IS POVERTY THE ULTIMATE REWARD FOR PENSION CONTRIBUTORS?
BY LES LEBA
The consciousness of sensitive Nigerians is often assailed by the undignifying sight of senior citizens and other such retirees, who wearily wait in distress for verification of their identity or eventual payment of pension entitlements from government agencies responsible for disbursement. The unsightly juxtaposition of such horrid spectacle against the background of impunity in the misapplication of pension funds is obviously also lost on our current political leadership; worse still, in spite of the reforms enacted in the 2004 Pension Act, there has been no single conviction of anyone for the reckless looting of pension funds!
Nonetheless, Pension Fund Administrators (PFAs) were created under the 2004 Act to ensure judicious management and administration of pension contributions, while the National Pensions Commission (PENCOM) was established with statutory powers to optimally regulate the subsector.
Regrettably, however, despite the positive expectations from the implementation of the Pension Reform Act 2004, many retirees are still dissatisfied with what they get as monthly pension, and some have even shown preference for the clearly defined benefits under the old scheme. In order to resolve the observed lapses and ensure that pension benefits of the retirees are substantive, the Pension Reform Act 2013 Bill currently before the National Assembly seeks to increase monthly contributions to the Retirement Savings Account (RSA) of workers to 20% of total emolument; thus, employers will contribute 12%, while workers contribute 8% of their total emolument.
Organized Labour, however, prefers workers contributions to remain at 7.5%, while employers contribute 12.5% into the pension pool, but the Nigerian Employers Consultative Association considers this proposal as burdensome to employers, because such additional contribution, they argue, may force them to retrench workers or seek other ways to circumvent the increase.
Incidentally, pension assets currently under the management of Pension Fund Administrators may approach over N4tn, a handsome nest egg, which some stakeholders rightly suggest should be deployed for the development of infrastructure such as power, housing, transport, etc, nationwide, especially since commercial banks have not been forthcoming with cheap long-term loans for such purpose.
Instructively, successful economies institutionally mobilise their substantial pool of pension funds to addressing critical infrastructural deprivations, while regulators watchfully restrain the deployment of large portions of such funds into the volatile and unstable capital market for private equity.
The aversion to high-risk investments in private equity means that more stable, risk-free sovereign debts are better favoured for pension funds, even if returns from such investments are minimal but steady. In view of the preceding, the question is whether or not the proposed reforms in the 2013 Pension Bill under consideration will successfully erase the lapses observed in the 2004 Act, so that workers can rest assured that after retirement their welfare and vital needs will be adequately provided for, from their monthly/quarterly pension payments, so that they maintain some semblance of dignity in their lifestyle for the rest of their lifetimes?
In reality, if PENCOM effectively regulates the sector with prompt and severe sanctions for infractions, pension contributions should be invested in safe instruments with relatively steady yields. Consequently, the usual challenges of delayed pension payments with the unnecessary assault to dignity of pensioners may likely also be a thing of the past. However, this facility in the payments system may still not be adequate protection against the threat of poverty, as discussions on pension reforms have so far ignored the critical issue of erosion in the value of money over time! Even the ubiquitous market woman, labourer or housewife knows from experience that, a thousand naira would buy more food items and consumables in January, but if unrestrained inflation prevails throughout the year, same amount would buy less of the same basket of goods in December! Thus, in an economy where the purchasing power of incomes, for example, falls by 10% annually, static pension incomes will systematically command less value of goods; for example, a million naira savings in 2013 may just be worth a hundred thousand in 2023, if average year-on-year inflation rates remain as high as 10%!
It is for this reason that the rate of inflation in successful economies is rigorously managed below 3% of a five to 10-year benchmark, to protect the value of incomes, and also encourage a culture of savings. Indeed, the greater the value of savings in an economy, the greater would be the funds available for investment; conversely, when high double-digit rate of inflation prevails in any economy, people are less inclined to save; less funds will therefore become available for investment, and such scenario would negatively impact on economic growth and employment opportunities nationwide.
Thus, the retrogressive impact of Nigeria's year-on-year average inflation rate of about 10% over the years is probably starkly reflected in the weakness of our infrastructural base. Thus, double-digit inflation rates would not only discourage workers from making pension contributions, it would similarly have an adverse impact on the integrity of our economy. Ultimately, economic growth, employment opportunities and enhancement of the social welfare of our citizens, will become seriously challenged by uncaged inflationary spiral.
If the reformed pension scheme is well managed, future retirees may indeed never suffer the pains of endless queues before collection of their pension incomes. Sadly, however, unless our Economic Management Team (EMT) succeeds in bringing down inflation to international best practice levels of not more than 3%, there can be little doubt that pensioners will inevitably suffer severe shock on realization that their pension payments have, ultimately, unexpectedly become inadequate to cater for their basic needs, as a result of the failure of EMT's monetary strategies to restrain inflation!
So, Sadly, in spite of the current reforms, we may just be back in square one, with senior citizens living in penury after a lifetime of service to their fatherland!
Advisedly, however, the surplus cash, which drives inflation and poisons the object of the pension scheme, will evaporate when CBN resists the temptation to keep substituting naira allocations for monthly distributable dollar revenue!!
SAVE THE NAIRA, SAVE NIGERIANS!!