IBIWOYE: Contract Staffing, States Undermining Pension Reforms
Ade Ibiwoye is a Professor in the Department of Actuarial Science and Insurance at the University of Lagos, Akoka. In this interview with IKECHUKWU ONYEWUCHI, he says that challenges with pension reforms are caused by low paying companies, contract staffing and refusal by states to subscribe to the contributory scheme.
What do you make of the instance of insufficient contribution, whereby a person retires and finds that his contributions are not enough to see him through retirement?
IN 2004, when government initiated the contributory pension scheme, two sets of people were affected. There were those in the old system and then those who came with the contributory system. Some were given three years to decide whether they wanted to join the new system or not. The contribution pension scheme has its advantages, but the major one is that it needs time to mature, as it is interest sensitive. You need to have subscribed for quite some time before it can yield something tangible. Between 2004 and today, we have just 12 years, and it is enough for the expected big return, in a manner of speaking.
Ideally, we should be looking at 30 years to reap returns. That is why it is called long-term fund. Imagine what the interest would have been, if one had just N10, 000 in a fund 25 years ago.
We also have the dichotomy between government and private sector workers. There is something for government workers, who have been in the system before 2004, under this scheme. Their benefits were calculated and put in a redemption bond at the Central Bank of Nigeria. When they retire, whatever they have contributed and what they had before would be added together and given them. So, there shouldn’t be much problem for government workers, especially those with the Federal Government. But that cannot be said of the private sector. When the new scheme started, some companies operating some pension funds discontinued the arrangement with insurance companies. When that happened, the insurance companies should have given them what is called a transfer value. Some of them returned the transfer value to their employees. In other words, it means such people started all over again in 2004 and so, many people have not contributed much. When people in this category retire, they wouldn’t really have much pension money to fall back on.
Labour unions have argued that the 25 percent initial payout to retirees from their pension savings is too small, especially for those who may want to set up something after retirement. Do you support an upward review of the payout?
Some people say they even want to use their pension payout to build houses apart from setting up businesses. But pension savings is not meant for such things. It is assumed that one should have trained one’s children, such that what you are paid after retirement would enable you maintain the same standard of living as when you were in paid employment.
However, irrespective of the percentage of the payout, when what a retiree contributed isn’t tangible, the payout would always be low. But the more important argument is not about going into a trade or building a house. If you read the classical work, The Greatest Man in Babylon, it is advised that you shouldn’t do what you lack expertise in. When retirees get their money and put it into a trade they know little about, most times, it leads to loss. That is why most small businesses in Nigeria fail before they clock five years.
Many employees fear that they may be shortchanged in the contributory scheme due to the low salaries paid by many companies in Nigeria today. Are their fears real?
The law is very clear on that. It is not a matter of low salaries. What the law says is that both the employer and employee contribute into the scheme. It used to be seven percent of the salary apiece for the employer and employee, but now its 10 and eight percent respectively. That has nothing to do with the pension system really. If you don’t earn much, there is nothing the system can do about it. That is not the fault of the contributory pension scheme, though it has some labour implications. Why would government allow foreigners and some banks to exploit graduates? Graduates are used as contract staffs and paid low salaries. Their employment is not pensionable, so they don’t even come into the system at all. This is because the employers don’t regard them as their employees.
What does this portend for such workers?
The law says that any employer that employs three or more people should be in the contributory pension scheme, whereby employees and employee contribute to the fund. These young people are denied the benefit of planning for old age. It is a serious issue, which government must look into. Bringing more people into the pension bracket even ensures that there is money to engage in other areas of development.
Indeed, a lot of these workers are not well motivated. They barely use this money to get to work, so the question of contributing a part of it is altogether out of the picture. What I would have suggested is self-decision. That is, if your employer is not planning for your future, you can plan for it yourself. But when what you earn can only take you to work, what choice does such a person have?
Some state governments have not keyed into the contributory scheme, as they owe workers for months and are even weighed down by the need to manage resources in the wake of dwindling federal allocations. How has this impacted on the scheme?
If state governments or the private sector don’t participate, it is a big dent on the scheme because the more the merrier. That aside, what has gone into the fund from employees of the Federal Government and part of the private sector is a lot of money, which runs into trillions. If is well managed and plugged into the economy, Nigeria would be better off.
However, most states would prefer the old system, where they don’t need to do any funding, so that when their employees retire, all they need to do is look for money to pay the benefits. But as we have seen over time, most states don’t have the resources to pay this money when it is due. And that is why they are not considering keying into the contributory scheme, especially at these trying times.
Ideally, the pensioners’ problems shouldn’t bother them, if they are in the contributory scheme. This is because they would have been contributing and the money would be outside the state coffers. The money should have been with the pension fund administrator and the custodian; it would have been duly invested. By the time you retire, you shouldn’t have any business with your employer, especially as regards pension. And maybe, the bailout issue would not concern the pensioners. But presently, salaries are not being paid, so even the contributory pension scheme is not running properly at the state level.
Some retirees have issues with unremitted contributions; what does this say of the scheme?
That is double jeopardy. First the money deducted from the employee’s emoluments were not remitted and the company didn’t also contribute its share. It is so tragic. That is a different problem from somebody who made contributions but can’t access the fund. So, we need to separate them.
The first issue is that of compliance. The law is clear about that. Pension Commission (PenCom) can deal with that. There are sanctions in the law for those people.
For the newly retired employee, there are stages in claiming the savings. In a developing country like Nigeria, there is need for many proofs. There is the proof of living, the proof that one is the right person to benefit from the savings and such things. Care must be taken that the entitlements are not paid to the wrong person. Actually, this shouldn’t be that difficult with the level of technology we have today.
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