THERE have been a misconception or misinformation in certain quarters, especially between employers and employees, that the pension reforms carried out in 2004 in the country took away some of the benefits pensioners were getting under the Defined Benefits Scheme (DBS).
Workers in the private sector have pointed out that on the commencement of the implementation of the Contributory Pension Scheme (CPS), employers in the sector stopped paying gratuity, which was paid along with pension, claiming that gratuity is not one of the retirement benefits payable under the CPS.
The National Pension Commission (PenCom) as well as other individuals have come out to correct the misconception or misinformation stating that pension reforms carried out in 2004, which culminated in the enactment of Pension Reform Act (PRA) 2004 that was repealed and re-enacted as Pension Reform Act (PRA) 2014 was carried out to enhance pension administration and better the lot of pensioners.
Payment of gratuity in the private sector is a product of collective bargaining and no aspect of any Collective Agreement entered into between employers and employees/unions was affected by any of the provisions in either PRA 2004 or PRA 2014. Rather, Section 4(4)(a) of PRA 2014 allows for the payment of additional benefits to employees upon retirement by their employers.
The question that readily comes to mind is what are the ABS that employers may establish. My simple understanding and answer to this question is that since the CPS is a scheme for the elderly in retirement that aims to allow them maintain a standard of living close to what they had in their working life, and the ABS is to complement the retirement benefits of employees under the CPS, such schemes should be schemes that align with the objectives of the CPS. Schemes that will impact positively on the wellbeing of pensioners.
Relying on the provisions of Section 4(4)(a) of PRA 2014, the PenCom has issued a framework for the establishment of Additional Benefits Schemes (ABS) under the CPS. The framework expressly allows for the payment of additional benefits by employers to their employees upon exit from the services of the employers.
The framework outlines modalities for the establishment and management of ABS by employers, in complementing the retirement benefits of their employees under the CPS.
It took into consideration the provisions of Sections 54 and 56 of PRA 2014, that permit only institutions licensed by PenCom to hold and manage pension funds and assets, in view of the fact that Section 59 of PRA 2014 stipulates penalties for contravening the provisions of Sections 54 and 56 of the PRA 2014.
Therefore, the ABS under the CPS shall be managed by Licensed Pension Fund Administrator(s) (PFAs), and the assets kept in the custody of Licensed Pension Fund Custodian(s) (PFCs), in line with the provisions of PRA 2014 and subject to the PenCom’s approval.
Some of the provisions of the framework are that an employer who wishes to establish an ABS for its employees shall be required to show evidence of compliance with the provisions of the PRA 2014 in terms of up-to-date remittance of pension contributions for its employees; Group Life Insurance Cover for employees; and execution of Portfolio Management Agreement (PMA) with PFA(s) of its choice.
Such an employer may appoint one or more PFA(s) to manage its ABS; Where an employer appoints more than one PFA, a lead PFA shall be appointed and PenCom informed of same.
The relationship between the sponsor of an ABS and the PFAs shall be governed by the provisions of a PMA to be executed by the sponsor of the scheme and all PFAs appointed to manage the scheme. PenCom shall approve the PMA before execution.
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PFAs shall not receive funds and manage any ABS until the following conditions are met: appointment of external auditors to audit the funds; submission of Trust Deed and Rules of the scheme; and submission of draft Portfolio Management Agreement (PMA) between the trustees of the scheme and the PFA(s).
A PFA shall ensure that all ABS under its management are approved by PenCom. All requests for the approval of ABS shall be submitted to PenCom within 30 days from the appointment of the PFA or Lead PFA by the trustees of the ABS. The Lead PFA shall be responsible for submitting all applications for management fees as well as to harmonise and submit all reports on the scheme to PenCom and the employer.
All employers eligible to establish ABS shall be required to forward the following documents to PenCom, through the Lead PFA, for review and approval: a) Draft Portfolio Management Agreement between the employer and PFA(s); b) where an employer has appointed more than one PFA, there shall be one Portfolio Management Agreement, jointly signed by the employer and all the PFAs of the scheme;
Another document to be produced by the Lead PFA is a Trust Deed between the employer and the designated trustees administering the fund on its behalf. The Trust Deed, which shall be clearly distinct from the Rules of the Scheme, shall set out the following: i. Appointment of trustees; ii. responsibility of trustees; iii. responsibility of the employer; and iv. termination of the scheme, amongst others.
The Rules of the Scheme, which shall be clearly distinct from the Trust Deed shall be produced, setting out the following: i. the objective of the fund; ii. eligibility criteria; iii. rate of contribution (where applicable); and iv. mode of access and benefit entitlement, amongst others.
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In order to ensure that any employer who wishes to provide ABS under the CPS must have first keyed into the CPS, the following evidences must be provided: evidence that the employer’s staff have opened RSAs indicating names of staff, their PFAs and their Personal Identification Numbers (PINs); evidence of up to date remittance of pension contributions into the RSAs of all its employees; evidence that the employer maintains a group life insurance policy in favor of its staff as provided for by section 4(5) of the PRA 2014, or show evidence of an alternative arrangement in line with Section 4 (6) of the PRA 2014;
From the moment of conception through working life until death, every human being experiences the continual, irreversible process of aging. In this regard if CPS has taken care of pension, which is an income in retirement, then the other issues that the ABS may be addressing should be healthcare, housing, dwindled income in retirement and even funeral expenses. These are some of the challenges associated with aging or retirement.
Where the scheme is an existing DBS, the employer shall be required to forward the latest Actuarial Valuation Report. In the event that the report indicates that the scheme is in deficit, the employer shall undertake to PenCom that the pension fund shall be fully funded at all times and any shortfall to be made up within 90 days or as may be prescribed by the PenCom, in line with section 50 (g) of PRA 2014.
Where the scheme is a Defined Contributory Scheme, the employer shall be required to forward the Statement of Assets and Liabilities of the scheme. If the employer is yet to transfer any assets to the scheme, such employer would be required to provide details of when it intends to commence funding of the scheme. The employer shall also be required to provide a list of all the employees on the scheme.
Upon receipt of PenCom’s approval of its ABS, the employer shall be required to submit undertakings that it shall: a) transfer all the assets of the scheme to the appointed PFA(s); b) ensure that the scheme shall be fully funded at all times and any shortfall be made up within 90 days in line with Section 50 (g) of the PRA 2014.
Such an employer is expected to: instruct the PFA to pay each employee his/her benefits/entitlements as provided in the rules of the scheme, as and when due; continuously comply with the provisions of the PRA 2014, guidelines, rules and regulations issued by PenCom; and to meet all such additional regulatory and supervisory requirements, which may be prescribed by the PenCom from time to time.
The NHF was established by the NHF Act of 1992 to mobilise funds that will facilitate the provision of affordable housing for Nigerians. Under the extant NHF law, every Nigerian earning N3,000 or more per annum is eligible to register and contribute 2.5 percent of their monthly basic salary to the NHF.
Upon receipt of PenCom’s approval of the ABS, the appointed PFA shall ensure that the employer engages: a) an actuary to conduct annual actuarial valuation of the scheme (where it is a DBS); and a firm of chartered accountants to audit the scheme annually. The external auditor shall be appointed at the inception of the scheme for a minimum period of three (3) years, which shall be deemed renewable if the fund sponsor does not change the external auditors at the expiration of their term.
The question that readily comes to mind is what are the ABS that employers may establish. My simple understanding and answer to this question is that since the CPS is a scheme for the elderly in retirement that aims to allow them maintain a standard of living close to what they had in their working life, and the ABS is to complement the retirement benefits of employees under the CPS, such schemes should be schemes that align with the objectives of the CPS. Schemes that will impact positively on the wellbeing of pensioners.
One that readily comes to mind is gratuity that is being complained about by employees in the private sector. Gratuity is the amount of money earned by an employee as a means of appreciation for service to the company while pension is a certain amount paid in periodic installments to a person after retirement.
From the moment of conception through working life until death, every human being experiences the continual, irreversible process of aging. In this regard if CPS has taken care of pension, which is an income in retirement, then the other issues that the ABS may be addressing should be healthcare, housing, dwindled income in retirement and even funeral expenses. These are some of the challenges associated with aging or retirement.
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Increase spending on healthcare in retirement is one of the greatest challenges of aging in Nigeria: where a significant portion of the senior population lacks health insurance, leading to increase in out-of-pocket medical expenses in retirement. The National Health Insurance Scheme (NHIS), which is mandatory for both the public and private sector, terminates on retirement, when it is needed most. Public and private sector employers should be considering healthcare insurance in retirement as an ABS.
Urbanisation is also a challenge to pensioners, since majority of them were in rented accommodations during their active working life. Housing remains a costly item in the annual budgets of most retirees who do not have houses of their own.
Another challenge in retirement is decrease in income: Nigeria has one of the lowest social security systems in the world, making it difficult for elderly people to make ends meet in retirement. Retirement doesn’t mean that most of them are tired. Though retired, they are not tired. Given assistance through micro finance, retirees will continue to be gainfully employed in small businesses thereby making income to augment their pension.
The Federal Mortgage Bank of Nigeria (FMBN) was established by the federal government in 1977 and has the mandate to provide long-term credit facilities to mortgage institutions in Nigeria; encourage the emergence and promote the growth of viable primary and secondary mortgage institutions to service the need of housing delivery in all parts of Nigeria; mobilising both domestic and offshore funds into the housing sector; link the capital market with the housing industry; establish and operate a viable secondary mortgage market; and collect and administer the National Housing Fund (NHF) in accordance with the provisions of the NHF Act. Regulate the activities of primary mortgage loan originators.
The NHF was established by the NHF Act of 1992 to mobilise funds that will facilitate the provision of affordable housing for Nigerians. Under the extant NHF law, every Nigerian earning N3,000 or more per annum is eligible to register and contribute 2.5 percent of their monthly basic salary to the NHF.
PRA 2014, being a peace of legislation on social protection, aimed at protecting workers who, due to sickness, disability and old age cannot work, from poverty and destitution, has provision for house ownership. Section 89(2) of the Act provides that: “Notwithstanding the provision of sub-section (1)(c) of this section, a Pension Fund Administrator may, subject to guidelines issued by the Commission, apply a percentage of the pension assets in the retirement savings account towards payment of equity contribution for payment of residential mortgage by the holder of Retirement Savings Account”.
The framework of ABS issued by PenCom, when combined with other laws in existence and synergy by relevant federal government agencies and the willingness of employers in both the public and private sectors, will go a long way to reduce, if not eliminate, poverty and destitution in retirement in the country.
In order to give expression to the provision, PenCom on 23rd September, 2022, approved Guidelines on Accessing Retirement Savings Account (RSA) balance for payment of equity contribution for residential mortgage order by RSA holders.
Another challenge in retirement is decrease in income: Nigeria has one of the lowest social security systems in the world, making it difficult for elderly people to make ends meet in retirement. Retirement doesn’t mean that most of them are tired. Though retired, they are not tired. Given assistance through micro finance, retirees will continue to be gainfully employed in small businesses thereby making income to augment their pension.
One of the issues that is becoming obvious in aging, is feminization in aging or the fact that more women than men are living longer and most of the men were the bread winners of their families. Through small family businesses, the widow or even widower and other defendants of deceased retirees will not be left in poverty and destitution.
Death is an inevitable end of every worker. Therefore, to be thinking of funeral insurance as a simple plan to cover funeral expenses of retirees may not be out of place.
The framework of ABS issued by PenCom, when combined with other laws in existence and synergy by relevant federal government agencies and the willingness of employers in both the public and private sectors, will go a long way to reduce, if not eliminate, poverty and destitution in retirement in the country.
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.
