…Why the President should not sign the PPB into law – Expert
Last Tuesday, the Senate passed the Bill for the Establishment of a Police Pension Board. The passage followed the recent exit from the Contribution Pension Scheme, CPS by National Assembly workers.
The National Pension Commission which regulates the industry, the Pension Fund Operators Association of Nigeria and the Nigeria Labour Congress have all opposed the bill.
A Chartered Accountant, Ifeanyi Onuba in his analysis explained, If signed into law by President Bola Tinubu, the implications of this exemption of the Nigeria Police Force from the CPS is that it would take Nigeria back to the dark ages before the pension reforms.
This was a time when retirees had to depend on a Defined Benefit System; where the Federal Government paid monthly pensions to retirees directly from its coffers.
The bill would make the Federal Government to fully fund the pension for the police, as opposed to the CPS that requires contributions from workers and employees.
The upper chamber announced on its Twitter handle on Tuesday (today) that it had passed the bill, despite opposition from industry stakeholders at the public hearing organised by the Senate Committee on Police Affairs on January 20, 2023.
Pension operators have however, said the expected funding provided in the police bill could not be sustained by the government if it was approved.
The bill excludes the Nigeria Police Force from the Contributory Pension Scheme, and returned the force to the old Defined Benefit Scheme, DBS.
Under the CPS, both the employee and the employer make contributions towards the employee’s pension and this is in contrast with the DBS under which all the burden is borne by the government.
This had led to unfunded pensions and pile-up of pension liabilities running into trillions of naira before the Olusegun Obasanjo administration carried out an industry reform in 2004.
Already, the Contributory Pension Scheme has provisions that can address the challenges being faced by personnel of the Nigeria Police and other Federal Government Agencies on the administration of their retirement benefits.
The solution to the pension challenges of the personnel of the Nigeria Police does not reside in their exemption from Contributory Pension Scheme and reversion to the Defined Benefits Scheme, which is clearly unsustainable.
The absence of other social security benefits in Nigeria is partly responsible for the clamour by the retirees for exemption or to access substantial amounts as lump sum from their RSA balance.
The exemption of the NPF from the CPS would result in 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.
Exemption of the personnel of the NPF would also imply additional financial burden on the Federal Government by way of unsustainable pension obligations.
For instance, there are over 350,000 Police personnel based on IPPIS data. An actuarial valuation revealed that the retirement benefits (pension and gratuity) liability of these personnel under the defunct Defined Benefits Scheme would amount to about N2trn.
The liability under the CPS for the same NPF personnel is made up of over N213.4bn as accrued pension rights and monthly employer pension contributions of over N2.2bn.
To address the concerns of police personnel on pension, there is need for government to review upwards its current contribution rate of ten per cent to the CPS.
In addition, the PRA 2014 further provides that notwithstanding the pension contributions made by employer and employee into the employee’s RSA, the employer may agree on the payment of additional benefits to the employee upon retirement.
Accordingly, the Federal Government should provide additional benefits in the form of gratuity to personnel of the NPF upon their retirement
Mr Boss Mustapha, who was then secretary to the government of the federation (SGF), had written to the Inspector-General of Police reminding him that there was an SGF circular Ref. 59149/S.1/C.1/11/266 and dated July 20, 2021 which said the police must be under the CPS and that the directive had not changed.
Mustapha had also referred to the White Paper on the report of the Presidential Committee on Restructuring and Rationalization of Federal Government Parastatals, Commissions and Agencies which expressly forbids any government body, apart from the military and the intelligence services, from exiting the CPS.
At the time of the reform, it was estimated that the Federal Government had a pension liability of over N2trn.
According to Onuba, a chartered accountant in Abuja, the sustainability of moving the police back to the Pay–As-You- Go Defined Benefit Scheme under their proposal is near impossible, given the Federal Government’s struggling finances at the moment.
Within the first two months of this year, the Federal Government recorded N930.8bn fiscal deficits according to the Central Bank of Nigeria.
The CBN stated in its monthly economic report for February 2023 that the estimated overall fiscal deficit of the Federal Government expanded in February, due to a drop in the retained revenue.
At N513.05bn, the provisional fiscal deficit of the FG rose by 22.8 per cent relative to the preceding month. However, it was 16.2 per cent below the budget benchmark.
According to the report, the fiscal deficit was N417.75bn in January.
The CPS has deepened the country’s financial sector and enabled the federal government to execute key projects.
About 63.68 per cent of the total pension assets have been invested in Federal Government securities (FGN Bonds, Treasury Bills, Sukuk and Agency Bonds)
The remaining investments are in money market instruments (14.61 per cent), corporate debt securities (10.41 per cent), quoted equities (6.50 per cent) and other asset classes (4.80 per cent).
Onuba further explained, the exemption of the NPF would also unsettle the FG’s fiscal policy and financial system stability. With about 63.68 per cent of the N14.79 trillion pension assets, as at 30 November 2022, invested in Federal Government securities, exempting the NPF would lead to material divestment from FGN securities before maturity. This would have ripple negative effects on not only the finances of government, but also on the entire financial system.
“Excluding the police from the CPS would reverse measures put in place by the federal government to holistically reform the pension system in the country.
“The gains of the CPS should be consolidated rather than destroyed.
“An agency of government should not disintegrate a system because it doesn’t meet some of its aspirations. The system could be tweaked a little and ways suggested to make it better.
“Time has come to prioritize building systems, not pulling out when something appears to be wrong,” he said.
