Employers’ Aversion to Hike in Contributory Pension

Employers in the private sector have strongly kicked against further hike in percentage contribution to the Contributory Pension Scheme (CPS), arguing that it will cut deeper into the bottom-line of their businesses.
This is as the organised labour has drummed support to the plan by the National Pension Commission (PenCom) to increase the contribution ratio.
PenCom, the body regulating the CPS, as part of its recommendations to the National Assembly, had proposed increasing the pension contribution to 20 per cent; that is 12 per cent to be contributed by employers while 8 per cent will come from employees. Currently, percentage contribution to the scheme under the 2004 Act is 15 per cent, with the employer and employee contributing 7.5 per cent each.
The Commission had explained that the passage of the Bill by the national assembly would help it to address the challenges it is being confronted with in the process of implementing the PRA 2004.
According to the Commission, the principal thrusts of the Pension Reform Act (PRA) 2013 Bill, are to enhance the powers of the Commission in its regulatory and enforcement activities, enhance the protection of pension fund assets, unlock the opportunities for the deployment of pension assets for national development, review the sanctions regime to reflect current realities, provide for the participation of the informal sector and also provide the framework for the adoption of the CPS by both states and local governments.
“The PRA 2013 Bill seeks to enhance the regulatory authority and efficiency of the Commission to provide greater oversight on, and reposition the Pension Transition Arrangement Departments (PTADs) for greater efficiency and accountability in the administration and payment of pensions under the Defined Benefits Scheme.
“The PRA 2013 Bill if made into law will allow for a wider decree of transparency in the pension industry as the regulatory commission will be able to exercise more powers to discharge its regulatory functions,” the Commission stated.
Acting Director General, National Pension Commission (PenCom), Mrs. Chinelo Anohu-Amazu, who spoke at a one-day interactive session with Nigeria Employers’ Consultative Association (NECA), said the process of a major amendment to the PRA 2004 is currently at its final stages of consideration by the National Assembly.
Employers’ Opposition
Though the employers in the private sector welcome the proposed review of the PRA 2004, they are however opposed to further review in the percentage contribution to the scheme, stressing that it could trigger layoffs of workers in organisations that may not be in position to accommodate further increase.
They made the submission at an interactive session organised to discuss the challenges and future outlook of the Pension Reform Act, 2004.
Director General of NECA, Dr. Segun Oshinowo, said employers were already being over-burdened by various financial commitments, including payment into the Employees Compensation Act (ECA) and as well as insurance for their employees among others, all of which are taken from the same purse.
Oshinowo, who was represented by Mr. Timothy Olawale, a Director in NECA, said the proposed review would have a ripple effect on the nation’s economy, stating that it could trigger layoffs of workers in organisations that may not be in position to accommodate further increase.
“The argument is that it will become unsustainable. We should appreciate the fact that the scheme is to make life easy for employees. What of the ripple effect that will come with the increase in the percentage contribution? Some employers may want to reduce workforce because they cannot sustain it. Even government is finding it difficult to comply with the 7.5 per cent contribution, that is why they are having cold feet.
“The issue of overloading recurrent expenditure is now much in the public sector, how much more the private sector. I hope it will not get to the level of reviewing employment policies in the private sector. We need to set benchmark below which we cannot go.
“However, there are some employers that are already contributing more than 7.5 per cent and they should be encouraged. We believe the status should remain rather than overloading employers with more expenditure because doing so will have adverse effect on the economy,” he said.
Corroborating this view, General Secretary of Food, Beverage and Tobacco Employers, Aderemi Adegboyega, maintained that further review of the percentage contribution would not be welcomed by employers.
He charged the regulatory body to focus on getting employers to fully comply with the current scheme rather than consider another increment.
“The current rate of contribution, 7.5 per cent for employees and employers, has created a parity which must be maintained. As it is now, most businesses find contributing 7.5 per cent very steep. Thinking of increasing the contribution rate will not be welcomed by employers,” he said.
However, he commended the current pension scheme which he said has largely achieved the objectives envisioned by government, employers and employees.
According to him, with about 10 years of existence, the scheme has ensured that most people in employment in Nigeria are covered under the scheme and that they are paid pension /retirement benefits as and when due, regulated and created standards for administration of pension in Nigeria.
“In spite of these major achievements and realization of the objectives of the scheme, there are some less pleasing aspects of the operation of the scheme. How strong are the Pension Fund Administrators and Custodians licensed by PenCom to guarantee the stability of the scheme?
“Can these institutions withstand major money market or capital market shock that may occur? Is there any cover similar to that offered by the Nigeria Deposit Insurance Corporation (NDIC) in respect of bank deposits Are the funds under the management of the Pension Fund Administrators insulated from erosion due to the operating expenses of PFAs (caused by their structure and impact of over-regulation)”, he added.
He therefore charged PenCom to establish a website/portal which would give contributors access to the status of all Pension Fund Administrators, their end of year reports and rankings.
Contributors’ Expectation
Speaking on behalf of employers in the private sector, Adegboyega tasked the regulatory body to ensure that contributors’ pension is invested with utmost concern for safety and liquidity in order to guarantee ability to pay pensions.
He equally charged the Commission to moderate the exposure of pension funds and restrain Pension Fund Administrators (PFAs) from taking high-risk options.
“Our expectation is that our Retirement Savings Account will be kept above inflation rate in terms of growth, to ensure that the savings will be able to sustain annuity or long programmed withdrawal in retirement. We shall expect that return on investment for fund under management be stepped up beyond what is currently available in the industry.
“We recommend that PFAs should benchmark growth in closed pension funds in terms of their investment portfolio management. It appears that the funds under management of Closed Pension Fund are growing much more than the ones under the PFAs (are they worse off by their expense profile?),” he said.
He further said employers would support the use of a fair portion of pension funds for infrastructural investment provided that the infrastructure to be financed will be backed by the federal government bond.
“As employers, we are limited by the deficit in the infrastructural base of our country. We know that our businesses and infrastructure need long term funds. Funds under management of pension institutions are the best grade of long term funding for businesses and infrastructure.
“As good corporate citizens we are willing to encourage the use of fair portion of pension fund, realising the need to maintain a good level of liquidity to service programmed withdrawal of retirees.
“It’s our belief that increased availability of fund from Pension Fund Administrators could assist the emergence/development of infrastructure linked instruments. However, it is essential that regulation should prevent pension fund from being invested in high risk products. Financing infrastructure under concession lack the typical risk involved in project financing, provided that the infrastructure to be financed are those backed by federal government bond,” he added.

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