The Pension Fund Operators Association of Nigeria (PenOp) raises concerns over the Nigeria Police Force’s (NPF) proposal to leave the Contributory Pension Scheme (CPS) for the Defined Benefits Scheme (DBS).
Speaking during a public hearing on a bill to establish a police pension board in Abuja, the Chief Executive Officer of PenOp, Oguche Agudah, warns that such a move could destabilize the financial system and diminish pension assets.
Financial Strain of DBS
Agudah explains that transitioning to DBS, which relies on government allocations, will create significant financial challenges. Funding pensions for about 400,000 police personnel under DBS requires ₦3.5 trillion annually, a burden that is unsustainable given Nigeria’s current budget deficits.
“This shift will divert funds from critical sectors such as public services and wage adjustments, worsening fiscal constraints,” Agudah states.
CPS as a Pillar of Economic Growth
He highlights that the CPS operates on a pre-funded model, where employees and employers contribute at least 18% of the employee’s salary. This ensures that pension funds are invested in areas like infrastructure and bonds, driving economic development.
With over ₦21 trillion in assets, the CPS plays a crucial role in stabilizing the economy and guaranteeing timely pension payments. Agudah emphasizes that retaining the police within the CPS will maintain long-term equity and sustainability.
Risks to Pension Reforms
Agudah warns that allowing the police to exit the CPS could set a precedent for other public sector groups to demand similar transitions, potentially fragmenting the pension system and reversing reforms.
“The real issue facing the police is welfare. If salaries are low, pensions will naturally be low. The focus should be on improving salary structures rather than dismantling the CPS,” he advises.
Senate’s Review of the Bill
The Senate is currently considering a bill to establish a police pension board aimed at addressing post-retirement challenges for police personnel.
Senator Binos Yaroe, who sponsors the bill, notes that retired police officers receive insufficient pensions, with Commissioners of Police earning ₦70,000 and Assistant Superintendents receiving ₦40,000 to ₦50,000 monthly.
Yaroe also points out that other security agencies, such as the military and intelligence services, have exited the CPS, leaving the police as the only major security organization still under the scheme.
While the bill seeks to address these challenges, PenOp insists on strengthening the existing CPS framework as a more sustainable and effective solution for ensuring financial stability and equitable pensions for all retirees.
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