• Home
• Columnist
• Videos
• Artist
  • Musicians
  • Actors
  • Comedians
• Notable Nigerians
• Legend Dies
• Articles
  • Nigeria Articles
• Photos
• Submit Article

Contributors to the pension scheme in the country are worried over the fraudulent management of the pension scheme by the National Pension Commission and the Pension Fund administrators

Jim Unah, professor of philosophy, University of Lagos, is a worried man. For 26 years, he has laboured in the ivory tower, helping the nation to produce industry captains, administrators and seasoned technocrats. But today, Unah is scared he may retire into penury. He is afraid that his pension benefits could either be mismanaged or misappropriated by a pension fund administrator, PFA, which manages his pension. His worry emanates from some irregularities in the administration of his retirement salary account, RSA, which he observed and drew the attention of the PFA and the National Pension Commission, PENCOM.  But they have failed to act on his case for almost three years.

Unah is not the only victim of irregularities in pension administration in the country. Fry Ndubuisi, professor of Philosophy, University of Lagos, is facing the same problem. Currently, his total pension contribution is slightly above half a million Naira. He is convinced that a lot of fraud would be going on undetected in the administration of the pension scheme in the country. Ndubuisi, who told Newswatch, that he had welcomed the idea of the new pension scheme, said that his experience so far under the scheme has made him to be apprehensive that some people are bent on sabotaging the scheme.  “There are people out there who are cornering that money and using it for their private purposes. And I believe that the federal government has not put enough measures in place to check the activities of the PFAs,” Ndubuisi said.

Ndubuisi is worried that contributions from his employer as provided in the Pension Act are not being deducted. “It does not reflect. That is our major complaint and they have not done anything about it. What I’m saying is that they (the PFAs and PENCOM) are not open to us even though by right we are supposed to be the owners of the money,” he said. Ndubuisi and  Unah are clients of Pension Alliance Limited, PAL.

Apart from Unah and Ndubuisi, some institutions also have cases against the PFAs and PENCOM. The Nigeria Union of Pensioners, NUP, has expressed lack of confidence in the Pension Reform Act that created PENCOM and called on the National Assembly to review law and make it more responsive to the plight of pensioners.  But more worrisome is the fact that corporate organisations and government institutions are threatening to pull out of the scheme and have their separate pension systems. The Nigerian army has already been permitted to exit the system. The Nigeria Police and the  Federal Road Safety Commission, FRSC, is also currently lobbying to pull out of the scheme. The desire to leave the contributory pension scheme is among the reasons the Academic Staff Union of Universities, ASUU, is on strike currently. The pension contribution from these institutions runs into several billions of Naira. If these institutions pull out of the scheme, the integrity of the scheme will be hurt and more organisations may pull and could lead to the death of the scheme.

Newswatch investigations confirmed Unah’s grievances which had to do with the exclusion of employer’s contribution to his RSA and incorrect remittance of pension contributions by PENCOM and PAL. According to an internal memo he forwarded to the administrative officer, pension office, University of Lagos, May 18, Unah said that “since 2004, when PENCOM started deducting his contribution, only the employee’s contribution is deducted from my monthly emolument and remitted to PAL. “From the trade alert (SMS) sent to me by PAL, only my contribution is split into two as if the employer contributed half and the employee (myself) contributed half. In other words, while a total of N20,003 is deducted from my salary monthly, total remittance to my RSA by PENCOM is N19,610.06,” the memo said. Subsequent SMS messages that alerted him of remittances to his retirement savings account, RSA, highlighted the discrepancies in the remittances. The SMS indicated that the following contributions: EE N4,902.52, ER N4,902.52 were remitted to his RSA for the months of June, July and August 2011, respectively, whereas the sum of N20,003.00 was removed from his salary as pension contribution for each of the above three months. Another SMS sent on November 10, 2010, which alerted him of the October 2010 remittance reported that EE contributed N14,707.55 and the ER contributed N14,707.52. These figures represent a fluctuating and inconsistent account of contributions to his RSA even though the sum of N20,003.00 has been  removed consistently from his salary as pension contribution.

The memo illustrated how these wrong remittances were done by reproducing the SMS trade alert sent to inform him of his February 2011 remittance. For instance, The February trade alert from PAL read thus: “Dear client, your contribution for February 2011 is EE = N9,805.03, ER =N9,805.03. Credited on March 18, 2011. Your balance is N1,300,468,42. Sender : PAL.”

Unah stands to lose about N2 million if the irregularities in the management of his RSA are not resolved.  To ensure that this did not happen, he wrote  PENCOM in 2008, complaining that only half of his total savings, that is employee contribution alone, was being remitted to PAL. This is in addition to the shortfall of about N180,000 since 2004, that is not reflected in his account. His efforts yield initial result as the head of the National Data Bank of PENCOM replied that it would be rectified and that he would be notified accordingly. But after that nothing has happened as the irregularities and incorrect remittances has continued since then. “The total contribution of N1,300,468.42 recorded for me as at the end of February 2011, is half of my total contribution. In other words, my total contribution should be about N3 million if all the errors had been corrected,” he said in the memo to the university’s pension office.

Unah is also aggrieved because some professors who are seven years his junior have recorded N2.6 million in their RSA because both employee and employer contributions were duly recorded for them. He also recalled that his contributions under the defunct NSITF Scheme was not transferred to his RSA even though he had put in 19 years service at Unilag by the time the new pension scheme was introduced in 2004.

His experience has made him to conclude that that the new pension scheme is very clumsy and very cumbersome. “When you divide the employee’s contribution into two and credit half to him and half to his employer, then there is a fraud involved. What is on my pay slip is my own contribution and they cannot be so illiterate not to know that,” Unah said. He is surprised and at the same time annoyed that PAL and PEMCOM have not responded to his petitions three years after.  

He is not the only one who believes that the pension scheme is fraudulent. Oghenekaro Ogbinaka, senior lecturer, Department of Philosophy, University of Lagos, and Unilag’s branch chairman of ASUU, is also of the view that the new pension scheme came with a trail of problems and elements of gambling that would undermine its effectiveness. According to him, this pension scheme would make it possible for two lecturers earning the same salary to retire with unequal sum of money as pension compensation. He argued that the scheme had a lot of unanswered questions, such as what would be the lot of workers if suddenly their PFAs run away with their money.  Who bears the brunt if the PFA invests in wrong assets? And whether the PFA would, with certainty, tell a worker what he would be paid at the end of the day? “These uncertainties are fundamental issues we are raising as academics. We have lawyers, accountants, economists and philosophers among us. So, when we sit down and raise these questions we know what we are saying,” Ogbinaka said.

Part of the problem of the pension scheme is that the federal government is implementing the Reformed Pension Act selectively. The pension act stipulates that every worker in both the public and private institutions should be part of the scheme. In spite of this provision, some institutions are not part of the scheme. The army recently pulled out. The judiciary is still operating the old pension system. The popular idea is that whenever government makes any policy, the first place to check if the policy is a good one is the military and judiciary. Hence, the question that is readily asked is why the government exempted the two institutions from the scheme, if it is good? Perhaps, this scenario prompted Ogbinaka to say: “Since these strategic government agencies were allowed to run a separate pension system, the academics should not be used as guinea pigs to experiment the workability of the new pension scheme. We are academics and cannot take decisions that will not be favourable to us, “ Ogbinaka said.

Already, there is a palpable fear among the academics that the current pension scheme could end up like the previous ones such as the National Provident Fund which mobilised funds from contributors some years ago and could not account for them. This must have informed  the quest for a separate pension scheme for university workers, which is also not new in the country. The university system has always had its pension scheme prior to the unification of the pension scheme in Nigeria. The demand by the Academic Staff Union of Universities, ASUU, could be justified by the peculiarities of the university system. It is also for the good of the education sector. ASUU members believe that having a pension system of their own would enable them to invest their retirement savings in the infrastructural needs of the education sector. “All we are asking is for the government to make a law that can give us our own pension system that we can manage by ourselves. We want our future to be in our hands and I do not think that there is a problem with that,” Ogbinaka said.

One potential source of anxiety about the operation of the reformed pension scheme is the history of corruption that has trailed the old pension system in the country. Earlier in the year, the Economic and Financial Crime Commission, EFCC, uncovered N12 billion scandal in the operation of the old pension system. The scam was uncovered at the office of the head of the civil service of the federation, OHCSF. About 32 persons alleged to be involved in the scam were arraigned at the Federal High Court, Abuja. Prominent among them were Sani Shuaibu, former director of Pension Administration in the OHCSF, and Phina Chidi, former deputy director of finance and accounts in the Pension Office. 

Despite the challenges the scheme is grappling with there is some good news about PENCOM. M.K. Ahmad, director-general of PENCOM, said recently that the new pension system recorded modest achievements.  About 4.92 million Nigerians had registered with the scheme as at November this year, while the accumulated pension contribution has grown to N2.4 trillion, which is 7 percent of Nigeria’s GDP. In addition, there are currently about 40,794 retirees from the public and private sectors under the contributory pension scheme who are collecting their monthly pensions either by programmed withdrawal or annuity. “They have collected over N115.6 billion as lump sum at the point of retirement and are collecting about N1.284 billion as monthly pension,” Ahmad said.

 PENCOM has also taken some steps recently to strengthen the scheme, which include raising the capital requirement for the licensing of the PFAs from N150 million to N1 billion by the end of June 2012. The commission has also intensified its compliance mechanism by taking legal action against defaulting employers. About 3,521 organisations were given warning letters for violating the provisions of the pension reform act while public censure was imposed on 292 non-compliant organisations for continued violation of the act. Furthermore, monetary penalties were imposed on 2,616 organisations.

It has also secured the support of the Debt Management Office, DMO, to make it a condition that any state government wishing to raise money from the capital market must key into the contributory pension scheme. This has gone a long way to secure the participation of 18 state governments in the scheme. In addition, the commission’s collaboration with the Bureau of Public Procurement, BPP, has ensured that service providers to the federal government must be compliant to the Pension Reform Act of 2004. Moreover, the director-general of the pension commission claimed that compliance by the informal sector received a major boost during the year. He said that “the two million membership of the National Union of Road Transport Workers, NURTW, have signified their intention to embrace the scheme and the industry is working towards registering them into the scheme.”

The new pension scheme was put in place to stem the pension management crisis that was plaguing the country over the years. Then, the country was bugged down by a pension deficit that was estimated at about N2.3 trillion, irregular payment of entitlements to pensioners and the existence of ghost pensioners in the public service. Other problems of the old pension system the reform was meant to solve include death of pensioners on verification queues, mismanagement of pension assets by fund managers and unstructured and unfunded private sector schemes.

The reform is to ensure prompt payment of retirement benefits, facilitate efficient savings culture among Nigerians towards old age and the development of simple, transparent and sustainable pension system in the country.

So far, the contributory pension system has impacted positively on the Nigerian economy by deepening the financial system and serving as a veritable source of long term finance. Pension assets constitute 15 percent of the Nigerian banking assets. As at December 2010, a total of N950 billion and N358 billion have been invested by pension funds in bonds and equities that represent about 30 percent and eight percent of the bond and stock markets capitalisation,respectively. The pension fund today represent the major source of financing for the federal government bonds and helped to bridge the funding gap at the federal level during the critical moment of the global financial crisis.

Dave Uduanu, managing director of PAL, said that the choice of long-term bond was influenced by the fact that ‘pension funds have liabilities of more than 20 years and are always in the market for bonds of similar tenure to achieve an asset and liability matching.”

The investment of pension funds is guided by stringent PENCOM regulatory framework. According to Ehimeme Ohioma, head, Investment Supervision Department of PENCOM, the major objectives of pension fund investments are to ensure safety and maintenance of fair (and real) returns on investment. Securities that pension fund could be invested in are mostly regulated instruments that are approved by the Securities and Exchange Commission, SEC. Also transactions involving the pension funds are to be conducted on trading platforms that are registered by SEC.

The framework also placed quantitative restrictions on the volume of a PFA’s portfolio that could be invested in assets like quoted equities, FGN bonds and corporate bonds. There is a sectoral limit that fixed the volume of a PFA’s portfolio that can be invested in any sector. The framework also stipulated the maximum value of the PFA’s assets that could be invested in any instrument issued by a corporate entity. “These restrictions are aimed at ensuring portfolio diversification and mitigating concentration of risks,” Ohioma said.   

However, some Nigerians think  that there is no cause for alarm on the viability of the new pension scheme. Femi Odufowokan, a lawyer and fellow of the Certified Pension Institute of Nigeria,  said that there are enough provisions in the Act to protect pension contributions. One of them is the provision that the PFAs should not have physical contact with the pension contribution, which is to be held by Pension Fund Custodians.  Odufowokan explained that some factors could account for people who are working in the same organisation and receiving the same salary to end up with unequal pension benefits.  This may arise from voluntary pension contribution by workers who want to contribute more than the stipulated 7.5 percent to their RSA. Secondly, the difference could arise from using different PFAs and investment of pension funds on different assets with varied returns on investment. He hailed the PENCOM for doing a good work of regulating the scheme and reducing the risks that could result from investing the pension fund to the barest level.

“Nevertheless, I will emphasise that benefit and burden go together.  If there is any loss the account holder will bear it and if there is any gain the account holder takes it. You cannot enjoy the benefit in terms of the interests that accrue and run away from the risks. But the most important thing is to reduce the risk to the barest minimum,” Odufowokan said.

He attributed the removal of the military from the scheme to the global practice of giving soldiers preferential treatment in pension matters because of the risky nature of their career. He advised ASUU to remain in the scheme because the beauty of the new pension scheme would be seen and appreciated by all and sundry, including the ASUU. “Seven years is still a short time to judge the scheme. The scheme needs a lot of persuasion to convince people and we should not forget so soon that the scheme’s early years coincided with the commencement of the global economic crises which hampered the ability of many business to contribute to the scheme.”

In the same manner, Oriola Soyege, head of Marketing Department of PAL, pleaded with some of the dissatisfied clients of PAL to exercise patience. He assured them that the irregularities witnessed in their remittances would soon be rectified. “All payments are recorded according to the remittance schedule received from PENCOM. But update is frequently done to clear the backlogs,” he said.

Reported by Demola Abimboye and Sebastine Obasi