Exemption of paramilitary from CPS to jeopardize security personnel future
By NGOZI Onyeakusi —-
The National Pension Commission ( PenCom) and the Pension Fund Operators Association of Nigeria (PenOp) have warned that exemption of paramilitary from the Contributory Pension Scheme (CPS)’ will jeopardize the future of the security personnel.
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At a time the nation is battling with paucity of funds to meet enormous existing needs of her citizenry, some members of the National Assembly who should have align with the government to suggest ways of raising revenue, are pushing bills to increase financial burden by calling for exemption of security personnel from Contributory Pension Scheme (CPS) which has helped provided succour to retirees in the past 13 years.
Owing to paucity of funds, the Federal Government, it was learnt is yet to implement the Pension Reform Act (PRA) 2014 which repealed the 2004 Act. In the 2014 Act, the government is mandated by law to contribute 10 per cent for its employees, while the employees contribute eight per cent, amounting to 18 per cent.
Not bothered by government’s financial position, a member of the National Assembly, Honourable Oluwole Oke, from Obokoti/Oriade, constituency, Osun State, on May 16, 2017, sponsored a bill seeking to “Amend —Lie Pension Reform Act 2014 , to Exclude Members of The Nigeria Police, The Nigerian Security and Civil Defence Corps, Nigeria Customs Service, Nigeria Prison Service, Nigeria immigration Service and Economic and Financial Crimes Commission From The Application Of The Contributory Pension Scheme and Other Related Matters”. The Bill had passed its second reading and was referred to the relevant Committee of the House of Representatives for further action.
The above mentioned Bill which is similar in context to that of the Armed Forces and Intelligence agencies, also sponsored by Honourable Oke, seeks to fully exempt the stated organisations from the CPS and return them to be 100 per cent underwritten in relation to pension arrangements by the Federal Government. In other words, return them to the erstwhile Defined Benefit Arrangement.
The arguments advanced by the promoters of the Bill as stated in the Legislative Digest (Pension Reform Amendment Bill 2016) include: National Security — the identity, data, addresses and family ties of security personnel are best handled internally by the relevant service and not kept in civilian custody which may be easily compromised.
Occupational Hazard — the nature of the service provided by the paramilitary is unique and hazardous and the burden of paying their pensions should therefore be borne by the government. Delays in the payment of entitlements.
Low Monthly Pensions being paid to the retired personnel. Preference for the DB system where workers who had worked up to 35 years were entitled to 70 per cent of their last monthly salary and Directors received l00 per cent.
It is important to note, however, that the reasons that informed the decisions of both the rederal Government and the 6th National Assembly to respectively decline the request and the Bill for exemption of the Police and other Paramilitary Agencies from the CPS in 2011, despite the above arguments are still valid. Indeed, the argument against exemption is today further reinforced by many other economic, fiscal, social and public policy reasons, such as: The exemption of the personnel of the Police and other Paramilitary Agencies means additional financial burden on the Federal Government by way of unsustainable pension obligations. For instance, in the last 10 years, the number of FGN employees that retired under the CPS from the six Agencies sought to be exempted are 50,730. The total Accrued Benefits of these personnel amounted to N208.22 billion, which had been redeemed by the Federal Government, paid into their respective Retirement Savings Accounts (RSAs) and consolidated with their monthly pension contributions to fund their retirement benefits.
These retirees are currently receiving their retirement benefits promptly as and when due. Exempting them from the CPS would imply that Government would shoulder the huge financial obligation of payment of their pensions as well as that of future retirees through budgetary provisions, with no guarantee of availability of funding and; or timeliness of payment.
The Federal Government is already overburdened with the payment of pensions as illustrated by the 2016 Appropriation Act, which made a provision under the Service Wide Vote for the sum of 200,170, 000,000.00 as total Pension and Gratuities Allocation. This allocation is still insufficient to fund the pension liabilities of the Federal Government. For instance, the 2016 Pension Transitional Arrangement Directorate (PTAD)’s Budget proposal indicated a total Annual Pension Liability of the sum of N388,320,580,231.64. Out of that amount, the sum of N255,896,954,017.38 constituted unfunded liability, which was inherited by PTAD mostly due to outstanding payments for 33 per cent pension arrears to pensioners under the Defined Benefits Scheme.
Indeed, the Federal Government pension liability burden under the Defined Benefits Scheme is much higher than the PTAD proposals in view of the provisioning of about N74.53 billion for the Military Pension Board, N7.64 Billion for the State Security Service and 1443.71 Billion for the National Intelligence Agency. Consequently, it would be fiscally imprudent to increase the number of this category of retirees under that Scheme. It would also render the retirees financially vulnerable and insecure.
In addition, it is evident that the Defined Benefit pension system is not sustainable as exempting the Military, Department of State Security and the Nigeria Intelligence Agency has resulted in very high allocation of resources to fund their retirement benefits. As is evident in the various Appropriation Acts since their exemptions, their combined allocations were 49.4 per cent; 49.1 per cent; 45.1 per cent; 41.99 per cent and 43.1 per cent of total allocations for pensions in the 2013, 2014, 2015 and 2016 Appropriation Acts as well as in the 2017 Appropriation Bill respectively. The figures will be staggering and clearly unsustainable if the personnel of the Police and other Paramilitary Agencies were to be exempted in view of the fact that the number of Police personnel is significantly higher than the number of the personnel of the three exempted Agencies combined.
Exemption of the personnel of the Police and other Paramilitary Agencies indicates by implication, the dismantling of the institutions, systems and processes that Government had put in place in the last few years towards the implementation of the pension reform programme, including the culture of national savings as well as the efforts to eradicate the structures that encouraged corruption during the pre-pension reform era. This is contrary to the policy thrust of the current administration of diversification of the economy and fight against corruption.
An immediate negative impact of the exemption of the Police and other Paramilitary Agencies is to unsettle the Government’s fiscal policy and financial system stability. It is imperative to note that as at date, about 70 per cent of the N6.4 trillion pension assets are invested in Federal Government securities. Exempting some government agencies would lead to divestment from FGN securities before maturity, which would have ripple negative effects on not only the finances of Government, but on the entire financial system.
Another immediate negative impact of exempting these Agencies is the erosion of the pool of long term investible funds accumulated under the CPS, which is suitable for economic development of any nation as illustrated in other jurisdictions including developed economies. This would thereby undermine the process of the attainment of development initiatives in the infrastructure, housing and real sectors of the economy, which are largely hinged on the utilization of a portion of the pool of pension fund assets.
Exemption of some agencies of Government would also result in loss of confidence in the pension reform and other reform initiatives of Government. The growing culture of national savings built within the last decade would be destroyed. It is pertinent to note that due to the successful implementation of the pension reform, the discipline with which the industry players have been discharging their responsibilities and the resultant impact on the Nigerian economy, foreign investors have invested heavily in some major Pension Fund Administrators.
It would also be contrary to public policy for the Federal Government to succumb to the clamour for exemption of its employees from the CPS, which has so far proven to be efficient, effective and beneficial as a pension administration system. Indeed, it is the benefits of the CPS that are attracting increasing number of State Governments in Nigeria as well as other African countries to adopt and implement the Scheme In favour of their respective employees.
From the above listed negative impacts, it calls to question the motives of the sponsor of the Bill and the supporters within the listed Paramilitary organisations.
Research and experience have shown that 60 per cent of retirees in the paramilitary services have sufficient funds in their RSAs to allow for an upward review of their monthly pensions.
On the other hand, 40 per cent have insufficient funds left over after they have been paid their lump sums to support a decent standard of living on a monthly basis. It is clear that a compromise can be considered for the majority of retirees who complain about low monthly payments, however, for those with insufficient funds, there is an urgent need for the Minimum Pension Guarantee framework as stipulated in the PRA 2014 to be set up and funded to alleviate their situation.
A complete pull-out of the paramilitary services is certainly not the answer to the problem especially given the current state of public finances in the Country, the obvious great advancements and positive fallouts achieved in Pension reform to date, and the provisions within the PRA 2014 for grievance resolution and adjustments in pension savings rates between employee and employer. Permitting this Bill to gain root as the Armed Forces amendment Bill did, will spell doom for the Public Sector segment of the Contributory Pension System in Nigeria and for the entire industry ultimately as other groups within the Scheme will follow suit.
Investigations have revealed that most of the paramilitary agencies were not consulted prior to the sponsorship of the Bill. It was also gathered that the Nigeria Police is comfortable remaining with the contributory pension scheme, due to the tight control which separate the management of the funds from its custody under the strict regulation of the National Pension Commission (PenCom), with embedded safety measures.
It was gathered that the Police believe all issues bothering the organisation, can be resolved within the ambit of the CPS, hence, do not need to join in the pursuit of the Bill to exit from the CPS