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Why Some Workers Are Scared Of Retirement

This piece looks at the reason some workers, especially in the Public Sector, are scared of retirement despite government efforts at reforming the pension industry.

Despite several interventions by the Federal Government including the introduction of the Contributory Pension Scheme in 2004, to assist Nigerians with pension plans, retirees in the country especially in the public sector, still have to wait for about 12 months to get their first pension.

Prior to the enactment of the Pension Reform Act 2004, pension schemes in Nigeria had been bedeviled by many problems as the Public Service operated an unfunded Defined Benefits Scheme and the payment of retirement benefits were budgeted annually.


Subsequently, the annual budgetary allocation for pension was often one of the most vulnerable items in budget implementation in the light of resource constraints.
In many cases, even where budgetary provisions were made, inadequate and untimely release of funds resulted in delays and accumulation of arrears of payment of pension rights.


It was obvious therefore that the Defined Benefits Scheme could not be sustained.
To address and eliminate the problems associated with pension schemes in the country, the Federal government initiated a pension reform and the outcome of the reform was the enactment into law of the Pension Reform Act 2004, which culminated in the introduction Contributory Pension Scheme, a process where an employee pays a compulsory fraction of employees’ monthly salaries into the scheme.


Sixteen years down the line, in spite of several efforts by government to address the challenges, Nigerian retirees are yet to overcome the fear of retirement because the system does not fully integrate them until one year after, contrary to the mission of Nigerian Pension Commission (PenCom), which says “it exists for effective supervision of the Nigerian Pension Industry to ensure that retirement benefits are paid as and when due.”


According to PenCom, a Retirement Savings Account holder is supposed to have access to his/her Retirement Savings Account upon retirement based on his/her condition of service or upon attaining the age of 50 years (whichever comes first) or is medically incapacitated.


It further states that where an employee voluntarily retires, disengages or is disengaged while still under 50 years of age, he/she can have access to 25per cent of his/ her Retirement Savings Account provided that such employee is unable to secure another employment after 4 months of such retirement/disengagement.

This begs to answer the question of, how would a retiree who is possibly over 50years of age or medically incapacitated, survive without a pension for 12 months even after years of meritorious service?

Going by the latest report released by Nigerian Pension Commission (PenCom), the pension industry with over 8.78million contributors has at Q3 2019 received a total of N5.60 trillion as pension contributions from both the public and private sectors.
The total contributions received from the public sector amounted to N60.56 billion or 39.54% while the private sector contributed N92.60 billion or 60.46%.

While noting that the total value of pension fund assets based on unaudited valuation reports as at September, 2019 stood at N9.58 trillion, the breakdown of the pension industry portfolio according to the report also showed that the pension fund assets were mainly invested in Federal Government Securities, with an allocation of about 72 % of the total pension assets (FGN Bonds: 47 %, Treasury Bills: 24 %, Sukuk Bonds: 1 % while Agency Bonds and Green Bonds: less than 1 %). Whereas Federal Government securities are stable investments with low risk, statistics have also shown that they are low yielding.

As such, concentration of pension funds in FGN securities implies that some sectors in the economy will continue to nosedive. This informs the need for the diversification of pension funds into other areas such as infrastructure and real estate.
For while the report has shown that the Nigerian Government’s bond currently yields 16% interest, it has little or no positive spill-over effect on the overall economy.

According to analysts, some of the major lacunas in the Nigerian Pension Scheme include impunity and the lack of enforcement of the Nigerian Pension Commission (NPC) guidelines to effectively penalise defaulters in both private and public sectors.

Secretary General of Nigeria Union of Pensioners, Bunmi Ogunkolade, explained that though the law clearly states that any employer who fails to contribute to her employees’ pension accounts be penalised with 2% of funds not remitted, unfortunately, there are still several companies failing to remit contributions to the supposed employees’ Pension funds without sanctions meted out against them by the commission.

He noted that whereas compliance has been effective in the private sector, the same could not be said for the Public sector as the majority of state governments are perpetual defaulters.

While commending President Muhammadu Buhari for the two tranches of money earlier released for the payment of the accrued rights, he appealed that the FG should not relent on its commitment to restore good life for the pensioners who had served the country well by clearing the remaining backlog of pension arrears.

Similarly, he also called on the FG to impress on defaulting state governors to do the needful.

This article was originally published in The Daily Times

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