FG considers bonds option to offset pension arrears

The Federal Government is now set to float bonds in the next couple of weeks to offset its huge pension arrears, Business 247 News Online has learnt.

There are strong indication that the amount to be involved could be in the region of N100 billion, even as activities have reached an advanced stage to issue the bonds, with the sole purpose of offsetting the outstanding pension, running into billions of Naira.

Since the financial crisis started, precisely in 2015, government has witnessed a serious dip in its sources of revenue, especially with a sudden drop in the price of oil, Nigeria’s major revenue generating window, in the international market.

This drop in revenue, affected the ability of government to meet its financial obligations as at when due, as it continues to owe pensions both under the Defined Benefits (DBs) and the Contributory Pension Scheme (CPS), while it fails to remit pension contributions into workers’ Retirement Savings Account (RSA) since October 2015.

Findings show that the Federal Government has accumulated over N140 billion pension liabilities just as it has not been consistent in remittance of workers’ pensions into their RSA.

To this end, thousands of retirees nationwide, especially those under the Defined Benefits Scheme (DBS) have been seriously affected by the inability of the federal government to pay its accrued pensions, as at when due, as some retirees were relying on friends and relatives to meet their financial needs, since their pension entitlements are not forthcoming.

To address this, FG had, in the past, assessed several funding alternatives to resolve the outstanding pension arrears, but to no avail, before muting the idea of floating bonds to clear pension backlog.

The way bond works is that those who buy such bonds are, put simply, loaning money to the issuer (FG) for a fixed period of time. At the end of that period, the value of the bond is repaid as investors also receive a pre-determined interest rate (the coupon), usually paid annually.

Some pension fund operators who spoke to Business 247 News Online on this new move, believe that though government ought not to have owed in the first instance, felt its commitment to now offset the arrears is a positive development, not only to the pension scheme, but to the retirees who have been affected by the inability of government to promptly pay pension.

The Chairman, Pension Fund Operators Association of Nigeria (PenOp), Mr Eguarekhide Longe, said though he was unaware of this development, but that if it’s true, it’s a good development not only to the concerned retirees, but for the Contributory Pension Scheme (CPS).

Longe, who is also the Managing Director/CEO, AIICO Pension Fund Administrator (PFA), noted that under normal circumstances, the Federal Government was not expected to owe and that trying to do something to offset it means government is trying to be responsible.

‘Yes, they are not to owe before and if they are now trying to do something to offset the unpaid arrears, it’s positive for the pension industry,’ he stressed.

The Managing Director/CEO, FUG Pension, Mr Usman Suleiman, noted that government has been floating bonds in the past to meet its financial needs such as payment of salaries and pension, among others, but that the bonds are not tied to specific item.

According to him, “If the Federal Government is issuing bond, the bond is not tied to anything. You cannot say whether it will go for settlement of arrears of pension or it would go to some other things. But in the recent time, most of the bonds that government issues do go to recurrent expenditure, like the pension and payment of salaries.”

He stated that the Federal Government has always promised to pay the pension arrears, although it’s has not disclosed the sources of funding the arrears, noting that if government was trying to pay now, it’s a good news for the pension industry.

Mr Ivor Takor, a Federal Government retiree, said he was happy that government was trying to clear its backlog of pension, but suggested that the money recovered from corrupt Nigerians through the anti-corruption crusade of the President Muhammadu Buhari’s administration, could equally be effectively deployed to offset pension arrears.

Takor, who is now the Director, Centre for Pension Right Advocacy, said: “We are all aware that the Federal Government has recovered some loot from corrupt Nigerians recently. They have recovered some of the Abacha loots, and some other people. I believe this money should also be channelled into pensions to pay the backlog of the accrued rights and then, the employers’ contributions.”

Business 247 News Online had earlier gathered that the sum of N91.91 billion was projected as retirement benefits for Federal Government workers due to retire in 2016, with only N50 billion budgeted for in the 2016 national budget, leaving a shortfall of N41.91 billion as pension arrears, while the sum of N20.07 billion is required to pay all outstanding accrued benefits for deceased and mandatory retirees of the Federal Civil Service for the period of October to December 2015, and the sum of N79.16 billion computed as arrears under the CPS as at December 2014.

The unpaid pension arrears running into billions, by the Federal and state governments as well as private sector employers have been a threat to the CPS, which is the new pension scheme.

The pension fund presently stands at N5.8 trillion, with about 6.8 million pension contributors. However, experts believe there ought to have been more growth in the volume of the fund if the tiers of government as well as other employers of labour were remitting their workers’ pensions on monthly basis.