By Wole David
It is common knowledge that the Contributory Pension Scheme (CPS) introduced in Nigeria by the pension reform Act 2004 and revised in 2014 as Pension Reformed Act (PRA 2014), was borne out of the crisis that plagued its unfunded, uncoordinated and fragmented Defined Benefits Scheme of that time.
In the public sector, for instance, the Defined Benefits Scheme was faced with problem of huge liabilities arising from lack of adequate and timely budgetary provisions, as well as increases in salaries and pensions. Pension administration was largely weak inefficient, less transparent cumbersome and marred with huge corrupt practices.
Many pension organizations did not have any pension arrangement for their employees and where it existed, it was characterized by low compliance ratio due to lack of effective regulation and effective supervision of the system.
But after a thorough consideration and detail evaluation of these issues the Olusegun Obasanjo administration decided to take measures aimed at developing a system that is sustainable and has the capacity to attain the ultimate goal of providing a stable, predictable and adequate sources of retirement income for employees in both private and public sectors in Nigeria.
This culminated in the Pension Reform Act 2004 which introduced a mandatory pension system for the Federal Capital Territory (FCT) and the private sector organizations with five or more employees. The Act also established for the first time in Nigeria a regulator and supervisor of pension matters, the National Pension Commission or PenCom.
So, with the enactment of the PRA 2004, and its implementation thereafter, pension administration, management and regulation has been considerably streamlined.
The checks and balances entrenched in the framework of the CPS by virtue of the triad comprising the Pension Fund Administration (PFA), the Pension Fund Custodian (PFC) and the regulator –PenCom has elevated the system of pension to a level that has significantly addressed the ills prevalent in the old defined benefit system of pensions.
It is no surprise therefore that from a deficit of N1.6trillion at the advent of PRA 2004, the new CPS in just 12 years has grown to N7 trillion in assets at the time of this report, putting incidences of fraud at bay.
Some of the key objectives of the scheme since its establishment include: to ensure that every person who has worked in either the public or private sector receives his or her pension benefits as and when due; to assist improvident individuals by ensuring that they save to cater for their livelihood during old age.
Others are to establish uniform sets of rules and administration and payment of retirement benefits in both the public and private sectors, as well as stem the growth of outstanding pension liabilities and to reduce fiscal cost to government, stimulate domestic savings, generate pool of long term funds for developmental projects and increased private investment, among others.
The above objectives have been significantly achieved within the 12 years of reform. First, PenCom has made significant progress in building institutions which include 21 pension fund administrators, 4 Pension fund custodians and 7 closed pension funds administrators; as well as, systems and processes in the implementation of the CPS in Nigeria that can stand the test of time.
Welcome to Part 1 of 4 in a four week showpiece of facts and figures in the pension subsector of the financial industry.