Hope Nwawolo, PhD

By Hope Nwawolo

In the past (before 2004), workers who retired were paid their gratuity almost immediately while their monthly pension payment kicked off a few months later. During their work life, they were not expected to pay in advance for part of their retirement benefit. This was known as the Defined Pension scheme, where a potential retiree knew what was going to be paid to him on retirement. It also gave room for pro-active workers to plan with some of their salary with the assurance government would take up their retirement life with lump-sum payments of gratuity and a monthly stipend, calculated based on their level on retirement.

With the introduction of the defined contributory pension scheme in 2004 and reform in 2014, things took a new dimension. Workers started contributing partly for their retirement from their salary because the government could no longer solely fund gratuity and full monthly pension payments to retirees. A compulsory deduction of 8% from workers’ salaries and the government’s contribution of 10% commenced through an established pension Act. The responsibility to oversee and invest the fund was handed to appointed Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) respectively. Under this scheme, Pension Commission (PENCOM) was mandated as the government’s regulatory body to monitor the management and payment of workers’ retirement contributions by the PFAs and PFCs and ensure retirees get their money as stipulated by the Act.

Government workers have the money that comes to them as salary at the end of every month cut short because compulsorily, 8% has to be deducted as a keep away for their retirement. Unfortunately, they have no access to this fund no matter how financially desperate some of them may be in the course of their work life.

However, despite the lofty idea behind the establishment of the contributory pension scheme by former President Olusegun Obasanjo, it seems to favour mainly the government because it has, as envisaged, reduced the financial liabilities of pension benefits payable to workers on retirement while having the opportunity to borrow from the scheme. It also favours the PFAs and PFCs that get a chunk from the investment in workers’ contributions for their administrative and overhead costs. At the same time, it does not favour some private organisations who must compulsorily pay 10% of the workers’ salary into their retirement savings accounts (RSA) as against the nothing or stipends some private organisations hand over to their workers on retirement. In this case, therefore, such workers are beneficiaries of the scheme and rightly so, after years of committed service to their organisations.

On the other hand, government workers have the money that comes to them as salary at the end of every month cut short because compulsorily, 8% has to be deducted as a keep away for their retirement. Unfortunately, they have no access to this fund no matter how financially desperate some of them may be in the course of their work life. Aside from the government, PFAs and PFCs that benefit from workers’ retirement savings contribution, another group is the beneficiaries or next of kin of contributors who surface on the demise of any contributor.

Even though the pension Act directs the PFAs and PFCs to ensure good investment of the fund for the contributors, there are still several questions begging for answers:

• Is the monthly money paid to retirees by the PFAs actually pension benefit or their retirement savings?
• Should contributors not know where and how their contributions are invested?
• Do interested contributors have a right to decide on the investment options for their fund? If they do, are contributors aware of this right?
• Why should a contributor be responsible for any risk of investment on his fund when he is not privy to terms and conditions of investment of his fund by the PFCs?
• Why would a retiree or a sick contributor who is still in service, not call for part of his retirement savings if need be, to access medical care, instead of begging the public for assistance or giving up to die?
• Why is a contributor not allowed to take up all his savings on retirement if he desires, to invest himself, instead of the monthly stipend paid to him?

These are a few of the several questions contributors may not get answers from the PFAs, PFCs and PENCOM. To these agencies, workers are financial illiterates who will squander their money if given on retirement. Though many pensioners are grateful for the promptness of payment of the monthly stipend when it commences, they lament the insufficiency of what they are paid for their upkeep. For those who do not have financially stable children supporting them with medical care and other household maintenance, their quality of life drops drastically from what it was when they were working.

Unfortunately, the Act did not take into consideration the effect of an economic downturn on retirees, with prices of everything skyrocketing daily against their monthly trickle pension payment. (TPP; coined by this writer). Ironically, as soon as news of the demise of a retiree gets to the PFA, the lookout for the next of kin or beneficiary of the retiree to collect the balance contribution kicks off, and the wait is not usually long.

Summarily, it is pertinent to address the issue of pension payment to retirees based on the questions herein. This is with the hope of improving the quality of life of retirees at this time of our national economic turbulence, bearing in mind that a large part of the pension fund is their savings throughout their working lives and not an outright favour from the government as it used to be years back.

Hope Nwawolo, PhD

[email protected]