Safety Net and Value Addition Under Nigerian Pension System

7/28/2019 Safety Net and Value Addition Under Nigerian Pension System

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SAFETY NET AND VALUE ADDITION FOR PENSION CONTRIBUTORS UNDER

THE NIGERIAN PENSION SYSTEM: A CRITICAL APPRAISAL

By

Femi Aborisade1

Labour Consultant and Attorney-At-Law

[email protected]

INTRODUCTION

This paper analyses the Pension Reform Act with a view to identifying safety net provisions inthe Act, if any, and the adequacy or otherwise of such provisions.

The paper first attempts to conceptually explain safety net by relying on the existing literature

on the subject matter. Next, safety net provisions in the Pension laws of three industrialcountries, namely, the US, the UK and Germany are examined. With the benefit of the insightoffered in those three industrial countries, the Nigerian Pension Reform Act is analysed with aview to understanding its safety net provisions. Lastly, suggestions are made for improving thePension law based on the lessons learned from the experiences of the three industrial countriesand the reality of the Nigerian employment market.

SAFTY NET DEFINED

The classical definition of the term, safety net is that it is "the traditional instrument of almostall organized communities for dealing with destitution."2 In other words, it refers to series ofpublic assistance programsdesigned to prevent or relieve insecurity and poverty. Safety nets areusually targeted at the transient and chronically poor and those vulnerable to poverty such as theunemployed, the aged, children, the sick and people with special needs, including the physicallychallenged. The idea is to ensure that there is a minimum level of living standard beyond whichno one should be allowed to fall at any point in time in the life cycle.

However, within the context of pension plans, safety net is not specifically or directly definedin the literature. But its usage suggests that it refers to protective measures or provisions inthe law to safeguard the interests of pension plan sponsors, the employers, participating public orprivate agencies/institutions and pension contributors, in the event of imminent or actualdifficulties that challenge the sustainability of pension schemes.

Imminent or actual difficulties to pension plans could arise for several reasons, depending on thetype of pension system, Defined Benefits (DB) or the Defined Contribution (DC) system. For1 Paper delivered at a 2-day National Workshop Organized by the Certified Pension Instituteof Nigeria (CPIN) on 3 July 2013 at Lagos Airport Hotel, Awolowo Way, Ikeja, Lagos.2V. Shlakman (1972). The Safety-Net Function in Public Assistance: A Cross-National Exploration in Social Service Review,Vol. 46, No. 2 (June), pp. 193-212 (Available online athttp://www.jstor.org/stable/30020762, accessed: 10/06/2013 19:33).

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example, in a defined benefit pension plan, where the investment returns are lower thanexpected, assets in the plan may not be sufficient to pay retirees their benefits. Such a plan isconsidered underfunded, and the employer-sponsor would be expected to make up for thedifference. Similarly, in a defined contribution plan, where employees make contributions tosavings and retirement accounts, which are invested by Pension Fund Administrators, collapse in

share values, company insolvency/bankruptcy, winding up, corruption and frauds, and so on,would mean that the pensioners savings for the future could simply be wiped out or go down thedrain. The concern of safety-net is how to protect the interests of stakeholders in difficultsituations.

However, the two points of view of looking at safety net would be considered in this paper.

Below, the safety net provisions in pension systems in the following three industrial countries 3,the US, UK and Germany are examined.

SAFETY NET IN THE US PENSION SYSTEM

Sprayregen, and Mazza4 explain that the combined provisions of Chapter 11 of the United StatesBankruptcy Code and Employee Retirement Income Security Act of 1974 (ERISA), as well asERISA 4042 show that the US legal framework on insolvency and pension provide for both:

Voluntary termination, and

involuntary termination of pension plans.

VOLUNTARY OR SPONSOR-INITIATED TERMINATIONOF PENSION PLAN

Under the Employee Retirement Income Security Act of 1974 (ERISA), a pension plan sponsormay be allowed to terminate its defined benefit pension plan if a bankruptcy court finds thattermination of the plan is necessary for the sponsor to operate outside of bankruptcy, providedthe criteria for termination are met. One of the criteria is that the terms and conditions of anexisting collective agreement with the trade union would not thereby be violated. Once thecriteria for termination are satisfied, thePension Benefit Guaranty Corporation (PBGC), a quasi-governmental agency that insures and oversees the defined benefit pension system, may processa sponsor-initiated distress termination.

3The discussion of the safety net provisions in the pension systems in the three

countries (US, UK and Germany) is based on the report presented by James H.M.Sprayregen, and James J. Mazza (2006) Weaving the Safety Net For an Aging World: Lessons Learned from the Pension AndInsolvency Systems of the US, the UK, and Germany. OECD (April). (Available online at 38184223.pdfhttp://www.oecd.org/daf/corporate-affairs accessed: 10/06/2013)

4James H.M. Sprayregen, and James J. Mazza (2006), Id.

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INVOLUNTARY TERMINATION

However, under ERISA 4042, the PBGC has been vested with the right to seek aninvoluntary termination of a pension plan in spite of any alleged limitations in the collectiveagreement with the unions, if:

the PBGC determines that, among other things, the plan has not been properly funded, or

the PBGCs possible long-run loss with respect to the plan may be expected to increaseunreasonably if the plan is not terminated.

PBGCS ROLE POST TERMINATION

After the termination of an employers defined benefit pension plan, the PBGC takes over theadministration of the plan by paying pension benefits. But such benefits are limited to aguaranteed maximum of about USD 47 000 per year, depending on certain factors such as aretirees age. However, the statutorily guaranteed benefits of certain categories of workersremain unaffected in the context of bankruptcy-induced termination because the PBGC isrequired to satisfy them. This has meant that the PBGC has a deficit, which is estimated to beabout USD 108 billion on account of envisaged future pension plan terminations. However, such

estimates are really just guesses, which depend on a number of assumptions.

From the foregoing, the pension system in the US protects employers through the right toterminate pension plans. It also affords contributors to recover to a limited extent while thebenefits of some contributors remain protected by the PBGC absorbing and redeeming them.However, it has also been pointed out that for the large majority of employees, there is limitedprotection in the event of bankruptcy-induced termination. As Sprayregen, and Mazza point out:

other employee losses (such as wage or job loss) suffered by employees in USbankruptcy cases are provided fewer protections. For example, the US Bankruptcy Codeonly allows workers unsecured, priority claims against their employer of up to USD 10

000 for unpaid wages earned up to 180 days prior to the companys bankruptcy filing. 11USC. 507(a)(4). If the employer ultimately fails to emerge from bankruptcy, then theemployee may not be paid for lost wages because his or her claim will only be paid afterclaims of higher priority (e.g. secured or other priority creditors)5.

SAFETY NET UNDER THE DEFINED CONTRIBUTORY PENSION SYSTEM

Sprayregen and Mazza6 stress that the trend in the US today is a move to the defined contributionpension plan as opposed to the defined benefit system. Under this system, employees pensionfunds are not affected by bankruptcies but they are also not protected at all, as they enjoy orsuffer, depending on the ups and downs of the economy. In the words of Sprayregen and Mazza:

It should also be noted that the trend in the US (and other countries) is now towardemployer offerings of defined contribution plans in lieu of defined benefit plans. Thusemployees will bear the market risk of a diminution in pension assets in the future. As ageneral matter, worker interests in defined contribution plans are not affected bycorporate reorganisations or bankruptcy. This does not mean, however, that defined

5James H.M. Sprayregen, and James J. Mazza (2006), ibid, notation number 12, p. 8.6Sprayregen and Mazza, ibid., p. 43 | P a g e


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contribution plans are fully protected, because the funds in an employees definedcontribution account ebb and flow with the vicissitudes of the market, thereby leavingworkers exposed to potential pension benefit loss.

The Enron bankruptcy case in the United States highlighted this stark reality . In

that case, employees defined contribution plans were heavily invested in Enronsstock, which was rendered worthless as a result of the companys bankruptcy filing .In addition, under US pension law, Enrons rapid stock decline prevented employeesfrom unloading the Enron stock in their defined contribution accounts. Thus, with Enronemployees chained to a rapidly declining stock, their defined contribution plans sufferedsignificant diminutions in value7 (emphasis supplied)

SAFETY NET UNDER THE DEFINED CONTRIBUTION PENSION SYSTEM IN THE

UNITED KINGDOM

The problem of pension plan termination is also a feature of pension crisis in the UK. According

to Sprayregen and Mazza (2006)

8

, approximately 60,000 people have lost part or all of theirpension benefits in the United Kingdom as a result of recent pension terminations. In addition, asin the US, there has been a major change from defined benefits to defined contribution pensionschemes, with huge savings. Moreover, changes to public sector pension schemes will result inpublic sector workers paying higher contributions, retiring later and receiving smaller pensions.

In order to address some of the problems afflicting the pension system, the British governmentenacted the Pensions Act92004. The Act introduced the Pension Protection Fund (PPF), which issimilar to that of the United States PBGC.

The PPF is empowered to pay benefits10 to retirees in the defined benefits plan, in the followingcircumstances11:

when an employer becomes insolvent, or when there are insufficient assets to cover guaranteed levels of PPF pension

compensation.

The source of compensation paid to contributors in the above circumstances is not thegovernment. The PPF, like the PBGC, is not supported by the government. Rather, the PPF isfunded by compulsory premiums charged to employers with pension plans covered by the PPFsprogramme. Employers are required to pay a risk-based premium.12

Pension Regulator

7Sprayregen and Mazza, ibid., p. 4 5.8 QuotingHewitt Associates (October 2004), UK Pension Rules (Part I)9Pensions Act 2004.10 The benefits payable are limited to a maximum of approximately GBP 25,000 per year.11Risk Based Levy Update, Comp. Law. 2006, 27(1), 22 (2006), cited by Sprayregen and Mazza, ibid., p. 5.12 The risks may include,for example, takeover, sale of assets, or payment of dividend, including underfunding status.

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The Act also provides for the Pension Regulator (TPR). The pension Regulator is empowered tosecure extra financial contribution from a company by issuing a financial support direction(FSD)13 or Contribution Notice (CN)14 in the following situations:

the pension scheme is underfunded, and the principal employer of the scheme is subject to an event - for example a takeover, sale

of assets, or payment of dividend.

SAFETY NET UNDER THE THREE-TIER PENSION SYSTEM IN GERMANY

Germany operates a three-tier pension system rather than heavily relying on funded pensionplans, as follows:

The first tier: the state-run mandatory pension system15, which covers all employees. The second tier: company-sponsored occupational pension schemes.16 The third tier: private pension planning.

The company-sponsored pension plans (the second-tier) are backed up by the general assets ofthe company and so do not need being funded by specific assets set aside for that purpose. To

this extent, the problem of underfunding does not generally arise. For as long as the companyis solvent, the pension obligation is deemed protected. However, the pension liabilities aretreated as general unsecured liabilities of a company. In other words, other secured liabilitiestake priority over pension liabilities in the event of formal insolvency proceedings and the needto prioritize creditors claims. It should be noted however that this form of protection is noprotection because, under general corporate insolvency law, where the assets of the insolventcompany are insufficient to meet its liabilities, general creditors are greatly at risk because theydo not enjoy priority.

In Germany, it is not legally obligatory for companies to offer pensions. But where a companyoffers pension plans, it is obligatory to abide by the law (Gesetz zur Verbesserung der

Betrieblichen Altersversorgung), which stipulates how pension liabilities are to be administeredin the event of restructuring or formal insolvency proceedings.

Sprayregen and Mazza (2006) explain that, according to the governing law, where a companycommences a formal insolvency proceeding, a collective insurance scheme (thePensionsicherungsverein, or PSV) assumes the pension liabilities and is subrogated (as ageneral unsecured creditor) to the claims of the beneficiaries.

The PSV is funded through contributions by companies operating the non-funded pensionplans models.

13An FSD can only be issued against a service-rendering corporation or where the value of the assets of the principal employerand its associates/connectees is less than 50% of all the benefits the pension scheme promises. The FSD may be issued up to ayear after an event.14A CN may only be issued where the employer has acted with a view to avoiding pension liabilities. The CN may be issued upto six years after an event.15The state-run mandatory pension system is called Rentenversicherung.16 The company sponsored occupational pension scheme is called Betriebliche Altersvorsorge.5 | P a g e


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A company may however opt out of the PSV or significantly lower its contributions to the PSVby17:

converting to funded models, or transferring pension liabilities to a third party such as a pension insurance fund or life

insurance company, or

setting aside specific assets to back pension obligations, through external investments.

Sprayregen and Mazza (2006) observe that there is an increasing trend by distressed investors inGermany to strategically use insolvency proceedings to shed pension liabilities and that the PSVhas begun to raise concerns regarding its financial health. The authors presume that there may bea trend in Germany to move towards funded pension plans.

The comparative analysis of safety nets in the pension systems in the US, UK and Germanydiscussed above captures the concerns of certain categories of scholars and public agencies/officials such as Sprayregen and Mazza (2006) - that the defined contribution system does notappear to be a definitive and effective solution to the problems of defined benefit system,

particularly in the light of the Enron experience. Although from the point of view of thecompany, a move to a defined contribution scheme may significantly reduce the companyscosts. But from the workers standpoint, this also significantly reduces their benefits.

SAFETY NET UNDER THE NIGERIAN PENSION SYSTEM

The Nigerian pension system is an amalgam of both the Defined Benefit Pension Scheme and theContribution Pension Scheme. The Pension Reform Act 2004 (as amended) is applicable to allemployees in the Public Service of the Federation, Federal Capital Territory and the PrivateSector18, subject to Section 8(1) of the Act, which exempts two main categories of employeesfrom the scheme, viz:

(i) employees who have 3 or less number of years to retire and who at thecommencement of the new Act are entitled to existing scheme and(ii) judicial officers, particularly the chief Justice of the Supreme Court and all

Justices of the Supreme Court and the Court of Appeal as provided under S. 291of the Federal Republic of Nigeria, 1999.

It should however be noted that the Pension Reform (Amendment) Act, 2011 has also exemptedmembers of the armed forces of the Federation and members of the Intelligence and SecretServices from the application of the Act.Many of the States of the Federation still operate the partially funded Defined Benefit Pay AsYou Go (PAYG-DB) system as opposed to the mandatory Fully-Funded-Defined Contribution

(FF-DC) system, which is prescribed under the pension Reform Act 2004. The States are beinginduced by the Pension Commission to fully implement the FF-DC system through all sorts ofadministrative rules and guidelines which provide that:

17see German Pensions Insolvency Protection Fund Proposes Move to a Full-Funding Model, European Pensions andInvestment News, May 2005, cited in Sprayregen and Mazza, ibid., p.7.18 Pension Reform Act, 2004, S. 1 subsection (2).

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The Commissions Regulation on the Investment of Pension Fund Assets allows onlyStates that have fully implemented the Contributory Pension Scheme (CPS) to accesspension funds for the purpose of infrastructural development19

The central protection of pension funds under the Act is to be found under S. 52 (1)(d), which

provides as follows:

(d) custodian company shall issue a guarantee to the full sum and value of pension

funds and assets held by it or to be held by it; however, where the applicant

custodian company is a subsidiary of a qualified parent company such guarantee

shall be issued by that parent body.

Similarly, S. 98 protects pension funds kept with the PFC from being used to satisfy PFCscreditors in the process of any liquidation proceedings. The section provides unequivocally asfollows:

98.-( 1) Notwithstanding the provisions of any other enactment or law, no pensionfunds or assets kept with a custodian under this Act shall be used to meet the claims of

any of the custodian's creditors in the event of liquidation of the custodian.

(2) In the case of winding up, liquidation or otherwise cessation of business of the

custodian or any or all of its shareholders, the pension funds or assets in the custody of

the custodian shall not be seized or be subject of execution of a judgment debt or

stopped from transfer to another custodian.20

However, a key function of the PFA is to ensure that investments are made in pension funds, onbehalf of the contributors, in accordance with the provisions of the Pension Reform Act.21The

critical concern is: what happens in the event of stock market decline or bankruptcy/insolvency,winding up proceedings, virtual failure of companies in which pension funds have been invested,as in the case of Enron earlier referred to? It is doubtful if the protective measures in sections 52(1)(d) and 98 of the Act are adequate to protect the interests of pensioners contributors who havesacrificed to make savings over their entire working lives. In the specific case of Nigeria, thesimplest way to administer pension funds is to invest in oil reserves. Future oil price rises

will almost certainly ensure that this is a more reliable investment than investing in private

sector companies.

There are other general provisions that may be construed as being protective of pension funds.The critical question is that they appear weak and incapable of providing effective prevention of

adverse developments or effective protection in the event of an occurrence of adversedevelopments. Such provisions include:

19http://www.pencom.gov.ng/index.php?option=com_content&view=article&id=136:adminofstatefunds&catid=60:guideforlipolicy(accessed on 27/6/13).20 Pension Reform Act, 2004, S. 98 (1) and (2).21 Pension Reform Act, 2004, S. 45(b).

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S. 9(3), which provides that employers shall maintain life insurance policy in favour ofthe employee for a minimum of three times the annual total emolument of the employee.

S. 49, which provides for application by any person proposing to be a Pension FundAdministrator (PFA) or Pension Fund Custodian (PFC);

S. 50, which sets out the conditions to be met by applicants for the role of PFA or PFC; S. 52, which itemizes qualification of a company to be licensed as a Pension Fund

Custodian S. 53, which provides for refusal of a license if the stipulated criteria are not met by an

applicant for Pension Fund Custodian; S. 54, which sets out the conditions for revocation of license, which conditions include

being subject to insolvency proceedings and likelihood of being wound up; S. 56, which makes provisions for keeping of proper books of account by the PFA and

PFC; S. 57, which requires annual reports by the PFA and PFC; S. 58, which provides for reporting obligations of the external auditor, including exposing

the likelihood of fraud, drawing attention to any evidence of any event which has led or islikely to lead to material diminishing of the net assets of the pension fund administratoror custodian;

S. 69, which makes it mandatory for every PFA to maintain a statutory reserve fundwhich shall be credited annually with 12.5% of the net profit after tax or such otherpercentage of the net profit as the Commission may from time to time stipulate ascontingency fund to meet claims for which it may be liable as determined by theCommission;

S. 70, which provides that all income earned from investment of pension funds shall beplaced to the credit of individual retirement saving account holder save for clearlydefined and reasonable fees, charges, costs and expenses of transactions made by the

pension fund administrator; S. 71(1), which makes provisions for (unspecified/defined) guaranteed minimum pension,

as may be specified from time to time by the Commission; S. 71(2), which provides that the Nigeria Social Insurance Trust Fund (NSITF) shall

provide every contributing citizen Social Security Insurance Services other than pensionin accordance with the NSITF Act 199322;

Ss. 72 and 73 on how pension funds are to be invested to ensure fair returns; S. 74, which provides for the consent of the President before pension fund assets may be

invested outside Nigeria. Ss. 75 and 76, which provide against the PFA investing pension funds in shares and

securities issued by itself or selling pension fund assets to itself, its shareholders,directors, their spouses, or its PFC.

22The NSITF Act 1993, S. 16 originally provides for the following benefits: retirement pension benefit; retirement grant;

survivors benefit; death grant; invalidity benefit; invalidity grant; or such other benefit as may be approved from time to time bythe Board.

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Ss. 79 to 84, which set out provisions on investigation of the activities, books andaccounts of PFAs, PFCs or Pension Department with a view to enforcing the Pension Actand ensuring that at any point in time, they have assets to cover their liabilities, etc.

THE DIRECTION THE PENSION SYSTEM SHOULD MOVE

It is pertinent to rethink the pension policy framework in Nigeria based on the inadequacies ofsafety nets in existing pension systems of DB and DC as practiced.

Indeed, as Idigbe23 has pointed out, currently, there is no general and proper framework for theintermediated holding system (wherein securities or investments are indirectly held by accountholders through intermediaries such as the PFAs), which addresses specific legal issuespertaining to:

a) certainty of the rights of the investor in the securities,b) sufficient protection of investor from the claims of an insolvent intermediarys

general creditors,c) ability of investor to recover all of its intermediated securities in the event of loss of

securities in circumstances where the intermediary is unable to disclaim responsibilityfor the loss,d) ability of investor to recover all of its intermediated securities in the event of shortfall

in the pool of securities available to account holders, ore) restricting ability of intermediary to set-off its obligations owed to the issuer against

the securities of investors in the event of the issuers insolvency, etc..

On the basis of the foregoing analysis, shortcomings, concerns and lessons from the three industrialcountries discussed in this paper, I advocate a pension system that combines features of the two existingmain systems, the DB and DC plans. The high income earners, chief executives in big private sectorestablishments, whose level of income is high enough, could be made to operate under the DC system.

The DB system should be established to cover the poor in both private and public sectors. The Pay-As-You-Go (PAYG) Defined Benefits scheme makes a lot more sense for governments/publicsector. It eliminates extensive and expensive administrative structures such as the PFAs andPFCs in the Defined Contribution scheme introduced in the Pension Reform Act. The PAYGsystem is what the central government in Britain operates. Funded schemes (separate from thecompany, as provided in the Act) may be needed in the private sector to protect the workers incase of bankruptcy.

The government has a responsibility, not only to those it employs in the public sector, but also to theentire citizenry, including the unemployed, the self-employed and those employed in the private sector, at

their old age, when they are weak to work or when there is no work. Apart from pension schemesmaintained by private employers therefore, there is a need for a state-run mandatory pension system that

23 I. Idigbe (2009: 10). The Nigerian Insolvency Law and the Rights of Creditors and Account Holders of IntermediatedSecurities Vis--Vis the Insolvent Intermediary (May). (Available online athttp://www.punuka.com/uploads/THE-NIGERIAN-INSOLVENCY-LAW-AND-THE-RIGHTS-OF-CREDITORS-AND-ACCOUNT-HOLDERS-OF-INTERMEDIATED-SECURITIES.pdf accessed on 28/6/13. accessed on 28/6/13).

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covers all. In Britain, according to information obtained from a British friend, the state pensionscheme covers effectively everyone and gives all elderly people at least equivalent of aboutN100,000 a month. Although this is hardly enough to live on in Britain. But the company orpublic sector pension schemes are in addition to the pension received from the mandatory smallstate scheme.

Pension benefits that are constitutionally extended to the President, Governors, top judicialofficers should be guaranteed and extended to other citizens, particularly the poor classes that arevulnerable to shocks and changes in the economy. What is good for Mr. President is also goodfor ordinary persons. For example, the following provisions of the Constitution should beextended to vulnerable classes of Nigerians:

Any person who has held office as President or Vice-President shall be entitled topension for life at a rate equivalent to the annual salary of the incumbent President orVice-President.24

Any pension granted by virtue of subsection (5) of this section shall be a charge upon theConsolidated Revenue Fund of the Federation.25

A law should be made by House of Assembly to grant pension or gratuity

to or in respect of a person who had held office as Governor or Deputy Governor andwas not removed from office as a result of impeachment; and any pension granted byvirtue of any provisions made in pursuance of this subsection shall be a charge upon theConsolidated Revenue Fund of the State.26

Pensions shall be reviewed every five years or together with any Federal civil servicesalary reviews, whichever is earlier.27

Pensions in respect of service in the public service of the Federation shall not be taxed. 28

Pensions shall be reviewed every five years or together with any state civil service salaryreviews, whichever is earlier.29

Pensions in respect of service in the service of a State shall not be taxed 30

24 Constitution of the Federal Republic of Nigeria, CFRN, S. 84(5).25 Constitution of the Federal Republic of Nigeria, CFRN, S. 84(6).26 Constitution of the Federal Republic of Nigeria, CFRN, S. 124(5).27 Constitution of the Federal Republic of Nigeria, CFRN, S. 173(3).28 Constitution of the Federal Republic of Nigeria, CFRN, S. 173(4).29 Constitution of the Federal Republic of Nigeria, CFRN, S. 210(3)30 Constitution of the Federal Republic of Nigeria, CFRN, S. 210(4)

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The right to pension for life at a rate equivalent to the last salary and allowances of the person,subject to periodic reviews as provided for judicial officers in section 291(3), as follows:

(3) Any person who has held office as a judicial officer -

(a) for a period of not less than fifteen years shall, if he retires at or after the age of sixty-five years in the case of the Chief Justice of Nigeria, a Justice of the Supreme Court, thePresident of the court of Appeal or a Justice of the Court of Appeal or at or after the ageof sixty years in any other case, be entitled to pension for life at a rate equivalent to hislast annual salary and all his allowances in addition to any other retirement benefits towhich he may be entitled.31

A person who has held office as Chairman or member of the Code of Conduct Tribunalfor a period of not less than ten years shall, if he retires at the age of seventy years, beentitled to pension for life at a rate equivalent to his last annual salary in addition to otherretirement benefits to which he may be entitled.32

Finally, the following provision relating to pension should be implemented for the deprivedclasses, without exception:

that suitable and adequate shelter, suitable and adequate food, reasonable nationalminimum living wage, old age care and pensions, and unemployment, sick benefits andwelfare of the disabled are provided for all citizens.33

CONCLUSION

Without doubt, the Pension Reform Act, 2004 contains some limited protective provisions, tosafeguard pension funds, as against PFAs and PFCs provided the Act is enforced and observed.

However, pension funds are still subject to the risks of market failures, which may involvecompanies securities in which the funds are invested. It does not appear that the existing legalframework has adequately addressed the likelihood of such phenomena. For the public sector,such risks can be avoided by operating the Pay As You Go scheme, which is based on budgetaryallocation by government. Unfortunately, this is being replaced by the Defined Contributionsystem, which will increase the risks and uncertainties of public sector workers to survivefinancially after they retire.

The above concern suggests that the Pension Reform Act ought to be amended such that there isa responsibility for the State/government to operate a mandatory pension system that covers allcitizens. This is particularly important in the context of a trend in which opportunities for

guaranteed employment (for a long time until retirement) appear to be fast disappearing. Whatappears more certain today is a life dominated by unemployment, short term employment, casualand contract employments. The Nigerian pension system should be located within the context ofS. 16(2)(d), which guarantees pension at a time when the individual is too weak to work, orbecomes disabled for whatever reason or cannot find job even when he is willing and able to

31 Constitution of the Federal Republic of Nigeria, CFRN, S. 291(3).32 Constitution of the Federal Republic of Nigeria, CFRN, S.17(2).33 Constitution of the Federal Republic of Nigeria, CFRN, S. 16(2)(d).

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work at old age. Therein lies an enduring solution to revamping the economy, encouragingproduction of goods and services, enhancing purchasing power, creating jobs, tacklingcorruption, curbing the unprecedented rate of criminality, and so on.

Thank you for your attention.

Femi Aborisade

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Documents

Safety Net and Value Addition Under Nigerian Pension System