april 10, 20151interaction with nigerian governors forum

April 18, 2023 1Interaction with Nigerian Governors Forum

Outline Rationale for the Reform Objectives of the Reform Nature of the Scheme Safeguards of the Scheme Implementation by State

Governments Pension Liabilities Opportunities for Economic Growth Challenges Next Steps

April 18, 2023 Interaction with Nigerian Governors Forum 2

Rationale for the Reform

Most public sector schemes were unfunded

Unsustainable pension liabilities Weak and inefficient administration of

schemes in both public and private sectors

Demographic shifts and ageing make defined benefits schemes unsustainable

Many workers in the private sector were not covered by any form of retirement benefits arrangement

Existence of diversified arrangements which were largely unregulated in the private sector


April 18, 2023 4

Objectives of the Pension Reform

Ensure that every worker receives his retirement benefits as and when due

Empower the worker Assist workers to save in order to cater for

their livelihood during old age Establish uniform rules, regulations and

standards for administration of pension matters

Establish strong regulatory & supervisory framework

Nature of the Scheme Mandatory Defined Contribution Scheme Coverage

Covers the public service of the Federation and Federal Capital Territory and employers of 5 or more employees in the private sector

Contributory Both employer & employee to each contribute 7.5%

of employee’s monthly emoluments (basic salary, transport and housing allowances)

Contributors are allowed to make additional voluntary contributions

Based on Individual Retirement Savings Accounts (RSAs) Personalized & portable

RSAs are privately managed by PFAs and PFCs Life insurance cover


Coverage and exemptions Scheme not mandatory on informal sector

Policy being drafted for informal sector voluntary buy-in into the scheme

Lump sum withdrawal at exit Monthly/Quarterly pension payments Option of Programmed Withdrawal or Annuity

purchase Right to change to another PFA in case of

Programmed Withdrawal Right to switch to Annuity from Programmed

Withdrawal Benefits to be paid to beneficiaries of deceased

contributor (including life insurance benefits)


Nature of the Scheme … cont’d

Safeguards of the Scheme Access to RSA allowed only on retirement Separation of the functions of pension operators Pension Fund Custodian Guarantee Pension funds held by custodians in the name of

the Contributors Pension assets cannot:

be used to meet the claim of creditors of pension operators be seized or subject to execution of judgment debt or stopped

from transfer to another Custodian be sold, or granted as loan or used as collateral

Government contribution shall be a charge on Consolidated Revenue Fund of the Federation

Scheme is strictly regulated and supervised

April 18, 2023

April 18, 2023 8

Comparing the old and the new schemes

Old SystemOld System New SystemNew System

TypeType Largely Defined Largely Defined BenefitBenefit

Defined Defined ContributionContribution

FundingFunding Mostly unfunded & Mostly unfunded & PAYGPAYG

Contributory & Contributory & Fully FundedFully Funded

Membership/Membership/

CoverageCoverageVoluntary in private Voluntary in private sectorsector

Mandatory for all Mandatory for all employeesemployees

Pension PortabilityPension Portability Not PortableNot Portable Personalised & Personalised & Very PortableVery Portable

ManagementManagement Largely State & Largely State & Management & Union Management & Union InfluenceInfluence

Private Sector & Private Sector & Individual ChoiceIndividual Choice

April 18, 2023 9


Old SystemOld System New SystemNew SystemRetirementRetirement

BenefitsBenefitsDiscriminatoryDiscriminatory Uniform ApplicationUniform Application

Claiming Retirement Claiming Retirement BenefitsBenefits

Cumbersome Cumbersome Straight forward Straight forward

SupervisionSupervision Fragmented & Fragmented & Unregulated (SEC, Unregulated (SEC, NAICOM, JTB)NAICOM, JTB)

Strictly regulated by Strictly regulated by PenComPenCom

Pension LiabilitiesPension Liabilities Implicit & not Implicit & not transparenttransparent

Explicit through Explicit through Retirement Bond & Retirement Bond & CappedCapped

Tax exemptionTax exemption LimitedLimited Contribution & Contribution & Retirement BenefitsRetirement Benefits

Insurance PolicyInsurance Policy Voluntary & mostly in Voluntary & mostly in private sectorprivate sector

Mandatory for all Mandatory for all employersemployers


Old SystemOld System New SystemNew SystemDismissal from Dismissal from ServiceService

No Pension BenefitsNo Pension Benefits Full Pension RightsFull Pension Rights

Collateral for LoansCollateral for Loans Benefits could be Benefits could be used as collateralused as collateral

Benefits cannot be Benefits cannot be used as collateralused as collateral

Deductions from Deductions from BenefitsBenefits

Benefits can be Benefits can be subject to subject to deductions deductions especially by especially by employers on any employers on any outstanding outstanding financial obligations financial obligations on the employeeon the employee

Contents of RSA Contents of RSA can be used for can be used for payment of payment of retirement retirement benefits onlybenefits only

Minimum Service Minimum Service YearsYears

5 years for gratuity5 years for gratuity

10 years for 10 years for pensionspensions

Month 1 of Month 1 of employment for all employment for all benefitsbenefits

GratuityGratuity Provided to those Provided to those qualifiedqualified

Provisions for Provisions for Lump sum Lump sum withdrawal withdrawal

Implementation by State Governments

Adoption of the scheme for all states and local governments by the National Council of States in its meeting of August 2006

Model State Pension Law was developed for the state governments to adopt and modify based on their peculiarities

PenCom reviews draft state Pension Laws and offer support in their implementation

Registration of contributors About 2.6 million Nigerians have opened RSAs 68% are from the Public Sector, of which

48% are FGN employees 20% are state & local government employees

32% are from the Private Sector


21 state governments are at various levels of implementation

Six States comprising Kano, Ondo, Bauchi, Delta, Kogi, and Jigwawa have responded to our request for up-dates


Implementation by State Governments … cont’d

S/N IMPLEMENTATION STAGE STATES REMARKS

1 Pension Law Passed Lagos, Niger, Ogun, Kaduna, Zamfara, Kebbi, Kano, Nasarawa, Jigawa

9 States

2 Bill Passed by House of Assembly Awaiting Accent Kastina, Kogi,Gombe 3 States

3 Bill at House of Assembly Level Ebonyi, Bauchi, Ondo, Bayelsa, Delta, Rivers, Sokoto.

7 States

4 At the Head of Service/Attorney General Enugu, Imo, Taraba, Yobe, Osun

5 States

5 Sensitised Civil Servants Benue, Anambra 2 States

6 Conducting Actuarial Valuation to Determine Total Pension Liabilities

Cross Rivers 1 State

7 Yet to take definite action Borno, Ekiti, Kwara, Plateau, Adamawa, Akwa Ibom, Edo, Oyo, Abia

9 States

April 18, 2023 13

Implementation: Role of Employee & Employer

Employee: PFA Selection Movement of RSA once a year Appointment of next of kin Demand for customer support from PFA Lodgment of complaints with PenCom Demand payment of employer and employee

contributions into RSA Employer (State Government):

Provision of Legal framework Preparation of contribution schedule to PFCs Deduction of both employee and employer

contributions Remittance of contributions to PFCs Computation and payment of accrued pension

rights of employees Computation and payment of pension arrears

April 18, 2023 14

Implementation: RSA Opening RSA Opening

Every employee is required by law to open an RSA

It is ILLEGAL for employers to coerce employees to open RSAs with specified PFA(s)

Registration procedure with selected PFA Completion of registration form Personal Data Thump Print issues Employment Records

PenCom to issue PIN to employees through PFAInform employer of PFA PFA gives letter to employer with details of where

money will be paid

Pension Liabilities Pension liabilities are debt obligations of the employer There are two forms of pension liabilities:

Accrued pension benefits earned by employees for past service Outstanding pension arrears

For FGN employees, the former liabilities were determined actuarially in accordance with the existing contract of service while the latter liabilities were determined through pensioner verification

Retirement bonds will be issued to each employee acknowledging his/her accrued benefits

Bonds will be redeemed into individual RSAs upon retirement

FGN has been setting aside 5% of its total wage bill to redeem the bonds

A total of N86 billion has been paid by FGN to its existing pensioners as pension arrears


Pension Liability Controls Employer is responsible only for making

specific contributions on behalf of qualified participants

The employer does not guarantee any certain amount in retirement

Pension contributions to be charged on the States’ statutory allocation?

Thus, the Scheme will stem further growth of pension liabilities and provides a platform for addressing them

It will also impose fiscal discipline in the budgetary process because pension obligations would be accurately determined

Assets are available at exit for payment of pension benefits as and when due, thus, no accumulation of pension arrears


Opportunities/Prospects of the Scheme

Pension Fund Assets: Generate long term savings (compulsory savings, tax incentives &

desire for increased retirement benefits) Promote bond and equity markets Raise productive capital formation that positively impacts on GDP

growth Provide cheaper source of finance, lead to reduced interest

rate and promote the growth of the real sector Creation of domestic institutional investors

(PFAs/CPFAs), with long term focus, would moderate stock market and price volatility

Triggers Positive Qualitative factors Privatisation Modernisation of capital market infrastructure (trading, settlement

systems) More efficient avenue for financing Government(s) long

term borrowing needs – infrastructural bonds Growth in FDI as counterpart funding to

infrastructural finance deficits


Development of annuity and Bond markets

Development of life insurance business

Development of other institutional operators: Enhance skills of Rating Agencies Development of Mortgage Industry Development of the capital market Enhancement of asset management competence Improvement of corporate finance skills


Opportunities/Prospects of the Scheme

Challenges Misconceptions and apprehensions about the

scheme General knowledge gap, especially on pension

administration Coverage would have to be expanded – how to

cover the informal sector that has over 40% of total labour force

Capacity building in the industry to address the general knowledge gap, especially on pension administration

Encouraging State and Local Governments to adopt the Contributory Pension Scheme

Inadequate investment outlets to absorb growth of savings

Inflation should be lower in order to ensure positive real return on savings and other investment


April 18, 2023 20

Next Steps Intensive sensitisation campaigns to create

awareness to stakeholders on their rights and obligations

Secure full compliance of the private sector and encourage the participation of the informal sector

Strengthen Inter-Agency co-operation with CBN, SEC, NSE, NAICOM, e.t.c To avoid regulatory overlap and policy inconsistencies To facilitate reduction in capital market transaction

costs Encourage other State Governments to implement

the contributory pension scheme Encourage unlisted good companies to seek NSE

quotation

Thank You!

National Pension CommissionPlot 174, Adetokunbo Ademola

CrescentWuse II, Abuja – Nigeria

09 – 4138736 – 40

[email protected]

April 18, 2023

april 10, 20151interaction with nigerian governors forum

Documents

pension reform

scheme contd slide

scheme safeguards

federation scheme

scheme implementation

exemptions scheme

scheme access

nigerian governors forum