New pensions law, a boost to economic reform agenda
From Alifa Daniel, Abuja
TWO hundred and seventy-four days after he sent the Pensions Reform Bill to the National Assembly, President Olusegun Obasanjo should understandably be beaming with smiles.
There were others who had cause to be joyful too - Senate President Adolphus Wabara and his deputy, Ibrahim Mantu. Mantu, on a day last April, held senators hostage to see that all clauses of the Executive Bill on the Contributory Pensions Scheme were dealt with.
Olorogun Felix Ibru, chairman of the Senate Committee on Establishment and Public Service, had cause to celebrate too. He said the President appended his signature to the bill, which he spent most of his time in the last senatorial year working on. In the Presidential Villa last Friday, during the signing of the bill, he must have pondered the task of reconciling the submissions of all stakeholders into the document the President was signing into law.
At the signing ceremony were the Speaker of the House of Representatives, Aminu Bello Masari, and his deputy, Austin Opara. Others were the Secretary to the Government by the Federation, Chief Ufot Ekaette, Head of Service, Yayale Ahmed, the Minister of Finance, Ngozi Okonjo-Iweala and Minister of Federal Capital Authority (FCT), Nasir el-Rufai. Senator Abba Aji and Hon. Nze Chidi Duru, vice chairman of the Senate and House of Representatives committees respectively were present.
The delay in passing the bill was not lost to the President. He said: "... no matter how important a bill is to us, and no matter how urgently we want to see it passed into law, there is a process and procedure in the National Assembly that must be respected."
A report, which Ibru presented to the Senate on the completion of work on the bill detailed the process and procedure adopted by the two committees that worked on the bill.
In the last January report, Ibru explained that the executive bill for an act to repeal the Pension Act 1990 and to establish a contributory pension scheme for employees in the public and private sectors in the country was sent to the Senate on September 23, 2003 by the President. The bill went through the first reading on October 14, 2003 and the Senate on November 6 concluded debates on the general principles of the bill. The bill was referred to the former Senate Committee on Establishment and Public Service for more deliberations.
Ibru said that the Deputy Clerk of the Senate, in his letter to the erstwhile committee, stated that the committee had three months to report on the bill.
He said: "The then committee at various meetings arrived at some far-reaching decisions on the bill. In a bid to effect proper research, cross-pollinate and balance its views with all stakeholders thereto and to ensure that all relevant existing laws and their possible effects on the Bill were properly taken care of, the committee mandated its secretariat to produce a working paper and details of the programme.
"The Senate dissolved its various committees and proceeded on recess on November 19, 2003. Consequently, the committee ceased to function while awaiting the reconstitution of the committees."
The Senate resumed on December 2, 2003 and on December 9, constituted an ad-hoc Committee to assess the bill and report its recommendations to the Senate.
Senators in the ad-hoc committee, which was chaired by Ibru Senator, were Mohammed Ahmed, Rufus Spiff, Bello Gwarzo, Ken Nnamani, Iyabo Anisulowo, Usman Usman, Ambuno Zik Sunday and Ugochukwu Uba.
Stated Ibru: "The ad-hoc Committee swung into action, held series of meetings and prepared its programme as well as sourcing for input from the Organised Private Sector, all stakeholders and the public."
The committee deliberated extensively on the timeframe given to the ad-hoc committee and the issues considered were the input of stakeholders who had already made representation to the committee. At the end of its deliberations, the members agreed on a 21-day period to conclude the assignment.
Ibru said that on resumption from recess, he as the chairman of the committee informed the Senate that the committee could not report on the Pension Reform Bill because of the number of stakeholders it had to contend with. He urged the Senate to grant the ad-hoc committee two more weeks to enable it conclude the assignment.
"At the conclusion of the Public Hearing during the two weeks extension, the committee said that the attendance on December 15 and 16, 2003 was impressive. It also noted that presentations by stakeholders, the academia and concerned citizens were equally impressive. About 46 memoranda were received.
Ibru noted that the committee's work and deliberations were guided first by several meetings of the committee, the last of which was held January 22, 2004. At this meeting, members deliberated on the Bill extensively and arrived at the proposed amendments presented to the Senate.
Secondly, the 1999 Constitution and thirdly, some documents relating to the argument for and against the reform were also considered. Same for comments from the consultants engaged by the committee in areas of pension matters, finance, actuarial science, management and legal matters.
Said Ibru: "Members were very conscious of the need for transparent political policies hence, the deliberate effort to give voice to diverse interests in the reform. However, the committee also agreed that democratic values must be strengthened with civic responsibility and tolerance.
"For ease of reference, the analysis is presented in a tabular form: 1st Column "the Bill as presented and 2nd column, Committee's recommendation.
"However, where there are no comments on the original part/clause, it means that the original form has been retained. The committee is of the opinion that the Bill, as amended, will ameliorate the problem of retirement benefits within a short while."
Last Friday, Obasanjo also referred to the series of meeting with leaders of the National Assembly and relevant committees as part of the process and procedure that produced the document he signed into law. He said the meetings, dialogue, and collaborations were a lesson in the art of political management.
He said that for the first time, the country would have a reservoir of funds to invest in the critical sectors of the body polity.
The President said that the nation was set to eliminate the humiliating and embarrassing situation where a worker gives his or her best in productivity to the nation and when he retires, the pension funds are not just there.
"This is nothing but extreme cruelty. The current situation arose largely because the public service ballooned without control, on the belief that government money was inexhaustible. I can assure that this new process will correct these anomalies. Situations of unpaid or irregular pension have clearly encouraged indolence, corruption, divided loyalty and inefficiency in the system. The systematic irregularities and deformities that we are rectifying with this Act also has a tendency to discourage creativity, originality, hard work and patriotism," he said.
Obasanjo said that with the Act, which harmonises public and private sector pensions, workers would have money put aside for their retirement as they receive their monthly salaries.
The President said: "Even, the self-employed will have the opportunity to participate in the new scheme. Essentially, this new reliable, transparent and predictable pension scheme vests control of pension funds in the hands of the pensioners. The Pension Scheme constitutes one significant plank of our economic reform agenda."
The President noted that though reforms come with short-term unavoidable pains, the "long-term gains will be plentiful."
He also noted that after eliminating corruption and malpractices, the pensions would be paid as and when due in the transition period before the contributory scheme comes on-board.
"There is still the lingering issue of pensions arrears. During the transitional period, the issue of arrears will require us to come up with a viable strategy and policy that will make those who are owed arrears of pension to be assured that they will be paid," he said.
He apologised to pensioners who have experienced deprivations and pain because of unpaid or irregular payments. He assured that a strategy would be developed to deal with the legitimate and verified arrears.
Pension law - Highpoints
The reports of the Ibru-led committee formed the bulk of what was adopted by both Houses of the National Assembly and was passed to Obasanjo for his signature.
The major points of the law are:
- this bill preserves the existing Private Sector Schemes but lays down a framework within which they must operate to protect the welfare and rights of the beneficiaries of the schemes.
- though the draft bill repealed the NSITF Act, the Committee, after considering stakeholders views, came to the conclusion that NSITF be retained as the platform for delivering social security insurance services to Nigerians. This is in consonance with the International Labour Organisation (ILO) Convention that inspired its establishment and to which Nigeria is a signatory.
- NSITF pension business is, however, to be brought in line with the reform envisaged under the bill. In that respect, its activities shall be brought under the National Pension Commission (NPC). It is empowered by the bill to establish its own Pension Fund Administrator (PFA).
- The concept of PFA and Pension Fund Custodian (PFC) as introduced by the Bill was found desirable, since it contains the most refined techniques for effective checks and balances known. The qualifications of custodians are modified to ensure that only the most credible of financial institutions can provide the service.
- the Judicial Pension as stipulated in Section 291 of the Constitution was retained.
- the NPC is established by the bill, but its proposed original structure, which provided for an executive chairman was found incompatible with good corporate practice.
- to ensure compliance and confidence of the general public in the ability of the Federal Government to contain its increasing pension liability, the bonds to be issued by the Federal Government in redeeming its obligations under the old scheme have been strengthened by elevating them to the status of Federal Government bonds, issued, managed and administered by the Central Bank of Nigeria.
- the recommendation of the removal of the power of the Commission to register Risk Rating Companies, since the power to register risk rating companies have been given to the Securities and Exchange Commission (SEC) under the Investment and Securities Act. The entire economy, including Central Bank of Nigeria and foreign agencies already rely on the services of risk rating companies registered by SEC, which already has the expertise. A multiple registration provision will certainly increase bureaucratic bottlenecks and create unnecessary conflicts.
- the bill provides opportunity for Nigerians covered, to make additional contributions and receive additional benefits and for those not covered to willingly join the scheme. This bill provides a comprehensive framework for every Nigerian to plan for his retirement and old age.
- the bill encourages the improvement of the pension management structure in Nigeria and will create job opportunities for Nigerians. Above all, it makes it mandatory for Pension Fund Administrators to open retirement savings accounts for pension beneficiaries and in the process provide customer services to them, including steady accounts statements which should reflect their contributions and earnings.
- this bill ensures the provision of a life insurance policy for all contributors and provides the necessary flexibility that the industry needs to be effective.
- the scope of investment outlets for pension funds have been expanded to include ordinary shares of public liability companies (Plcs) quoted in the Stock Exchange and registered under the Investments and Securities Acts of 1999. Such companies must, however, have declared and paid dividends in the preceding five years. Pension Fund Administrators may also invest in real estate to protect funds against inflation and other economic hazards. The NPC, through its rules and regulations and the provision of the Prudence Investments Act 1962, can prescribe prudential guidelines to strengthen the safety structure for the funds.
- the power to approve investment of pension funds abroad have been transferred to the President, subject to subsisting CBN foreign exchange rules. This is to underscore the need to prevent the pension reform from becoming an average for capital flight.
- the bill sets a higher standard of probity and accountability and ensures that pension contributions, which take many years to mature into payment are fully protected before the retirement of the contributor.
Senator Abdul Azeez clarified issues and speculations for those who wonder what will become of viable contributory pension schemes on the ground.
He said government departments like the Nigerian National Petroleum Corporation (NNPC), the CBN and the Bureau of Public Enterprises (BPE), which had Pension Funds of N1 billion and above will be allowed to set up their own funds management system.
"Each of what we call special organisations in government are operating contributory pension funds. With the passage of the bill, they are going to be internal pensions fund managers. Instead of taking their funds outside, they will now convert their association or group, they incorporate a company, a subsidiary of their company but it is called on Internal Pension fund manager. There is nothing to fear. It is just that there are a number of government organisations who are doing it, but they are not as successful as the CBN and NNPC. So those ones will not be allowed," he said.
He explained that the volume of naira in the Pension Funds of these other organisations is below N1 billion unlike the NNPC and CBN.
In passing the bill, some amendments were made. The Vice Chairman of the Senate Committee on Establishment and Public Service, Abba Aji, explained the amendments in the bill signed by Obasanjo.
Among the amendments was the adoption of the House of Representatives version to replace Section 9 (1) (a) (i) and (ii), which provided for a minimum of seven and half per cent employer contribution, and seven and half employee contribution in order to reduce the burden to the Federal Government, which is the largest employer of labour in the country.
Another amendment was in Section 4(2) where the withdrawal of lump sum from the Pension Fund by retirees was reduced from 50 per cent to 25 per cent. This, the committee stated, will make more meaning to the programmed monthly or quarterly pension provided by Section 4(1) (a). From Aji's explanation, any organisation that has more than five staff is duty bound to run a pensions scheme.
With the signing of the Bill into law, the Pensions Act 1990 has expired. The reaction of stakeholders, including the Organised Private Sector (OPS) and Labour is being awaited. Whatever those reactions may be, they can only lead to amendments of the new Contributory Pensions Act of 2004.`
The President said that the nation was set to eliminate the humiliating and embarrassing situation where a worker gives his or her best in productivity to the nation and when he retires, the pension funds are not just there.
"This is nothing but extreme cruelty. The current situation arose largely because the public service ballooned without control, on the belief that government money was inexhaustible. I can assure that this new process will correct these anomalies. Situations of unpaid or irregular pension have clearly encouraged indolence, corruption, divided loyalty and inefficiency in the system. The systematic irregularities and deformities that we are rectifying with this Act also has a tendency to discourage creativity, originality, hard work and patriotism," he said.
