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Friday, March 24, 2023

Stakeholders Call for Amendment of Contributory Pension Scheme

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When Prince (Dr.) Feyisayo Soyewo clocked 70 last year he got a call from his pension administrator that he had hit the age where he can access benefits and he would be entitled to only 25 percent of his retirement savings and the rest had been spread over 20 years.

Under the new contributory Pensions scheme, a retiree must be at least 50 years or must have retired from service on attainment of maximum allowable length of service (generally 35 years in the public sector).

And that means the Chairman and Chief Executive Officer of Prestige Insurance Brokers Limited would receive a monthly payment of N75,000, but he was disgruntled about the plan.

Soyewo was not happy because he would have invested 75 percent of his savings to yield more returns and magnify his earnings.

“I am not happy because I would have used my money for something else,” said Soyewo, at the 6th National Association of Insurance and Pension Correspondents (NAIPCO) Conference in Lagos.

“How sure are you that l will live till 100 years? l am advocating for a law that meets everyone’s needs since we all have different needs. I am not against the contributory pension scheme,” said Soyewo.

The indefatigable chairman of the stockbroking firms echoes the concerns of customers who want a bigger pie of their savings but are mandated to take just 25 percent.

There are enormous challenges in the future because people who started work at the age of 25 will clock 55 over the next few years and they may need a significant part of their savings to start a business or pay children school fees in the university.

The Contributory Pension Scheme (CPS) was established under the Pension Reform Act of 2004, which was repealed and replaced with the Pension Reform Act in 2014.

It mandates a minimum contribution of 10 and eight per cent of employees” monthly emolument by the employer and employee respectively. This is paid into the employee’s Retirement Savings Account (RSA).

Since it was promulgated in 2004, the CPS has enjoyed tremendous growth as pension assets have grown to N12.78 trillion (as at July 2021) from a deficit of N2.56 trillion, before the reform.

Former Director General, Lagos State Pension Commission (LASPEC), Folashade Onanuga, said if people were given lump sum payment at their retirement, they could mismanage it.

“They are used to monthly salaries and a lot of them are not used to the open market. The understanding is that their children may have come of age,” said Onanuga.

Managing Director and Chief Executive Officer of Zenith Pension Limited, Amaka Andy-Zike, however said the CPS has added value to people’s life and values.

“We encourage more savings while you are young and we do not encourage anyone to cash out,” said Azike.

While there has been success under the new scheme, it is beset by a myriad of challenges such as low coverage of the scheme and compliance, inadequacy of benefits and poor awareness about the benefits of pension schemes.

Other impediments to growth include: poor outreach of operators to Nigerian workers, the challenge of deepening investment to create impact and low exchange rate of Naira to dollar.

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