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INSURANCE & PENSIONSNEWSLETTER

FG Pension Liabilities to Surge by N20billion

An additional N20billion liability would be added to the stack of pension settlements owed by the federal government upon passage of the bill for the exemption of the Police and other paramilitary agencies from the Contributory Pension Scheme, CPS.

The Government made a provision under the Service-Wide Vote for the sum of N200.17 billion as total pension and gratuities allocation in 2016 whereas total pension liabilities was N388.32 billion, leaving a shortfall of N188.15 billion.

A bill was sponsored by Honourable Oluwole Oke on May 16, 2017 seeking to amend the Pension Reform Act 2014 to exclude members of the Nigeria Police, the Nigerian Security and Civil Defence Corps, Nigeria Customs Service, Nigeria Prison Service, Nigeria immigration Service and the Economic and Financial Crimes Commission from the application of the CPS and other related matters.

A similar bill scaled through and became law in 2011 and the Military, Department of State Security and the Nigeria Intelligence Agency were exempted from the CPS and returned to the old system of Defined Benefit Scheme DBS.

However, while this development, Financial Vanguard findings show, has resulted in increasing pension liabilities year-on-year since 2013, budgetary allocation of to meet the requirements have been on decrease. The allocations which had been going down from 49.4 per cent in 2013 to , 49.1 per cent in 2014, 45.1 per cent in 2015, 41.99 per cent in 2016 before rising to 43.1 per cent in 2017.

The Pension Reform Act (PRA) 2014 repealed the 2004 Act. In the 2014 Act, the government is mandated by law to contribute 10 per cent for its employees, while the employees contribute eight per cent, amounting to 18 per cent. Since 2014, the government is yet to comply with the mandate.

According to the National Pension Commission, PenCom, in the last 10 years, the number of FGN employees that retired under the CPS from the six agencies sought to be exempted are 50,730, Financial vanguard reports.

The total accrued benefits of these personnel amounted to N208.22 billion, which had been redeemed by the F ederal Government, paid into their respective Retirement Savings Accounts (RSAs) and consolidated with their monthly pension contributions to fund their retirement benefits.

He stated further: “Out of the N388.32 billion pension liabilities of the federal government, the sum of N255.89 billion constituted unfunded liability, which was inherited by the Pension Transitional Arrangement Directorate, PTAD, mostly due to outstanding payments for 33 per cent pension arrears to pensioners under the DBS.
“Indeed, the Federal Government pension liability burden under the DBS is much higher than the PTAD proposals in view of the provisioning of about N74.53 billion for the Military Pension Board, N7.64 billion for the State Security Service and N3.71 billion for the National Intelligence Agency.

“Consequently, it would be fiscally imprudent to increase the number of this category of retirees under that Scheme. It would also render the retirees financially vulnerable and insecure.”

Chairman of the Pension Fund Operators Association of Nigeria (PenOp), Mr. Eguarekhide Longe, who is also the Managing Director of Aiico Pensions, said that a complete pull-out of the paramilitary services is certainly not the answer to the problem especially given the current state of public finances in the country.

 

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