THE ISSUE of minimum wage in Nigeria has always been a contentious topic, drawing extensive debate and negotiations between the federal and state governments, labour unions, and employers. However, an often-overlooked aspect of these negotiations is their effect on the minimum pension, especially in the light of section 173(3) of the 1999 Constitution of the Federal Republic of Nigeria (as amended) and section 39(3) of the Pension Reform Act 2014.
The interplay between the provisions of Section 173(3) of the Constitution and Section 39(3) of the Pension Reform Act 2014 establishes a legal framework that collectively mandate a corresponding review and adjustment of pensions, thereby ensuring parity between pensioners under the DBS and the CPS.
When the national minimum wage is increased, it generally signifies an acknowledgment of the rising cost of living and inflationary pressures.
For instance, the last increase in national minimum wage from N18,000 to N30,000 in 2019 was driven by the need to ensure that workers earn a living wage that can meet their basic needs. Ideally, such increment should also prompt a review of pensions to ensure that pensioners were not left behind economically.
However, the reality often falls short of this ideal. Despite the constitutional and legislative mandates, there have been instances where the review of pensions lags behind or is not implemented at all following wage increases. This delay or failure to adjust pensions accordingly results in significant economic strain on pensioners, many of whom rely solely on their pensions for sustenance.
Since federal public servants started retiring under the Contributory Pension Scheme (CPS) in 2007, there have been four increases of pension for federal public service pensioners under the old defined benefits scheme (DBS) excluding pensioners under the CPS as follows:
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- 15% increment in 2007;
- 33% increment in 2010;
- Consequential adjustment in 2019 following the increase in minimum wage
- 20% to 28% increase in 2024
Section 173(3) of the Constitution stipulates that pensions should be reviewed every five years or together with any federal civil service salary reviews, whichever is earlier. “Pensions shall be reviewed every five years or together with any federal civil service salary reviews, whichever is earlier.”
This clause enshrines the right of pensioners to periodic pension reviews to reflect changes in the economic environment, such as inflation and cost of living adjustments, ensuring that retirees are not left behind as the economy evolves.
One of the primary concerns of public servants who are agitating for exemption from the CPS is the discrimination against CPS pensioners. Under the CPS, the amount a pensioner receives is heavily dependent on the contributions made during their working years, the returns on investment of those contributions and accrued pension rights for those who were in service before June 2004. This has led to significant disparities between DBS and CPS pensioners thereby perpetuating income inequality in retirement.
Section 39(3) of PRA 2014 provides that: “Without prejudice to sub-section (2) of this section, the Commission shall, by the end of every calendar year, determine the adequacy of the Redemption Fund against the projected pension liability of Government arising from voluntary and mandatory retirements, death of employees in service and the right of pensioners to pension review in line with section 173(3) of the 1999 Constitution (as amended), and advise the Budget Office of the Federation of shortfall, if any.”
“The pension payable under the Contributory Pension Scheme shall be reviewed in accordance with the provisions of Section 173(3) of the Constitution of the Federal Republic of Nigeria, 1999.” This provision explicitly aligns the CPS with the constitutional mandate, ensuring that pensions under both the CPS and the DBS are subject to the same review mechanisms.
The interplay between the provisions of Section 173(3) of the Constitution and Section 39(3) of the Pension Reform Act 2014 establishes a legal framework that collectively mandate a corresponding review and adjustment of pensions, thereby ensuring parity between pensioners under the DBS and the CPS.
Given the legal framework, the adjustment of the national minimum wage should trigger a corresponding review and adjustment of pensions for several reasons, viz:
Constitutional Mandate: Section 173(3) of the Constitution unequivocally requires that pensions be reviewed concurrently with any federal civil service salary reviews, which includes adjustments to the national minimum wage. This mandate is clear and binding, ensuring that pensioners’ income reflects current economic realities.
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Legislative Consistency: Section 39(3) of the Pension Reform Act 2014 integrates the CPS into the constitutional framework, eliminating any ambiguity about the applicability of pension reviews to CPS pensioners. This consistency underscores the legislative intent to protect all pensioners, irrespective of the scheme they fall under.
Equity and Non-Discrimination: Ensuring that pension adjustments apply equally to both DBS and CPS beneficiaries upholds the principles of equity and non-discrimination. Differentiating between pension schemes in the application of reviews by the same employer would result in unfair treatment of certain categories of retirees, undermining the spirit of social and natural justice.
Economic Stability: Regular pension adjustments in line with minimum wage increases help maintain the purchasing power of retirees, contributing to their economic stability and well-being. This stability is crucial for the broader economy, as pensioners constitute a significant consumer group whose spending supports various sectors.
Some may argue that the adjustments of pensions under CPS could strain government finances. So does minimum wage adjustment and adjustment for pensions under DBS. However, failing to adjust could lead to greater social costs in the form of increased poverty among the elderly under the CPS; higher health care challenges for the elderly, and potential social unrest. A proactive approach to the adjustments can be managed through prudent financial planning and political will.
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One of the primary concerns of public servants who are agitating for exemption from the CPS is the discrimination against CPS pensioners. Under the CPS, the amount a pensioner receives is heavily dependent on the contributions made during their working years, the returns on investment of those contributions and accrued pension rights for those who were in service before June 2004. This has led to significant disparities between DBS and CPS pensioners thereby perpetuating income inequality in retirement.
Furthermore, there are concerns that the CPS does not adequately protect against inflation. Unlike the DBS, where pensions are typically indexed to inflation or salary increments, the CPS lacks a clear mechanism for ensuring that pensions keep pace with rising living costs. This issue is compounded when the government fails to implement pension reviews for CPS pensioners in line with minimum wage adjustments or outright salaries increases as mandated by Section 173(3) of the Constitution and Section 39(3) of the Pension Reform Act 2014.
The Constitution and the Pension Reform Act intentions are clear: all pensioners, regardless of the scheme they belong to, should receive fair and periodic adjustments to their pensions. This is crucial to ensure that they can maintain a reasonable standard of living despite inflation and other economic shifts. Discriminatory practices in pension adjustments violate this constitutional and legislative provisions, creating an unjust disparity between DBS and CPS beneficiaries.
Non-compliance with constitutional and legislative laws regarding CPS pensions significantly undermines the fight against corruption in the public service. When the government fails to adhere to legal mandates, it signals a disregard for the rule of law, which is fostering a culture of impunity and mistrust. This behaviour demoralises public servants, reduces their commitment to ethical standards, and perpetuates corrupt practices, as employees may feel that corruption is tacitly tolerated or that there is little incentive to uphold integrity in their roles.
CPS pensioners face the brunt of economic hardships without corresponding adjustments to their pensions. Unlike the DBS, where benefits are predefined and subject to periodic review by the government, CPS benefits are contingent on the performance of pension funds and individual contributions. Without regular adjustments, CPS pensioners struggle to cope with rising living costs, leading to diminished quality of life and financial insecurity.
The evident disparity in pension adjustments has led to widespread disenchantment among current employees and contributors to the CPS. They rightly believe that their contributions will not yield adequate post-retirement benefits, especially when compared to the seemingly more secure DBS. This sentiment has fuelled calls for exemptions from the CPS, as contributors seek to avoid a system that is unfair and unreliable.
The legal and moral implications of a government not complying with constitutional and legislative mandates on the review and adjustment of Civil/Public Service (CPS) pensions are significant.
The legal implication includes the following:
Violation of Constitutional Rights: Failure to adhere to constitutional provisions is a breach of the social contract, undermining the rule of law and a violation of the constitutional rights of pensioners under the CPS. Breach of legislative mandate, Non-compliance with statutory requirements as stipulated in pension law by government as an employer with provisions of the Act should result in legal challenges, court rulings against the government, and sanctions. The persistent legal violations have eroded public trust in government institutions and their commitment to uphold the law including regulatory agencies’ ability to enforce compliance with regards to the federal government.
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Moral implications: Not adjusting pensions has led to financial hardships for retirees, which is morally indefensible given their services to the nation and unfair treatment of pensioners under the CPS. It reflects a flagrant disregard for social justice, equity and fairness towards the well-being of vulnerable populations. It has demoralised current employees who will all retire under the CPS, who see the government’s failure to honour commitments, potentially affecting their performance and loyalty thereby eroding public service morale and confidence in federal government’s ability to safeguard their wellbeing in old age.
Non-compliance with constitutional and legislative laws regarding CPS pensions significantly undermines the fight against corruption in the public service. When the government fails to adhere to legal mandates, it signals a disregard for the rule of law, which is fostering a culture of impunity and mistrust. This behaviour demoralises public servants, reduces their commitment to ethical standards, and perpetuates corrupt practices, as employees may feel that corruption is tacitly tolerated or that there is little incentive to uphold integrity in their roles. Thus, strict compliance is essential to demonstrate government’s commitment to transparency, accountability, and anti-corruption efforts.
To address these concerns, it is imperative to adopt a more equitable approach to pension adjustments. Government must ensure that reviews and adjustments for CPS beneficiaries are conducted regularly and in line with economic conditions, similar to the DBS.
Ensuring fairness in pension adjustments across different schemes is not just a legal obligation but a moral imperative. By addressing the disparities and implementing equitable adjustments for CPS pensioners, government can safeguard the economic well-being of retirees, ensuring that they enjoy a dignified and secure retirement as well as upholding the principles of justice and equality, thereby reinforcing the integrity of the pension system.
Comrade Takor was a two-term President of NASU, a two-term National Treasurer of NLC and an inaugural member of the Board of PenCom. Comrade Takor retired as a Director in federal service and is now a Lagos-based legal practitioner. He is an alumnus of the National Institute of Policy and Strategic Studies (NIPSS), Kuru-Jos, Plateau State.
