Pension scheme in the face of inflation
By Ayeleso Oladele, Lagos
Alhaji Kabir Ahmad, DG, PencomOne of the issues that
greeted the introduction
of the new contributory pension scheme established four years ago to replace the old defined pension scheme was the issue of what becomes of the contribution in later years, bearing in mind that the economy of the nation is not in any way stable, most especially, during inflationary period.
In a clearer term, a pensioner who has worked for an organisation for several years and within those years contributed just 15 per cent of his monthly salary, at the retirement age, would be given a lump sum and subsequently, the rest is offered him on monthly or quarterly basis, through an insurance company according to the Act that established it. The question is, as prices of goods increase in the market, what becomes of the statutory allowance he receives on monthly basis?
One of the defects of the scheme, according to experts is that, aside the fact that inflation is inevitable, many employees would face retirement with an income well short of their expectations, despite the fact that it promises to be prompt and regular.
Some school of thought reason that since what comes out as retirement benefits and subsequent allowances depend majorly on what was contributed in the new scheme which is contributory and fully funded, and partly depend on the yield on the investment, therefore, the retirement savings decision needs accurate forecasts.
It should not be forgotten that the new pension scheme was to be an improvement over the defined benefit pension scheme which was the system in operation in Nigeria until 2004 during the regime of the past President, Chief Olusegun Obasanjo. The establishment of the scheme was to ease the burden of Nigeria pensioners who by all standards are treated badly. As at today, what the Nigerian government owes the pensioners is enormous and one doubts if it has plan to settle the outstanding debts.
A visit to these pensioners, who, under normal circumstance ought to be enjoying the labour of their hands as they have served their fatherland meritoriously, will draw tears from one’s eyes. On this note, the establishment of the new pension scheme, to some, was a welcome idea.
As at today, the National Pension Commission, Pencom, has proved beyond doubt that it can stand the storm and ensure that it discharges its responsibilities as it is expected in terms of regular and prompt payment of retirement benefits , although, still very tender to judge, but the beneficiaries are not regretting it anyway.
In spite of this, experts are of the opinion that it is not the best solution to the problems of pensioners in Nigeria. Of a fact, going by what the Nigerian pensioners are usually subjected to when it comes to the payment of the meagre sum that the government refers to as their pension allowances, one will not blame any group of individuals that pick interest in asking various questions regarding the funding and disbursement of the new pension scheme.
In fact, some school of thought reason that the establishment of the scheme is a systematic way of the government to remove its hands from pension issues while concerned individuals that have called for the cancellation of the scheme suggested that the federal government should give room for stakeholders to deliberate on a better way of handling Nigeria pension issues, so that the proffered solution would not turn around to be another problem.
This particular issue has become major bone of contention as it has formed basis of discussion at different fora and still a subject of discussion at several other fora where the new pension scheme and the plight of the Nigerian pensioners are discussed a group of experts gathered to look into the shortfall of the scheme, their biggest concern was that the defined contribution scheme would yield inadequate pensions for its members.
In their paper, it was argued that if pension incomes are too small, employers will face the problem that their older, and usually expensive, workers are unwilling or unable to retire. Meanwhile, with the 15 per cent contribution from the poor salary condition of Nigeria workers, when the plan members would eventually discover how low their pension really is, it will be by then too late to do anything about it.
This is because; the level of contributions from both employers and employees into the direct contribution scheme is low, lower than it is into defined benefit schemes. Recently, a group who claimed to be concerned about the plight of the Nigerian pensioners argued that what the government is offering as salaries for its workers is not up to what could be called a living wage not to talk of what comes after their retirement.
According to the Pension Act 2004, a holder of a Retirement Savings Account upon retirement or attaining the age of 60 years shall utilise the balance standing to the credit of his RSA for the benefit of programmed monthly or quarterly withdrawals calculated on the basis of an expected life span, annuity for life purchased from a life insurance company licensed by the national insurance commission with monthly or quarterly payments after the lump sum credit to the RSA provided that the amount left after the lump sum withdrawal shall be sufficient to procure an annuity or fund programmed withdrawals that will produce an amount not less than 50 per cent of the annual remuneration as at the date of the retirement.
When asked about minimum pension guarantee in Nigeria, Alhaji Kabir Ahmad, Director General, Pencom explained that currently, the commission has not stipulated a certain amount. He said, “we are actually working on it, but in any country where minimum pension guarantee had been provided it is a function of number of practice. We have the social security system in the country, as well as the fact that you must contribute to it for a number of years.”
In Chile, for instance, where such is practised, to get minimum pension, the beneficiary must have contributed into it for a minimum number of 20 years, eventually, if the commission is going to come out with minimum pension guarantee, according to the DG, some of this may come in not saying it will be up to 20 years, but it will be subject of discussion, and for that reason, it is not something you consider off front, when you are taking off as a contributing pension scheme, but obviously it is something we need to finalize as soon as possible but the priority is let us increase, let get more Nigerians to the scheme and then we now start to look at some of the basic issue related to the scheme.
One other step that the commission needs to take at this point is to embark on awareness campaign, to educate Nigerians about the scheme, in addition to its readiness to prepare adequately for inflation.
