fine and imprisonment.
The 2014 Act also empowers PenCom, subject to the fiat of the Attorney General of the Federation, to institute criminal proceedings against employers who persistently fail to deduct or remit pension contributions of their employees within the stipulated time. This was not provided for by the 2004 Act.

Beneficiaries of the Reform
According to the new Act, any private sector organisation with three employees and above, must register them for contributory pension scheme. In the same vein, the Act has reduced the waiting period for accessing benefits in the event of loss of job by employees from six months in the previous Act to four months. This was done in solidarity with the yearning of contributors and organised labour.

Consolidation of Previous Legislations
The Pension Reform Act 2014 has consolidated earlier amendments to the 2004 Act, which were passed by the National Assembly. These include the Pension Reform (Amendment) Act 2011 which exempts the personnel of the military and security agencies from the contributory pension scheme as well as the Universities (Miscellaneous) Provisions Act 2012, which reviewed the retirement age and benefits of university professors. Furthermore, the 2014 Act has incorporated the Third Alteration Act, which amended the 1999 Constitution by vesting jurisdiction on pension matters in the National Industrial Court.

World Pension Summit “Africa Special”
Presidential assent to the Pension Reform Bill 2013 looks timely as it came less than a week to the scheduled African edition of World Pension Summit scheduled taking place at Transcorp Hilton Hotel in Abuja on July 7 and 8, 2014. The event which will be Africa’s first special edition of the summit will be a prelude to the forthcoming 2014 World Pension Summit at The Hague in Netherlands between November 5 and 6, 2014. The annual summit for Africa is jointly being organised by the world body in collaboration with the National Pension Commission of Nigeria.

The summit, which is expected to be attended by all African pension professionals, is also expected to deliberate on such issues as African pension innovation, key scenarios and scheme development. The summit is also expected to present global insights into pension as well as best practices. Discussants at the summit will be renowned international experts in pension management.

Nigeria became ultimately qualified to host the summit in view of its outstanding pension reforms since 2004 which has been viewed as a landmark effort in the entire African continent.  Thus the enactment of Pension Reform Act 2004 became the dawn of a new era in pensions for Nigeria. This summit will therefore herald a decade of pension reform in Nigeria as this summit tagged ‘’Africa Special’’will provide a unique knowledge platform for all African nations on pension market development and how to address all complexities involved.

Principally, the summit is aimed at fostering exchange of expertise between pension professionals in Africa with a view to stimulating pension market developments and pension innovation. This inaugural edition of the World Pension Summit ‘Africa Special’ will, among others, dwell on key lessons learned amongst African nations as they share experiences on relevant topics and developments such as pensions investments, risk management, funds management, administration, regulatory essentials and communication/financial literacy. The summit which will be held annually, will designate Abuja as the conference location.

Besides, the summit will provide stakeholders with the platform to: meet with pension professionals from all over the African continent and beyond; learn from new trends on financing pensions and witness expert discussions on investment of pension funds for economic development.
It will also serve as an international platform for cross-border knowledge sharing and networking;  in-depth sessions with experts from around the African continent and beyond.

The World Pension Summit
The World Pension Summit is said to be the only platform ‘for and by’ pension professionals to exchange knowledge and innovative ideas on how to secure sufficient pension provision. It has been described as an annual gathering of over 400 professionals from 40 countries coming together to exchange expertise and best practices with the overall intention to pursue essential development in social security, innovation and pensions. Its essential features are asset management, investments, pension fund management, scheme development, ageing, elderly care, social security, social innovation and communications.

The summit was founded in 2010 with its inaugural and all other successive editions holding in the Netherlands. Experts have described it as the only platform “for and by” pension professionals as well as the best source of knowledge sharing and learning experience.

National Pension Commission (PenCom)
The National Pension Commission (PenCom) is a public institution established to regulate, supervise and ensure effective administration of pension matters in Nigeria. PenCom was established following the take-off of pension reform in 2004 which culminated in a paradigm shift in Nigeria’s pension system from the existing Defined Benefits Scheme to Contributory Pension Scheme. In its ten years of existence, pension fund investment is believed to have contributed to economic growth experienced in Nigeria, as Pension Assets and GDP ratio are said to have increased.

Pension reform in Nigeria was initiated during the second term administration of President Olusegun Obasanjo with the aim of addressing and eliminating the problems associated with pension schemes in the country. It was the pursuit of this reform which gave birth to Pension Reform Act 2004as well as the regulatory body, PenCom.

Within ten years of this reform, Nigeria’s pension industry has experienced phenomenal growth. From the deficit of N2 trillion pension liabilities in 2004, pension fund assets in Nigeria had reportedly moved up to N4.1 trillion at the end of 2013. Perhaps the consummation of pension reform via the Pension Reform Act 2014 will be one of the greatest achievements of Jonathan’s administration in collaboration with PenCom led by Anohu-Amazu. This is more so that never in Nigeria will the media be awash with such horrible stories of old men and women dying in trauma after several failed bids to earn their pensions.

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