Non implementation of PRA 2014 slows pension fund growth

Two years after the Pension Reforms Act (PRA) 2014, was passed into law, lack of implementation of the certain provisions, especially the increment in monthly pension contribution from 15 per cent to 18 per cent, by either States or Federal Government is affecting the rate of growth of the pension funds, Business247 News Online learnt.

Although, the fund was put at N5.6 trillion is said to be growing, but the growth rate is slow because some state governments are not even remitting for months into the Retirement Savings Accounts (RSAs) of their workers.

The PRA 2014, which overrides the previous 2004 Pension Act, increased the monthly pension contributions from 15 per cent to 18 per cent of which no state or federal government has implemented.

Findings show that all the 36 states of the federation, as well as FG are still using the old 15 per cent pension contribution though; the payment is not consistent, as they owe several pension arrears.

The reason for non-implementation of the new 18 per cent contribution is not unconnected to the current financial crisis battling the country as some states were unable to pay salaries, while it has equally become a serious issue on the part of government at federal and state levels to pay as at when due, with the old 15 per cent pension contribution.

The lack of consistency in pension remittances, it was learnt, has led to hundreds of billions of naira in pension arrears, which could have shot the volume of N5.6 trillion pension funds upward, if the monthly payment is consistent and incrementally implemented.

Under the old guideline (PRA 2004), each employee must contribute 7.5 per cent of his salary, while his employer must pay 7.5 per cent monthly to put the total monthly contribution at 15 per cent.

However, in the new guideline, employers are expected to make 10 per cent contribution on each employee, with the workers, on the other hand, expected to make 8 per cent contribution from his monthly salary, to make it 18 per cent.

Apart from non-implementation of the new increase, experts, who spoke to Business 247 Online on this development said, inability to fund the Retirement Savings Accounts (RSAs) of civil servants at the federal and states levels is a concern for the growth of the pension assets.

They said funding which was a serious challenge under the old pension scheme, has equally resurfaced under the new pension scheme, known as Contributory Pension Scheme (CPS).

Mr. Ivor Takor, Former Board Member, National Pension Commission (PenCom), while charging the Federal Government and States to prioritise funding of their respective workers’ RSAs, said FG was unable to remit pension contributions since October 2015, while state governments are defaulting in the payment of their workers pension contributions as well as salaries.

Takor, who is also a Director, Centre for Pension Right Advocacy, said most illiquid states have suspended pension budget for now instead, paying salaries without remitting the employer’s monthly pension contributions into their workers’ RSAs.

He said the pension liabilities of some states is so huge that even if situation improves, it’s going to be difficult to offset them, wondering why some states could owe two years pension arrears, even as the Federal Government accrued pension rights is also on the increase.

According to him, “We understood that the FG has not been able to remit pension contributions since October 2015 and this has to do with not only the employer’s contributions, but what then is happening to the contribution of the employees, because it has been deducted from their salaries and the law says the deduction should be paid into the RSAs of the employees, not later than seven days after salaries are paid.”

Government, he said, was not adequately funding the accrued rights at the federal level which is affecting the payment of pension as at when due.

“Then, the greatest problem lies with the states. PenCom said only 10 states have keyed into the CPS, but if you look critically, it is Lagos State that is somehow implementing the CPS. Yes, these states have commissions, bureaus and laws, but are they contributing as at when due? That is the situation. Then, majority of the states don’t have laws. This means the workers have no form of pensions,” he pointed out.

Stating that these are issues that need to be addressed holistically, he added that it’s unfortunate that some of these governors left office and made only some segmented pension laws that only cover them and their office holders, some of them drawing massively from the purse of the state in the name of pension to build houses and cars and did not make laws for the state workers.

This is very bad, it’s immoral and it should be addressed by current governors, he advised.

The Director-General, Lagos Pension Commission (LASPEC), Mrs. Folashade Onanuga, said in spite of the challenges the states are passing through, their inability to prioritise pension was responsible for the pension backlog they owe.

“Though there are a lot of things contending with state funds, I believe if there is a commitment towards pension, we will always find a way to pay it,” she stressed.

She implored the defaulting states to borrow a leaf from Lagos State, ranked as the first in pension implementation, by making the welfare of their staff either in or out of service, the utmost agenda, hence, paying their monthly pension as at when due.

Business 247 Online learnt that the Federal Government has accumulated over N140 billion pension liabilities in recent times.

According to the National Pension Commission (PenCom), from 2014 to date, there has been a decline in budgetary provision in the funding of especially, Retirement Benefit Bonds Redemption Fund (RBBF) account and the remittance of monthly contribution. The commission said the sum of N20.07 billion is required to pay all outstanding accrued benefits for deceased and mandatory retirees of the Federal Government for the periods of October to December 2015 and the sum ofN79.16 billion has been computed as the arrears under the CPS as at December, 2014.

It also notes that N50.20 billion was provided for the 2016 FGN Budgetary Appropriation for Retirement Benefits Bond Redemption Fund(RBBRF) account presented to the National Assembly, compared to  commission’s projection of N91.91 billion, resulting in a shortfall of N41.71 billion.