March 14, 2016
Interaction with Nigerian Governors Forum
1
Outline
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Rationale for the Reform
Objectives of the Reform
Nature of the Scheme
Safeguards of the Scheme
Implementation by State
Governments
Pension Liabilities
Opportunities for Economic Growth
Challenges
Next Steps
March 14, 2016
Interaction with Nigerian Governors Forum
2
Rationale for the Reform
 Most
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public sector schemes were
unfunded
Unsustainable pension liabilities
Weak and inefficient administration of
schemes in both public and private
sectors
Demographic shifts and ageing make
defined
benefits
schemes
unsustainable
Many workers in the private sector
were not covered by any form of
retirement benefits arrangement
Existence of diversified arrangements
which were largely unregulated in the
private sector
March 14, 2016
Interaction with Nigerian Governors Forum
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Objectives of the Pension Reform
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Ensure that every worker receives his
retirement benefits as and when due
Empower the worker
Assist workers to save in order to cater for
their livelihood during old age
Establish uniform rules, regulations and
standards for administration of pension
matters
Establish strong regulatory & supervisory
framework
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Nature of the Scheme
Mandatory Defined Contribution Scheme
 Coverage
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 Covers the public service of the Federation and Federal
Capital Territory and employers of 5 or more employees in the
private sector
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Contributory
 Both employer & employee to each contribute 7.5%
of employee’s monthly emoluments (basic salary,
transport and housing allowances)
 Contributors are allowed to make additional
voluntary contributions
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Based on Individual Retirement Savings
Accounts (RSAs)
 Personalized & portable
RSAs are privately managed by PFAs and PFCs
 Life insurance cover
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March 14, 2016
Interaction with Nigerian Governors Forum
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Nature of the Scheme … cont’d
Coverage and exemptions
 Scheme not mandatory on informal sector
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 Policy being drafted for informal sector voluntary buy-
in into the scheme
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Lump sum withdrawal at exit
Monthly/Quarterly pension payments
Option of Programmed Withdrawal or Annuity
purchase
Right to change to another PFA in case of
Programmed Withdrawal
Right to switch to Annuity from Programmed
Withdrawal
Benefits to be paid to beneficiaries of deceased
contributor (including life insurance benefits)
March 14, 2016
Interaction with Nigerian Governors Forum
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Safeguards of the Scheme
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Access to RSA allowed only on retirement
Separation of the functions of pension operators
Pension Fund Custodian Guarantee
Pension funds held by custodians in the name of
the Contributors
Pension assets cannot:
 be used to meet the claim of creditors of pension operators
 be seized or subject to execution of judgment debt or stopped
from transfer to another Custodian
 be sold, or granted as loan or used as collateral
Government contribution shall be a charge on
Consolidated Revenue Fund of the Federation
 Scheme is strictly regulated and supervised
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March 14, 2016
Comparing the old and the new schemes
Old System
New System
Type
Largely Defined Benefit
Defined Contribution
Funding
Mostly unfunded &
PAYG
Contributory & Fully
Funded
Membership/
Coverage
Voluntary in private
sector
Mandatory for all
employees
Pension Portability
Not Portable
Personalised & Very
Portable
Management
Largely State &
Management & Union
Influence
Private Sector &
Individual Choice
March 14, 2016
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Comparing the old and the new schemes
Old System
New System
Retirement
Benefits
Discriminatory
Uniform Application
Claiming Retirement
Benefits
Cumbersome
Straight forward
Supervision
Fragmented &
Unregulated (SEC,
NAICOM, JTB)
Strictly regulated by
PenCom
Pension Liabilities
Implicit & not
transparent
Explicit through
Retirement Bond &
Capped
Tax exemption
Limited
Contribution &
Retirement Benefits
Insurance Policy
Voluntary & mostly in
private sector
Mandatory for all
employers
March 14, 2016
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Comparing the old and the new schemes
Old System
New System
Dismissal from
Service
No Pension Benefits
Full Pension Rights
Collateral for Loans
Benefits could be used
as collateral
Benefits cannot be
used as collateral
Deductions from
Benefits
Benefits can be
subject to deductions
especially by
employers on any
outstanding financial
obligations on the
employee
Contents of RSA can
be used for payment
of retirement
benefits only
Minimum Service
Years
5 years for gratuity
10 years for pensions
Month 1 of
employment for all
benefits
Gratuity
Provided to those
qualified
Provisions for Lump
sum withdrawal
Implementation by State Governments
Adoption of the scheme for all states and
local governments by the National Council
of States in its meeting of August 2006
 Model State Pension Law was developed
for the state governments to adopt and
modify based on their peculiarities
 PenCom reviews draft state Pension Laws
and offer support in their implementation
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Registration of contributors
 About 2.6 million Nigerians have opened RSAs
 68% are from the Public Sector, of which
 48% are FGN employees
 20% are state & local government employees
 32% are from the Private Sector
March 14, 2016
Interaction with Nigerian Governors Forum
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Implementation by State Governments … cont’d
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21 state governments are at various levels of
implementation
S/N
IMPLEMENTATION STAGE
STATES
REMARKS
1
Pension Law Passed
Lagos, Niger, Ogun, Kaduna,
Zamfara, Kebbi, Kano,
Nasarawa, Jigawa
9 States
2
Bill Passed by House of Assembly Awaiting Accent
Kastina, Kogi,Gombe
3 States
3
Bill at House of Assembly Level
Ebonyi, Bauchi, Ondo,
Bayelsa, Delta, Rivers, Sokoto.
7 States
4
At the Head of Service/Attorney General
5 States
5
Sensitised Civil Servants
Enugu, Imo, Taraba, Yobe,
Osun
Benue, Anambra
6
Conducting Actuarial Valuation to Determine Total
Pension Liabilities
Cross Rivers
1 State
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Yet to take definite action
Borno, Ekiti, Kwara, Plateau,
Adamawa, Akwa Ibom, Edo,
Oyo, Abia
9 States
2 States
Six States comprising Kano, Ondo, Bauchi, Delta,
Kogi, and Jigwawa have responded to our request for
up-dates
March 14, 2016
Interaction with Nigerian Governors Forum
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Implementation: Role of Employee & Employer
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Employee:
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PFA Selection
Movement of RSA once a year
Appointment of next of kin
Demand for customer support from PFA
Lodgment of complaints with PenCom
Demand payment of employer and
contributions into RSA
employee
Employer (State Government):
 Provision of Legal framework
 Preparation of contribution schedule to PFCs
 Deduction
of
both
employee
and
employer
contributions
 Remittance of contributions to PFCs
 Computation and payment of accrued pension rights
of employees
 Computation and payment of pension arrears
March 14, 2016
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Implementation: RSA Opening
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RSA Opening
 Every employee is required by law to open an
RSA
 It is ILLEGAL for employers to coerce employees
to open RSAs with specified PFA(s)
 Registration procedure with selected PFA
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Completion of registration form
Personal Data
Thump Print issues
Employment Records
 PenCom to issue PIN to employees through PFA
 Inform employer of PFA
 PFA gives letter to employer with details of where
money will be paid
March 14, 2016
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Pension Liabilities
Pension liabilities are debt obligations of the employer
 There are two forms of pension liabilities:
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Accrued pension benefits earned by employees for past service
 Outstanding pension arrears
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For FGN employees, the former liabilities were
determined actuarially in accordance with the existing
contract of service while the latter liabilities were
determined through pensioner verification
Retirement bonds will be issued to each employee
acknowledging his/her accrued benefits
Bonds will be redeemed into individual RSAs upon
retirement
FGN has been setting aside 5% of its total wage bill to
redeem the bonds
A total of N86 billion has been paid by FGN to its
existing pensioners as pension arrears
March 14, 2016
Interaction with Nigerian Governors Forum
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Pension Liability Controls
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Employer is responsible only for making
specific contributions on behalf of qualified
participants
The employer does not guarantee any certain
amount in retirement
Pension contributions to be charged on the
States’ statutory allocation?
Thus, the Scheme will stem further growth of
pension liabilities and provides a platform for
addressing them
It will also impose fiscal discipline in the
budgetary process because pension
obligations would be accurately determined
Assets are available at exit for payment of
pension benefits as and when due, thus, no
accumulation of pension arrears
March 14, 2016
Interaction with Nigerian Governors Forum
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Opportunities/Prospects of the
Scheme
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Pension Fund Assets:
 Generate long term savings (compulsory savings, tax incentives &
desire for increased retirement benefits)
 Promote bond and equity markets
 Raise productive capital formation that positively impacts on GDP
growth
 Provide cheaper source of finance, lead to reduced interest
rate and promote the growth of the real sector
Creation of domestic institutional investors
(PFAs/CPFAs), with long term focus, would moderate
stock market and price volatility
 Triggers Positive Qualitative factors
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 Privatisation
 Modernisation of capital market infrastructure (trading, settlement
systems)
More efficient avenue for financing Government(s) long
term borrowing needs – infrastructural bonds
 Growth in FDI as counterpart funding to
infrastructural finance deficits
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March 14, 2016
Interaction with Nigerian Governors Forum
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Opportunities/Prospects of the
Scheme
 Development
of annuity and
Bond markets
 Development of life insurance
business
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Development of other institutional operators:
 Enhance skills of Rating Agencies
 Development of Mortgage Industry
 Development of the capital market
 Enhancement of asset management competence
 Improvement of corporate finance skills
March 14, 2016
Interaction with Nigerian Governors Forum
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Challenges
 Misconceptions and apprehensions about the
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scheme
General knowledge gap, especially on pension
administration
Coverage would have to be expanded – how to
cover the informal sector that has over 40% of
total labour force
Capacity building in the industry to address the
general knowledge gap, especially on pension
administration
Encouraging State and Local Governments to
adopt the Contributory Pension Scheme
Inadequate investment outlets to absorb
growth of savings
Inflation should be lower in order to ensure
positive real return on savings and other
investment
March 14, 2016
Interaction with Nigerian Governors Forum
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Next Steps
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Intensive sensitisation campaigns to create
awareness to stakeholders on their rights and
obligations
Secure full compliance of the private sector and
encourage the participation of the informal sector
Strengthen Inter-Agency co-operation with CBN,
SEC, NSE, NAICOM, e.t.c
 To avoid regulatory overlap and policy inconsistencies
 To facilitate reduction in capital market transaction
costs
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Encourage other State Governments to implement
the contributory pension scheme
Encourage unlisted good companies to seek NSE
quotation
March 14, 2016
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Thank You!
National Pension Commission
Plot 174, Adetokunbo Ademola
Crescent
Wuse II, Abuja – Nigeria
09 – 4138736 – 40
info@pencom.gov.ng
www.pencom.gov.ng
March 14, 2016