Last week this column republished “Heavens Save Us From Our Economic (Mis) Management Team.” The article revisits early warnings about Nigeria’s costly practice of borrowing its own funds at high interest, which deepens debt and poverty. The author calls for structural reforms to restore financial stability.
(See www.betternigerianow. com for this series and more articles by the Late Sir Henry Boyo)
This week’s republication highlights the persistent failures of Nigeria’s pension system, where despite reforms, many retirees still face poverty due to mismanagement, lack of accountability, and inflation. Pension assets remain underutilized for national development, while high inflation steadily erodes the value of fixed incomes. Disputes over contribution rates further stall needed progress. Without tackling inflation and structural flaws, pensioners will continue to suffer despite policy changes.
As you read through the below article taking note of previous events or rates, keep in mind its year of publication (2013), a clear indication that Nigeria’s economic situation is yet to improve even after all this time.
Our collective sense of compassion seems to have become so dulled to media reports and photographs of emaciated senior citizens collapsing after waiting endlessly in queues under the hot tropical sun, for verification of their identity or eventual payment of pension entitlements from government agencies responsible for disbursement! In reality, the victims of such oppression have no ethnic or religious colouration, but they are all leveled by the evident common index of social deprivation, while the rest of us shut our eyes at the gross abuse of the dignity of aged men and women, who served their country for most of their lives.
The unsightly juxtaposition of such horrid spectacle against the background of impunity in the misapplication of pension funds is obviously also lost on our political leadership; worse still, despite the reforms enacted in the 2004 Pension Act, there has been no single conviction of anyone for the well-documented reckless looting of pension funds!
Nonetheless, Pension Fund Administrators were created under the 2004 Act to ensure judicious management and administration of pension contributions, while the National Pensions Commission (PENCOM) was established with statutory powers to optimally regulate the subsector.
Regrettably, however, despite the positive expectations from the implementation of the Pension Reform Act 2004, many retirees are still dissatisfied with what they get as monthly pension, and some have even shown preference for the clearly defined benefits under the old scheme. In order to resolve the observed lapses and ensure that pension benefits are substantive, the Pension Reform Act 2013 Bill, currently before the National Assembly seeks to increase monthly contributions to the Retirement Savings Account of workers to 20 per cent of total emolument, out of which employers will contribute 12 per cent, while workers contribute eight per cent of their total emolument.
Organized Labour, however, prefers workers contributions to remain at 7.5 per cent, and employers contribute 12.5 per cent into the pension pool, while the Nigerian Employers Consultative Association considers this proposal as burdensome to employers, because such additional contribution, they argue, may force them to retrench workers or seek other ways to circumvent the increase.
Incidentally, pension assets currently under the management of Pension Fund Administrators approach over N4tn, a handsome nest-egg, which some stakeholders rightly suggest should be deployed for development of infrastructure such as power, education, housing, transport, etc., nationwide, especially since commercial banks have not been forthcoming with cheap long-term loans for such purposes.
Instructively, successful economies institutionally mobilise their substantial pool of pension funds to addressing critical infrastructural deprivations, while regulators watchfully restrain the deployment of large portions of such funds into the volatile and unstable capital market for private equity. For example, pension contributors in the United States and Europe would have suffered dastardly blows, if most pension funds had been placed in any of the failed merchant banks between 2008 and 2009 financial crisis!
The aversion to high-risk investments in private equity means that more stable, risk-free sovereign debts are better favoured for pension funds, even if returns from such investments are minimal but steady. In view of the preceding, the question is whether or not proposed reforms in the 2013 Pension Bill under consideration will successfully erase lapses observed in the 2004 Act, so that workers can rest assured that their welfare and vital needs will be adequately provided for from their monthly/quarterly pension payments, so that they can still maintain some semblance of dignity in their lifestyle during retirement?
In reality, if PENCOM effectively regulates the sector in line with best practice, with prompt and severe sanctions for infractions, pension contributions would be invested in safe instruments with relatively steady yields. Consequently, the usual challenges of delayed payments and the unnecessary assault to dignity of pensioners may likely also be a thing of the past.
Regrettably, however, improved facilitation of the payments system may still not be adequate protection against the threat of poverty, as discussions on pension reforms have so far ignored the critical issue of erosion in the value of money over time! Even the ubiquitous market woman, labourer or housewife knows from experience that, a thousand naira would buy so much food items and consumables in January, but if unrestrained inflation prevails throughout the year, same amount would buy less of the same basket of goods in December!! Thus, in an economy where the purchasing power of incomes, for example, falls by, say, 10 per cent annually, static pension incomes will systematically command less value of goods; for example, if average year-on-year inflation rates remain as high as 10 per cent, a million-naira savings in 2013 may just be worth a hundred thousand in 2023!
Consequently, inflation rates in successful economies are rigorously managed below three per cent of a five to 10-year benchmark, in order to protect the value of incomes, and also encourage a culture of savings. Indeed, the greater the value of savings in an economy, the greater would be the funds available for investment; conversely, when high double-digit rate of inflation prevails in any economy, people are less inclined to save; less funds will therefore become available for investment, and such scenario would restrain economic growth and employment opportunities nationwide.
Thus, the retrogressive impact of Nigeria’s year-on-year average inflation rate of about 10 per cent is probably starkly reflected in the weakness of our infrastructural base. Thus, double-digit inflation rates would not only discourage workers from making pension contributions, it would similarly have an adverse impact on the integrity of our economy. Ultimately, economic growth, employment opportunities and enhancement of the social welfare of our citizens, will become seriously challenged by uncaged inflationary spiral!!
If the reformed pension scheme is well managed, future retirees may indeed never suffer the pains of endless queues before collection of their pension incomes. Sadly, however, unless our Economic Management Team (EMT) succeeds in bringing down inflation to international best practice levels of not more than 3%, there can be little doubt that pensioners will inevitably suffer severe shock on realization that their pension payments have, ultimately, unexpectedly become inadequate to cater for their basic needs, as a result of the failure of EMT’s monetary strategies to restrain inflation!
So, Sadly, in spite of the current reforms, we may just be back in square one, with senior citizens living in penury after a lifetime of service to their fatherland!
Advisedly, however, the surplus cash, which drives inflation and poisons the object of the pension scheme, will evaporate when CBN resists the temptation to keep substituting naira allocations for monthly distributable dollar revenue!!
By: Sir Henry Olujimi Boyo (Les Leba) first published in September 2013
