Pension Regulation Finally Comes of Age

Legal Eagle By May Agbamuche-Mbu, Email: may.mbu@thisdaylive.com


On 1st July 2014 President Goodluck Jonathan signed the Pension Reform Bill into law. The new law which is meant to govern and regulate the administration of the uniform pension scheme for both public and private sectors in Nigeria, repeals the Pension Reform Act No. 2, 2004. The 2014 Act empowers the National Pension Commission (PenCom) subject to the fiat of the Attorney General of the Federation, to institute criminal proceedings against employers who persistently fail to deduct and or remit pension contributions of their employees within the stipulated time. The new law also reviewed upwardly the penalties and sanctions as the old law did not serve as a sufficient deterrent against infractions of it Furthermore, PenCom can revoke the license of erring pension operators whose actions or inactions jeopardise the safety of pension assets.

A few days after the Pension Reform Bill was signed, the 1st edition of the World Pension Summit Africa Special was held in Abuja, organised jointly with PenCom. The summit focused on key lessons learned amongst African nations on pension investments, risk management and fund management, amongst many other relevant areas of importance in pension administration.

PenCom is a public institution established to regulate, supervise and ensure effective administration of pension matters in Nigeria. It was established following the takeoff of pension reform in 2004 which culminated in a paradigm shift in Nigeria’s pension system from the existing Defined Benefits Scheme to a Contributory Pension Scheme (CPS).

It is encouraging to know that pension issues are being brought to the front burner. To work and receive a pension is a source of pride more so if you have served your country. It is not the amount that matters, it is that at the end of years of labour you stand to receive money that you have earned. In a country such as ours with no social security scheme, exiting employment can fill one with trepidation. Some have manipulated their date of birth in order to remain at work for as long as possible but one day the inevitable must surely come to pass: time to retire - and for civil servants all over Nigeria the nightmare has only just begun.

I remember clearly some years ago on the streets of Ikoyi, Lagos retired civil servants in their hundreds and thousands day in day out waiting for their pension or some form of verification exercise to be first conducted that somehow appeared to be lasting forever. You could not miss the pensioners’ dejection as you could see frustration written all over their faces.

Embezzlement of pension funds has been the order of the day in this country. For example the Police Pension Fund has a history of fraud associated with it and some years ago the fund was practically cleaned out. So often when a fraud of this magnitude occurs the sums involved are truly astronomical, running to billions of naira. The perpetrators not only take the cream on top, they also take the entire milk, including even the glass bottle. Recently, the Federal Government approved a new Pension Fund Administrator to manage the pension of the Nigerian Police under the Contributory Pension Scheme. Not surprisingly retired police officers in Imo state have already called for the removal of the Nigerian Police from the Contributory Pension Scheme, asking to be treated like the Nigerian Army and Navy. At the moment Police Pension Fund stands at over N305 billion. You can but imagine how some people are licking their lips, waiting for any opportunity to feast on it.

After much deliberation between PenCom and the Nigeria Police Force (NPF) the NPF decided to incorporate NPF Pensions Limited and only recently, applied to the commission to operate as a PFA exclusively for police personnel in order to address their peculiar concerns. However this proposed NPF Pension is generating heated criticism as it may be illegal as currently structured.

In a pension fraud matter involving N18.3billion brought before Justice Adeniyi Ademola of the Federal High Court, Abuja by the Economic and Financial Crimes Commission (EFCC), a hotel was forfeited to the Federal Government in consonance with the provisions of Section 204 of the Criminal Procedure Act, Section 34(1) of the EFCC Act and the rules of the Federal High Court as the property was bought with proceeds of the crime.

According to PenCom, assets under management in the CPS have risen to N4.3trn. The new law provides a 10 year jail term as penalty for any pension administrator who misappropriates or diverts pension funds. It also provides that anyone found guilty of embezzling pension funds would pay thrice the value of what has been stolen. It further stipulates a fine of N500, 000 daily for any agency administering pension affairs which fails to abide by any provision of the Act. There is hope in sight where pension funds are concerned as PenCom has a strict regime, which include daily monitoring of the investment activities of PFAs and the institution of rigid payout authorisation requirements, all to ensure that the PFAs are not reckless in their investment decisions, while also providing that only the right beneficiaries would have access to pension funds.

Some other measures include the guarantee of the full sum and value of the pension fund and assets held by Pension Fund Custodians on behalf of the PFAs, as mandated by the regulator, as well as risk ratings for instruments that pension funds can be invested in. In addition to the engagement of a Compliance Officer (CO) who is to ensure compliance with the provisions of the law regarding pension matters as well as the internal rules and regulations of any operator,every PFA is also required to maintain a Statutory Reserve Fund into which shall be credited annually 12.5% of the net profit after tax of their investment or as stipulated by PenCom to meet claims. Corporate governance must be strictly adhered to by the PFAs both to buttress the regulatory work of PenCom and because of the massive value of funds under administration.

As at June this year, over N4.3 trillion has been accumulated for the benefit of almost 6 million Nigerians currently registered in the scheme. PFAs have become the centre of great attention by Corporations, State and Federal government who are keen to access part of the funds towards developing our infrastructure which is in a sorry state e.g. most especially roads and electricity. Whichever way you slice it investment of pension fund must be safe.

No doubt we Nigerians want implementation of high impact infrastructure projects accelerated and with these huge sums of accumulated pension funds available, how then can these sums be guaranteed to be there if and when the beneficiaries retire and need their money?

The time has most certainly come for the Government to be directly accountable to the people especially if they are going to dip into their pension funds. They need to know which projects are being funded and for how much.

All in all the new Act has sincerely paved the way for a better pension regime and as we go along further reviews may be required as Section 173 (3) of the 1999 Constitution provides for pension review every five years.