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The Pension Reform Act 2004: The Need for Amendment
By Bob Ojujoh, Vanguard (Lagos)
Nigeria
January 21, 2005
The pension payments have become so erratic and irregular. Is it as a result of poor economy/financial difficulties or inadequate government commitments, high rate of corruption and insincerity in the system? As a result of whichever it is, our pensioners could no longer collect their gratuity and pension as at when due, to cater for themselves and families and hence the birth of this Pension Reform Act, 2004 on the 25th day of June, 2004 resulting from an Executive Bill passed by our honourable members of the National Assembly representing or suppose to be representing the interest of the whole Nigerians (and not only themselves and the executive alone). Be as it may, the Act has been enacted without much sensitization of the workers who the law directly affect, before the passage.
The workers are now in for it.
Some Important Provisions of the (Previous) Pension Act, 1990 Repealed
The followings are some of the highlights of the previous pension Act/s repealed by the present Act:
(i) They lack contributory provisions from the employees in the public service.
(ii) Where an employee puts in 5 years of service, he becomes qualified for gratuity payable in lump sum of money at once on retirement; to enable him rehabilitate himself and family.
(iii) Upon 10 years of service in the public sector, an employee becomes qualified for both gratuity and pension where such employee retires voluntarily he is paid his gratuity embloc and then starts receiving his monthly pension upon attaining 45 years old. However, where the employee is compulsorily retired before attaining 45 years of age, he starts receiving his pension immediately in addition to the paid gratuity in lump sum.
(iv) The service in public sector is limited to 35 years of service or 60 years of age which ever is earlier. This is what is known as contract of service/employment covered with statutory flavour in the public sector. In other words, this is what provides for job security in the public sector.
(v) The next of kin of an employee who dies in the service is paid gratuity and a 5 year pension (at once due to the employee as at the date he died -- deceased benefit.
Critical Comments on Some Important Provisions of the Pension Reform Act, 2004
In contrast with the previous Pension Acts repealed, below are some of the essential provisions of the new Act. The Act purports to have the followings as the objects:
(a) Ensure that every person who worked in either the public service of the federation, Federal Capital Territory and the Private Sector receives his retirement benefits as and when due.
(b) Assists improvident individuals by ensuring that they save in order to cater for their livelihood during old age and
(c) Establish a uniform set of rules / regulations and standards to the administration and payments of retirement benefits for the pubic service of the federations, Federal Capital Territory and the Private Sector -- (See section 2).
The Act also provides for contributory Pension Scheme for Federal Public Service and Private Sector at the following rates:
(i) Each employee of the Federal Public Service and the Private organisation who employs up to five persons, shall contribute 7.5% of his total emolument as pension every month. His employer shall also contribute the same amount to the employee's retirement saving Account as the employee 's pension.
(ii) However, the Military Personnel and their employer contribute 2.5% and 12.5% respectively towards the personnel pension monthly. (See Section 9). There is no good reason why this provision should favour only the military more and left out the police and other security agencies in the country. This should not be so.
(iii) The Judicial Officers (Judges) and employees who have 3 years or less to his retirement under the previous Act(s) are expressly exempted in this Act. (See Section 8).
The Act also provides that employers shall maintain life insurance policy in favour of each employee to the tune of 3 times his total annual emolument (See Section 9(3)). This is to be alternatively paid (in lieu of pension) to the next of kin of an employee who dies in service. This is too small, it should be raised to about 8 times the employee's total annual emolument taking into consideration if he had served over 20 years before he died and what is due to him as pension is far over the cover.
The Act establishes National Pension Commission (NPC) and charge it with the management of pension matters (Section 14). The Commission is empowered to make regulations or guidelines to regulate and supervise pension matters in the country. (See Section 20, 29 and 97). The Commission is also empowered to grant Licenses to applicants of Pension Fund Administration (PFA) and Pension Fund Custodians (PFC). The PFA shall be a limited liability company having a minimum share capital of N150 million. Similarly, the PFC shall worth a minimum of N5 billion and having a balance sheet of N125 billion. (See Sections 49, 52).
The Commission shall be composed of the following members to be appointed by the president:
i) Chairman (on part time basis.
ii) Director General
iii) Four Commissioners
iv) One Representative of Nigeria Union Pensioners
v) One Representative of Nigeria Employers Consultative Association
vi) One Representative of the Nigeria Labour Congress (NLC)
vii) One Representative of the Head of the Civil Service of the Federation.
viii) One Representative of Central Bank
ix) One Representative of Security and Exchange Commission
(iv to ix) are to serve on part time basis -- (See Section 16).
It must be noted here that most of the members of the Commission are government appointees or representatives and hence its affairs would be subject to government control and influence. There might be no balanced decisions from such commission. The Act provides that each employee shall open Retirement Saving Account (RSA) with any PFA of his choice, into which his pension benefits shall be paid. The PFA shall invest and manage the pension funds for the benefit of the employee/pensioner having account with them. (See sections 70 and 97). Up till now I do not think much has been heard of such PFAs to enable the employees open such RSA and yet I learnt that the deduction of the workers contributions has commenced. Can this be right in the face of the law?
The Act has completely abolished gratuity for any new employees who joins the service after 25th June, 2004. It is doubtful if any gratuity entitlement would be paid to any employee who has served less than five years in the service before the coming into effect of this Act. However, employees who have put in five years or more, and still have three years or more, to their retirement term under the previous Act, have their gratuity, and pension entitlements saved under Section 12 and Schedule 1 of the new Act. The entitlements could be calculated from schedule one of the Act and in accordance with the previous Act governing the employee.
Whatever is the entitlement of the employee under any pension scheme before this Act, shall be transferred into the new scheme under this Act through. a bond to be issued by the employer (the government) to the Central Bank. This bond is to be redeemed upon retirement of the employee and paid . into the Retirement Saving Account (RSA) opened by the employee under this Act with any PFA - (Section 29).
It should be noted that employees under the previous Act is entitled to certain amount of money as monthly pension till he dies. This means that such monthly amount properly calculated shall continuously be paid monthly or quarterly into his RSA under this Act till he dies. Anything to the contrary is a breach of his right under Section 12 of this Act and Sections 44 and 210 of 'the 1999 Constitution of the Federal Republic of Nigeria (FRN). Even where the bond stated under section 29 Of the Act is redeemed and such entitlement as gratuity/pension are paid into the employee's RSA, he is not allowed to withdraw embloc or withdraw anything at all before he is 50 years old whether he retires voluntarily or he is compulsorily retired before he is 50 years old. See Section 4(1). This is to say that he cannot withdraw any sum from the account to maintain himself even if he retires or is retired on medical ground.
The only condition that he may be allowed to withdraw any sum up to 25% of the amount in the Account upon request after 6 months of such retirement, is where an employee retires before he is 50 years old in accordance with the term and conditions of his employment - See Sections 4(2) and 3(C). I cannot say with certainty what kind of terms and conditions of employment envisaged here. But I know in some services of the federation example the Nigerian Navy, upon entry into the Navy, the person signs certain years of services. When that is about to expire, he is at liberty to sign further years, again and again but not more than the total maximum of 35 years all together, provided he is within the age limit of 60 years. Thus he is free to retire upon completion of any of the term periods signed even though he is under 50 years of age. I think this is the kind of terms and conditions envisaged by the Act. For clarity, Section 4 provides thus:
4(1) A holder of a retirement saving account upon retirement or attaining the age of 50 years, whichever is later shall utilize the balance standing to the credit of the retirement saving account for the following benefits:
(a) Programmed monthly or quarterly withdrawals calculated on the basis of an expected life span;
(b) Annuity for life purchased from a Life Insurance Company licensed by the National Insurance Commission with a monthly or quarterly payment and
(c) A lump sum from the balance standing to the credit of his retirement saving account: provided that the amount left after that lump sum withdrawals shall be sufficient to procure annuity or fund programmed withdrawals that will produce an amount not less than 50% of his annual remuneration as at the date of his retirement.
(2) Where an employee retirees under paragraph (c) of subsection (2) of section 3 of this Act the employee may, on request, withdraw a lump sum of money not more than 25% of the amount standing to the credit of his retirement saving account: provided' that such withdrawals shall only be made after 6 months of such retirement and the retired employee does not secured another employment.
On the dead of an employee, Section 4 still applies to his next of kin or successor-in-title as to the mode of collecting the employee's entitlement. The provision of Sections 3, 4 and 5 of this Act constitute clogs in the wheel of the employees / pensioners' progress. A professional employee or any employee under the age of 50 years cannot hope on his gratuity/pension benefits upon his retirement to set up his own private practice or business and even becomes employers of labour. Even those who retire at 50 or above cannot collect lump sum from their (RSA) to set up a meaningful project in life -- though it is heir resources/money in their so called (RSA). With due respect, this is servitude.
To state that an employee who retires under the age of 50 years cannot enjoy the fruit of his hard labour as this Act provides, is most cruel. To engage employee against his will or wish indirectly throughout his most productive life until he would no longer be much useful to himself on leaving service cannot be qualified by any better ward than slavery.
To perfect this slave condition, the Act extinguished the statutory flavour - the provision of 35 years of service or 60 years of age whichever is earlier contain in the previous Act and which ensured job security in the public service. This gives government opportunity to fire at will without any legal remedy left for the employees to seek redress in court against premature or wrongful termination of appointment. The proof of the foregoing could be seen from the complete and obvious absence from this Act, the 35 years of service or 60 years of age (whichever comes first) as provided by the old pension Act. Furthermore every doubt to this effect is removed by the express provision under Section 99 that the current Act repeals the previous Act. Now no length or age limitation to service but the government can fire any employee at will thereby extinguishing job security in public service. This takes us back to the colonial era when public servants held their appointments at the pleasure of the crown, despite the present day international charters ratified and the universal declaration of rights to work and earn a living. Are we retrogressing or improving on our laws?
It is curious to know that the Federal government would legislate on pension matters which are under item 44 of the exclusive legislative list in the 1999 constitution to cover even private sectors but obviously avoided its application, coverage or effects on the other tiers of government (the state/local governments). I think this is because they do not want it to be properly ex-rayed or scrutinized and so it was stealthily passed without much awareness of the public on its provisions.
Whereas it has been argued in some quarters that the advantages of the Act include the followings;
(i) It would provide cheap fund for investment in the country and thus boost employment generations;
(ii) That it would reduce the burden of large payment of pension on governments;
(iii) That employees would save more money for their welfare at old age than was existing under the old Act;
The donors of these arguments failed to point out or draw attention to the demerits and inadequacies of the Act to the workers of this nation. I think these are government sponsored mouths that are still going round to sell, promote and justify the government action against the workers but are still hiding the inadequacies of the Act. This is most unfair. Everything should be looked at objectively in totality vis-à-vis the rights of the employees/pensioners under the constitution.
The Nigeria Labour Congress (NLC) has cried out about the unfair nature of the Act and how most other stakeholders' views on the Act (when it was a bill) were ignored and jettisoned in favour of the government views which were largely considered and passed by the National Assembly. However, I think the NLC being the only general umbrella and month piece of the workers with locus standi in this matter cannot afford not to persist in their fight; including going to court if need be, to test the constitutionality of this Act in order to void its draconian nature. The NLC must never disappoint the workers of this nation at this stage having priced itself very high already and thus rated by the public in the socio-political and economic struggles of the masses against the oppressive regime of this country in recent times. Where the oppression continues, the fight against it must continue until victory is assured.
The Act Vis-a-vis the Constitution:
It is perceived here that sections 3, 4, 92 and 93 of this Act run contrary to the spirit and tenets of the constitutional provisions under sections 44, 210 and 6 (6) of the 1999 Constitution the Federal Republic of Nigeria. Section 44 of the Constitution affords every person to own both moveable and immovable properly or any interest therein (and to use it or mange it as he lies) and this cannot be compulsorily acquired from him by the government or any person without prompt and adequate compensation.
Section 210 of the same Constitution provides for the protections of Pension and/or gratuity rights in the public service which could not be altered to the disadvantage of the public servant. To this end, I think that Sections 3 and 4 of the Act be retouched to conform with the spirit of the Constitutional provisions stated supra. Therefore, the phrase "whichever is later" in Section 4(1), be replaced with "whichever is earlier". Similarly, any clause or phrase that suggest or tends to suggest that a pensioner cannot withdraw from his RSA any lump sum of money as he likes, should be expunged from the Act This is because it is his sweat, his property and his money. He should be allowed to spend it as he likes. Also Section 4(2) of the Act which states a pensioner cannot withdraw from his RSA if he secures another job and or cannot withdraw from his RSA within six months after his retirement, be also expunged because it is unnecessary restriction of the pensioners constitutional rights to their property.
The Act also forbids any aggrieved pensioner with the acts or decision of the PFA or the Custodian or the NPC from seeking redress in Court. It rather directs that such grievances be taken to an Arbitration Panel or Investment and Security Tribunal (See Section 92 and 93). This provision offends Section 6(6) of the 1999 Constitution of the FRN since the Act is not an agreement reached between parties (the employees and the employer) to so do but a legislative enactment.
With utmost respect to our National Assembly members, some who are prominent lawyers and even senior advocates of Nigeria (SAN) one wonders how this Act with all the draconian nature of it sections, escaped their professional eagle eyes and intelligence undetected. The National Assembly has a duty to detect and remove all the draconian clauses, phrases and sections to protect Nigerian workers, pensioners and the masses whom they are representing. The rush and haste with which they passed the Bill (now the Act) without educating/sensitizing the Nigerian workers which it affects without looking into it critically to protect the workers constitutional interest suggests that they might have been under intensive pressure to pass the Bill quickly before the much talked about the public service reform of this administration takes place. Should this reform occurs now (which I think has stated already) with this Act in place (unamended), the affected workers would be deprived of their legitimate entitlements without solution for a very long time.
Many might even die before getting help from any quarter. The National Assembly should please save the souls of the workers and the masses of this Nation among who they also claim to be representing in the House. This Act is as bad if not worst than the so-called Labour Bill, which has been properly smoothened by the Lower House before its passage recently. The National Assembly shall be failing in their duties and obligation to Nigerians and the history would not forgive them if they do nothing positively in this regard to favour the workers and the masses of this nation. They should act positively now to take the credit, honour and glory before somebody else does it through the court.
Having perused the Act and made critical comments in the forgoing, I hereby propose the followings towards the amendments:
1) Lump sum payment of gratuity as contained in the pension Act of 1990, be retained for immediate enjoyment of newly retired employee for his rehabilitation.
2) The rate of the contributory pension into retirement saving account (RSA) be put at 5% and 10% for employees and employers respectively;
3) Pensioners should not be restricted by age in order to enjoy their pension benefits in their RSA since it is now a contributory scheme
Or Where a slight qualified condition is deserved, then emplyees retired compulsorily be allowed to start withdrawing his pension benefits immediately after such retirement;
4) The retirement provision of 35 years of service or 60 years of age which ever comes first (as contained in the pension Act 1990) be also retained to guarantee job security in the public service;
5) The military, the police and other security agencies in the country be placed on the same contributory rate under section 9 of the Act.
6) The Act be extended to cover the State Public Service since pension matter is contained in the exclusive legislative list in the 1999 constitution;
7) There should be equitable representation of all stake holders in the National Pension Commission (NPC) to ensure confidence and probity.
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