Stanbic IBTC pension – my PFA

The Nigerian President, Dr. Goodluck Jonathan, signed the new pension reform act 2014 into law on 1st July 2014. The new Act of course repealed the previous Act of 2004, on which the current obligatory contributory pension scheme was built. However, aside the harm of possible fraud and embezzlement of the fund (on which we had once asked “Is My Pension Really Safe?“), it is our thought that the new Act as it stands is inimical to the interests of the labor it purports to protect.

It should be appreciated, ab-initio, that pension contributions from the employers is a cost many firms would not want to incur, they would rather such monies remain part of their working capital . As such, one would want to believe that the government would rather be interested in measures to not only coax employers not yet in the pension scheme to sign up but also massage the employers already in the net to continue without hurting the economics of either the firm or the staff. To appreciate it further, the federal government noted that only 2.4 million out of over 60 million of working age currently contribute to the pension scheme, and that means less than 5% of working Nigerians are covered leaving 95% grossly exposed to issues later in life. It is therefore disturbing that instead of attempting nice means of including the potential exposed employees, rather we just signed something that may start excluding many from the scheme. Or what happens should the employers rationalize staff strength to maintain the existing pay-outs?

It has always been that employers foot drag in reviewing staff welfare because of the automatic consequence of increase in pension cost to be remitted to PFAs – and that’s with the 7.5% contributions of the previous regime. In the new act (download a copy here), the new minimum monthly contribution has been reviewed to 18% with the employees’ contribution getting upgraded to 8% while that of the employers move on to 10% – and that’s 2.5% more than “normal”. Do you know many employers that would joyfully go around hugging the staff while announcing this important ‘life changing reform’? While many employees may be singing praise hymns for having additional 3% to their previous contributions, they should know this would definitely be at some cost.

Another feature in the new act with respect to the scheme is the basis of contributions. Now, it is going to be based on “monthly emoluments”. Though vague as used in the Act, the term could mean all items that are paid on a monthly basis, in addition to the usual aggregation of the basic salary, housing and transportation allowances. That means the employers will pay more, even if it were still on 7.5% contribution, without any raise in the employees’ monthly package. Worse still, is the fact that employees’ net pay will reduce taking away some bragging rights over their disposable income. The usual mantra was that ‘my take home pay, cannot take me home’; now the ‘take home pay’ would not even leave the office. Did they really think this reform through?

Little wonder employers have been utilizing several means to escape the “extortionist” laws by rather recruiting on casual basis (not minding labour unions picketing); or recruiting foreigners – regardless of their skill levels – on whom no pension is paid, and from whom the nation unduly suffer owing to regular capital flight; or outsource job functions to either some local businesses or foreign firms, who barely pay their Nigerian workers anyway – all in a bid to protect the bottom line. As far as the employers are concerned, “why should we care so much for these sulking staff anyway”?

Who then will benefit from the new Act? Maybe the PFAs; at least there will be in the short term some swell in the contributions to the scheme giving them some chance to grow the existing pension assets which was at N4.21 trillion as at March 2014. And maybe the fraudsters; who now have more to loot from – and that is believing that the usual wrist slapping treatment will continue when they get caught. And who else? In our opinion, definitely not employees whose interests were meant to be protected. There is therefore obviously a need to review the just signed Act, and amend for all these raised issues if the employees’ welfare is actually of concern to the government.

Share your thoughts on the impacts of the pension reform act by dropping your comments below