Published On: Fri, Aug 16th, 2019

Workers are not benefiting from Privatized Pension System

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By Eugene Uduigwome

When the Contributory Pension Scheme commenced in 2004, many Nigerian believed that the Person Reform Act of 2004 was introduced for the benefit of workers and ultimately pensioners. More than a decade after, is this privatized model of contributory pension, really benefitting workers and pensioners in Nigeria?
My intuition tells me that, few persons who were and are still major players in our banking sector, may have convinced Government in power in 2004, to impose Chile’s Model of contributing pension system on Nigeria Workers.
These persons had an ulterior motive, for desiring the privatized system because they knew that Chile’s Model would provide for them a veritable source of virtually, free public funds to ply their trade and with the adoption of this privatized system, these few individuals have indeed achieved their aim.
Pension Fund Custodians and several Pension Fund Administrators are subsidiaries of commercial banks and major insurance companies in Nigeria. These Pension Fund Companies have been licensed by Government to keep, invest and generally administer pension funds on behalf of Nigeria Workers. Today, these Pension Fund Companies are literally feasting on the contributions of Nigeria Workers, albeit legally.
Every year, Pension Fund Companies in Nigeria declare huge profits without a corresponding growth on the retirement savings account of Nigeria Workers who are contributors to the Scheme, a large chunk of the profit these Pension Fund Companies make end up in “Warehouse Pockets” (Deep Pockets) of owners of Pension Fund Companies and yet workers were told that the Pension Reform Act is for their benefit – what a lie. Those who are substantially benefitting from this Pension Act are owners of Pension Fund Companies and, it is objectionable.
In Chile Workers have embarked on strikes and street protest since 2013 and ever since they have continued to protest sometimes up to four times yearly in subsequent years, against the Privatized Pension System, which they claim has not provided them with decent retirement benefit since it was introduced in 1981, and that only Pension Fund Companies and big companies are benefitting from the Privatized Pension System.
The leader of Central Labour Unions that organized the strike in Chile in 2013, said “The AFP System has failed, provide Poverty Level Pension and must be brought to an end” (Source Equal Times of 11th July, 2013).
On the 24th October, 2018, Chilean Workers again embarked on street protest against the Pension System being managed by Pension Fund Companies and they have resolved to continue their protest until the Privatized Pension System is changed.
Here in Nigeria, many of the objectives of the Pension Reform Act have not been fulfilled.
One of the key objectives of the Act is that Nigeria Workers will receive their retirements benefit “As and when due and not later than three months after retirement”, but today, retirees have to wait for up to fifteen (15) Months or more before they get their retirement benefits.
The Pension Reform Act also indicates that retirees would not get less than Fifty (50%) Percent of their terminal salaries as Monthly Pension when they retire, but many Federal Retirees under this Pension Reform Act, receive far less than Fifty (50%) Percent of their terminal salary as Monthly Pension.
Where is the justice in a Pension Reform Act where employees who retire on higher terminal salaries receive lower Monthly Pension than their colleagues who retired on lower terminal salaries, under the Defined Benefit Scheme?
The Pension Reform Act of 2004 exempted employees who had Three (3) Years to retire form 25th of June, 2004 from the Contributory Pension Scheme, the disparity between the monthly pension of retirees under the PRA and those who retired under the defined benefit scheme would have been substantially resolved if the number of years for employees who have Three (3) Years to retire from 25th of June, 2004 had been extended to Six (6) Years in the Pension Reform Act of 2014.
Apparently, those who drafted the Pension Reform Act of 2014 did not want to “Upset the apple cart”. A shift from Three (3) to Six (6) Years for employees to be exempted from the scheme would have resulted to sending officers who retired from 25th June, 2007 up till 30th June, 2010 back to the Defined Benefit System, where they would have retired gracefully. However, sending this group of retirees back to the Old System (DBS) would have reduced the earnings of Pension Fund Companies, as a result, this group of retirees have been used as “guinea pigs” in a Privatized Pension System that was Ab initio set up in Nigeria for the benefit of Pension Fund Companies and to provide capital for banks and big companies.
Consequently, the Monthly Pension of some early retirees under the Pension Reform Act was stopped for some months recently by Pension Fund Administrators, due to insufficient funds in their retirement savings accounts, whereas retirees who retired decades ago under the defunct benefit scheme have been receiving their Monthly Pension without any brake.
Obviously, the Pension Reform Act does not guarantee pension for life.
Since 2004, PENCOM is yet to approve a minimum pension guarantee, under this act.
The Pension Reform Act allows contributors to move from one PFA to another once a year if they so desire, but up till date contributors have remained stuck to one PFA, because PENCOM is yet to approve change of PFA’s.
In compliance with the provisions of 173(3) of the Nigeria Constitution (as amended) Pension Transitional Arrangement Department (PTAD) based on Federal Government Circulars have increased the Monthly Pension of Retirees under its purview by Twelve and Thirty Three Percent (12 & 33%) and have almost finished the payment for the arrears of the Thirty Three (33%) Percent Pension increase.
Till date, PENCOM is yet to pay a dime to some Federal Retirees under the Pension Reform Act who are also entitled to Twelve and Thirty Three (12 & 33%) Percent Pension Increase. Where did PTAD get money to pay the pension increments, and why has PENCOM failed to do same.
When the Privatized System commenced in Chile, state officials, the army, police and some security agencies were exempted from the scheme in Chile. Workers in Chile who were already in service were giving the option to remain in the defined benefit scheme or switch over to the new scheme managed by pension fund companies. Only workers who were employed after the commencement of the privatized system were made to compulsorily enroll into the new system in Chile.
Here in Nigeria, only some state officials and employees who had three years or less to retire after the commencement of the Pension Reform Act were exempted from the privatized system, all other workers were railroaded into the Privatized Pension System.
The Nigeria Army after observing that retired junior officers who retired under the old scheme were receiving higher monthly pension than senior officers who retired under the privatized scheme, rightly requested to opt out of the privatized system which led to their exit from the privatized scheme vide pension reform (amendment) act 2011. Most of the problems in the privatized scheme would not have arisen if workers in Nigeria who were in service before the commencement of the Pension Reform Act were also given the option to remain in the old system (DBS) or switch to the new system like their counterparts in Chile.
A newspaper in Chile succinctly describes the Privatized Pension System as a “A system that impoverishes workers and pensioners, while creating opportunities for large economic groups to accumulate more wealth from the contributions of workers”.
This is the type of unjust pension system that was foisted on Nigeria Workers in 2004, with the acquiescence of our labour leaders. A Privatized Pension System that has been rejected and condemned by workers in Chile and a system that has been heavily criticized by men and women of good conscience all over the world, because of the miserable pension that it delivers and the fact that it only benefits big companies.
Why are our labour leaders in Nigeria not on the same page with their colleagues in Chile? Why have they not engaged government to address the obvious problems inherent in this Pension Reform Act.
Are our labour leaders benefitting from this privatized system? The answer to this question in the words of Bob Dylan (A Famous American Artist) “is blowing in the wind”.
However, the Nigeria Labour Congress and the Trade Union Congress are major share holders in a Pension Fund Company and their company and all other Pension Fund Companies in Nigeria are blossoming while Nigeria Workers are groaning under this Act and retirees under the Act are suffocating.
Since the commencement of the Pension Reform Act, the retirement benefits of workers have been considerably slashed, but the retirement and severance benefits of political office holders in Nigeria have been increasing since 1999. PENCOM is yet to deny media reports that it recently requested for and got Federal Government Approval for about Three Hundred (300%) Percent increase in the severance benefit for PENCOM Management Staff. The increase in the retirement benefit for PENCOM Management Staff is really absurd and insensitive, since it came at a time when PENCOM, reduced the lump sum benefit of retirees from Twenty Five (25%) Percent to Twenty (20%) Percent of the balance in their retirement savings account.
Why can’t we create our own unique pension system in Nigeria?
Would a defined contributory cum defined benefit Pension System not be better than the system in operation now?
Why do we need appendages of commercial banks in Nigeria to Warehouse Pension Fund?
Why should excessive profit making middle men in whatever guise be allowed to administer pension funds?
Why can’t the Central Bank of Nigeria, be allowed to warehouse pension funds in Nigeria?
For me, the Central Bank of Nigeria ought to be the Sole Custodian of Pension Funds, and the Central Bank of Nigeria could also invest pension fund on behalf of Nigeria Workers, by channeling pension funds through existing development finance institutions, so that Eligible Nigerians, Fund Managers, (not Pension Fund Managers) Big Companies, Owners of Micro, Small and Medium Size Enterprises, including serving and retired workers who are the real owners of pension funds, could easily obtain loans for various purposes.
Today, Pension Transitional Arrangement Department (PTAD) is performing very well in the payment of retirees under the Defined Pension Scheme. Why can’t we have another properly supervised office for the payment of retirees in the Federal Public Sector under a defined contributory cum defined benefit scheme, and a third office for those in the private sector.
Why is the living condition of retirees under the privatized not at par with their colleagues in the old scheme?
The poor living conditions of retirees under the Pension Reform Act in Nigeria may predispose workers to engage in corrupt practices. If Government really intends to dissuade workers in Nigeria from unwholesome acts, them there is need to revisit the Pension Reform Act 2014, with a view to providing workers in Nigeria with a retirement system that would genuinely cater for the welfare of retired workers.
For me, the notion that Pension Fund Companies invest pension funds for the benefit of workers is the greatest deceit of the twentieth and I dare say twenty first centuries. Pension Fund Companies invest pension funds for their selfish gains; they do not care if workers on retirement end up with meager retirement benefits.
The iniquitous pension system in Nigeria managed by Pension Fund Companies, which only benefits banks, big companies and owners of Pension Fund Companies, should be scrapped.
Eugene Uduigwome is a Public Policy Analyst.

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