Labour Faults Pension Law, Demands Review
The three trade union centres met last week to review the new pension law. Their conclusion suggest that the law does not offer much prospect for workers. Below is extract of their position.
Pension Liabilities
The Pension Act does not provide any effective and sustained strategy or measure to offset the existing pension liabilities, which was in the first place the basis for organised labour's case for a reform that would guarantee a funded scheme.
Under the new law, the large number of pensioners of primary schools, dissolved Federal Government boards, the military, railways etc whose benefits were due for payment before the cut-off date were not taken into consideration.
The situation of arrears of pension and gratuity is even more deplorable in the states and the local governments.
The labour movement resolved to pursue the earlier recommendation that the Federal Government should fund the offsetting of these liabilities by specially appropriating funds from the federal revenue, especially the excess returns on crude.
There will also be need for consultation between the federal and state governments with a view to working out modalities for offsetting the arrears in the other tiers of governments.
In this respect, the Pension Act will require to be made clearer in respect of pension administration in the states, since pension is in the exclusive legislative list in the Constitution.
5% Redemption Bond
Given the absence of any actuarial analysis, the 5% of the monthly federal wage bill to be paid into the Redemption Bond under the Transitional Provisions (Part V, Section 29 (1,2) would appear arbitrary.
Equally worrisome is the absence of a database on federal employees, especially those to be covered under the Transitional Provisions.
Therefore, the labour movement renewed the case for proper actuarial analysis that would enable the Federal Government arrive at a realistic funding formula under the Transitional Provisions rather than use the arbitrary rate of 5%.
The Benefits Regime
The labour movement expressed concern that while workers' contributions to the scheme are defined, there are no defined benefits, while gratuity payment has been abolished in the public sector.
The abolition of gratuity will shortchange and disadvantage public sector workers, while it will amount to the Federal Government setting aside one of the best practices in terminal benefits administration in the world.
In the public service, this would further weaken morale and productivity and undermine the fight against corruption, as the lack of a lump sum for resettlement/rehabilitation would make unethical practices attractive.
The labour movement, therefore, made a strong case for the retention of defined gratuity benefits to be funded by the Federal Government as an employer outside the contributory pension scheme, as is currently the case in the private sector.
We also reiterated that the lump-sum gratuity distinct from monthly pension income has been the bedrock of the country's terminal compensation structure, which enables the rehabilitation of new retirees and helps to cope with cessation of salaries and wages.
Workers' Contribution
The labour movement, while restating our acknowledgement of the rationale for a funded public sector pension through a contributory scheme, however, believe that the rate of contribution of workers (7 1/2%) under the scheme is excessive and counter-productive.
Given a plethora of existing monthly deductions such as personal income tax (10 -- 15%), National Housing Scheme (2 1/2%) and others, the public service worker would be divested of more than one-third of his/her disposable income. At the end of the day, this will deepen the already high poverty level among wage earners.
Such a vast deduction regime of over one-third of the salary would amount to financial embarrassment, which attract termination of appointment under existing civil service rules.
In other pension dispensations, the standard is a higher ratio of contribution for employers. For instance, in Chile, one of the models used by the Federal Government, the ratio of contribution is 1:3 in favour of workers while at the inception of the scheme, the workers' salaries were topped to the same degree as their rate of contribution.
The labour movement, therefore, resolved to pursue the earlier proposal of 5% workers' contribution while the Federal Government meets the rest 10%. This is in line with best practices even in Africa, for instance in Ghana where employers contribute 15% and workers 5%.
A 5% rate of contribution for workers is fair in the Nigerian context given the riot of other deductions and especially as workers had previously forfeited a 15% wage increase in 2002.
Security of Contributions
Given the sharp practices and the attendant precariousness of the financial sector in the country, there is need for the Federal Government to guarantee workers' contributions and the accruing interests in the event of failure of Pension Funds Administrators (PFAs).
This is not adequately provided for in the new law, which leaves workers' contribution to the vagaries of PFA failure and other shocks that may arise in the system.
A dynamic approach would also be required in regulating activities of PFAs to avert sharp practices, ensure rural and general access to PFA services and check oligopolistic posture, which could deny workers the benefit of favourable returns on contributions.
Adequate Stakeholder Representation
The three slots provided for stakeholders on the board of the National Pension Commission (NPC) out of thirteen are inadequate.
The complete exclusion of stakeholders from the constitution of executive directors is also unhelpful.
In this respect, the law falls short of the imperative of stakeholder control, which even the military recognised in the case of the NSITF by according employers and workers four slots on the board and substantial participatory prerogative in the constitution of the executive directorate.
Existing In-house or Provident Schemes
The labour movement reaffirmed the need for the retention of in-house provident or pension schemes in the private sector and some parastatals, which are funded and are currently working to the satisfaction of workers.
This can and should exist without prejudice to the objectives of the new pension dispensation and is the practice in other parts of the world.
It must be recognised that the problem of non-funding of pension is largely peculiar to the public sector, especially the mainstream civil service. Therefore, in formulating solutions, the Federal Government must avoid eroding gains already made by the private sector and should, therefore, evolve a reform agenda that accommodates subsisting viable schemes.
It is also difficult to understand the rationale behind the stipulation of a N150 minimum share capital for new PFAs while existing in-house pension schemes, which intend to transform to PFAs, are required to have a minimum pension fund and assets of N500 million.
Constitutionality of the Pension Act
The labour movement recalled the earlier attention drawn to Section 173 of the Constitution of the Federal Republic, which calls to question the competence of National Assembly to legislate on the Pension Bill.
Item 44 of the Exclusive Legislative List in the Constitution stipulates that the national Assembly can only legislate on "pension, gratuities and other like benefits payable out of the Consolidated Revenue Fund or any other public funds of the federation."
Having gone ahead to legislate on funds in the private sector domain outside its constitutional mandate, the NLC, TUC and CFTU resolved to seek legal advice on the constitutionality of the Pension Act.
Necessity for Amendment
Overall, the labour movement, therefore, strongly believes that there are unfinished matters as far as pension reform in the country is concerned, which continue to create real fears among workers and pensioners.
In the meantime, the labour movement would engage the National Pension Commission with a view to maximise the benefits that the current law offers.
However, labour would make efforts to collaborate with the Executive, National Assembly and other stakeholders to urgently revisit the pension law in order to address the identified inadequacies. this is to allay genuine fears of workers and pensioners and ensure that the desired objective of a funded and efficient pension is realised.
In summary, these are some of the unfinished matters in the pension reform agenda, which require the Pension Act to be revisited with a view to amending it:
i. clearly define existing grey areas, such as the status of NSITF, provisions for offsetting current liabilities estimated at N2 trillion, concrete Federal Government guarantee for contributed funds;
ii. enact a fair fate of contribution that puts the rate of workers contribution at 5%;
iii. restore defined benefits in the form of lump-sum gratuity outside pension contributions in addition to the monthly pension;
iv. ensure adequate and equitable stakeholder representation on the National Pension Commission's board and executive directorate.
|
