IMPLICATION OF THE RECOMMENDATIONS OF THE PRESIDENTIAL COMMITTEE ON RATIONALISATION AND RESTRUCTURING OF FEDERAL GOVERNMENT PARASTATALS, COMMISSIONS AND AGENCIES ON PENSION REFORM:
It is generally agreed that governance in Nigeria is amongst the most expensive in the world. Therefore any attempt by the government to reduce cost of governance must be supported by everyone, who has interest in the development of the country. It is therefore a welcome development that at long last, the Presidential Committee on Rationalisation and Restructuring of Federal Government Parastatals, Commissions and Agencies (Chief Orosanye Committee) has submitted its report. The Committee, according to what we have read, recommended the reduction of the 263 statutory Commissions, Departments and Agencies to 161, through the abolition of 38 agencies, the merger of 52 and the reversion of 14 to their departments. These recommendations we are made to understand are all aimed at reducing the cost of governance.
Unlike the reports of the two previous Committees that worked on similar issues, President Jonathan is likely not going to allow the report of the Chief Orosanye Committee to gather dust on a shelf at the Presidency. This may have informed the dispatch with which another Committee (Adoke Committee) has been put in place to study the report and to come up with a government white paper on the report. This is commendable.
However, whenever governments begin to consider cutting of cost, the first thing that readily comes to mind is loss of jobs. In the present instance, thousands of jobs are surely going to be on the line. A consequential follow up to that will be the payment of retirement/ retrenchment benefits.
The issue is that on the promulgation of the Pension Reform Act 2004, every federal public servant including those of the Federal Capital Territory moved from the former defined benefits scheme to the Contributory Pension Scheme under the Act. Moving from defined benefit scheme to defined contribution scheme, is what is actually the pension reform and not the administration of the old defined benefit scheme, which is bedevilled with poor administration, lack regulation, transparency and bedevil with fraud, which in the first place what necessitated the reform of the pension industry in 2004.
The question then is how the current recommendation of the Presidential Committee affects the pension reform. The point is that the Pension Reform Act 2004 had a take-off date of June 2004.
Section 12(1) (a) of the Act guarantees the employee’s right to accrued retirement benefits for the previous years he/she has been in employment before the coming into effect of the Act. In the case of public service of the Federation and the Federal Capital Territory, where pension scheme was unfunded, the right would be acknowledge through the issuance of a “Federal Government Retirement Bond” to such employee. The Bond will be redeemable upon retirement of the employee.
The Pension Reform Act 2004 in Section 29 provides for the Federal Government to establish a Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria. The Federal Government is already making a monthly payment into the Fund of an amount equal to 5% of the total monthly wage bill payable to all employees of the Federal Government and the Federal Capital Territory.
At the commencement of the contributory pension scheme, public service retirees got their Retirement Service Accounts (RSA’s) credited as and when they retire. Unfortunately, public servants who retire from service, no longer have their Retirement Savings Accounts (RSA) with the Pension Fund Administrators credited promptly with the accrued retirements benefit or the Federal Government Retirement Bonds redeemed by the National Pension Commission promptly as it used to be when the scheme commenced. Two government policies are responsible for this. They are the 2007 retrenchment exercise, which included the scrapping of two cadres (cleaners and security)in the public service and the eight years tenure for federal directors and permanent secretaries.
The two policies caused the abrupt retirement of thousands of federal public servants without the federal government taking into consideration the effect of such policy decisions on the accrued pension rights of those public servants. To date issues concerning the payment of monthly pension to the retrenched staff especially those from the parastatals, agencies and commissions are yet to be totally settled. The policies totally depleted the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria where 5% of the total monthly wage bill of the federal government was being paid into for the purpose of redeeming the Federal Government Retirement Bond, issued to all federal public servants who were in service before the coming into effect of the Pension Reform Act 2004 in June 2004 as their accrued retirement benefits rights.
This has seriously eroded one of the principal gains of the 2004 pension reform, which is the prompt payment of retirees. What happens now is that there is hardly sufficient balance in the Retirement Benefits Bond Redemption Fund Account in the Central Bank Nigeria to pay for the accrued rights of retirees on retirement. Consequently, retirees have two wait for almost six months and above, for the federal government to sufficiently fund the redemption fund account with the Central Bank of Nigeria before the National Pension Commission can credit the Retirement Savings Accounts of retirees.
The difference between the Contributory Pension Scheme, a product of the pension reform and the old pension schemes is that the old schemes were not fully funded.
Therefore, upon retirement, there was no ready fund to pay the retirees and pensioners. The new pension scheme is expected to be fully funded. Money is contributed into individual employee’s Retirement Savings Account (RSA) and when he/she retires; there will be money in his/her RSA, including money redeemed from the Federal Government Retirement Bond to pay the retiree. Therefore, if there is no money in the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria, as is being experience now to redeem the bond, retirees will be returning to the pre 2004 pension reform days when retirement benefits could not be paid as and when due because pensions were not fully funded. By “Fully Funded” we mean where pension funds and assets match pension liabilities at any given time.
The 2004 pension reform is a great gift the administration of former President Obasanjo bequeathed to workers of this country. However, because gains of reforms are most times not immediately noticeable, workers were and some are still sceptical about the workability of the reform. The current mind blowing fraud uncovered in the administration of the old defined benefits pension scheme where people who lack morals, ethics and fear of God are swimming in “blood” money belonging to senior citizens of this nation, with some who are no longer useful to themselves after giving their all to the nation, but are made to die on pension verification lines is a pointer to the wisdom of the 2004 pension reform.
It goes without saying that one of the issues likely to engage the attention of Adoke committee is what to do with staff of the 38 agencies to be abolished, the 52 to be merged and the 14 to be transferred to their departments. Going by past experiences, the government is likely to go for the so called easy way out, retiring and retrenching without taking into consideration the social implication of such a decision.
The purpose of this article therefore is to draw the attention of the Adoke committee and invariably the federal government to the implication of another mass retirements and retrenchments on the pension reform.
There is a need for the immediate review of the 5% of the total monthly wage bill payable to all employees of the Federal Government and the Federal Capital Territory currently being paid into the Retirement Benefits Bond Redemption Fund Account in the Central Bank as the percentage has proved to be inadequate.
In order to build and retain confidence of workers in the workability of the pension reform and prove to critics of the reform that the government put the reform in place for the benefit and wellbeing of retirees and not just to diverse itself from pension administration, the government should through actuarial valuation, determine an appropriate percentage that will have to be paid into the redemption account in order to take it to its pre 2007 retrenchment and eight (8) year tenure policies of government. These two policies were responsible for depleting and messing up the redemption fund account.
The Adoke Committee must realise that throwing all the employees of the affected agencies into the already saturated unemployment market must be a matter of last resort. In that case they must seriously take into consideration and fully address, all labour issues involved in the current policy. They include but not limited to how the retirement and severance benefits of affected staff are going to be paid without compounding the current problems of lean funds in the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria, which is currently not guaranteeing the payment of retirements benefits to retirees as and when due.
The Adoke Committee should be expanded to include experts in other field especially those at the National Pension Commission who would be able to advise the government appropriately on retirement and severance package should government consider that line of action, rather than pack together Ministers who will in the end seat in the Federal Executive Council meeting to agree with the report without taking into consideration, alternative views. It is still not late to include in the committee, other critical stakeholders, who have expertise on pension and severance packages.
Finally, President Jonathan should buy into the Contributory pension scheme because political will is required in order to sustain the reform, by ensuring the monthly regular payment of the federal government’s employers’ contributions into the Retirement Savings Accounts of public servants and ensuring that the Retirement Benefits Bond Redemption Fund Account in the Central Bank is adequately funded to ensure that retirees are paid their retirement benefits as and when due.
Written By BARR. IVOR M. TAKOR, mni.