National Pension Commission (PenCom), the pension regulatory body in the country, has identified some of the challenges the states are facing with fully embracing contributory pension system.
According to the commission, how to fund the accrued pension rights of both retirees and the working people in many states tops the list of issues making them look the other way whenever the contributory pension is brought to the front burner.
The commission had previously confirmed that eight years after the introduction of contributory pension scheme in the country, only five of the 36 states - Lagos, Ogun, Osun, Niger and Jigawa - had fully embraced the social security scheme, which is meant to take care of workers when they post-retirement.
The commission said 16 states are at various stages of compliance with contributory pension while 14 others were legislating on the enabling laws to enable them transit. Adamawa State, on the other hand, is yet to take any action in complying with the contributory scheme.
The Acting Director-General of the commission, Mrs. Chinelo Anohu-Amazu, confirmed this in her response to THISDAY enquiries recently.
Fielding questions on why many states are reluctant to embrace the contributory pension as prescribed by the Pension Reform Act 2004, she said in addition to the challenges associated with how to fund the accumulated pension rights of their employees, lack of understanding on what the scheme stands for is another major reason for this.
According to her, "Funding of the scheme in terms of pension contributions and the accrued pension rights, that is, right to pensions and gratuities for services rendered prior to commencement of the contributory pension scheme constitute serious obstacle to the states."
She also pointed out that "inadequate understanding of the working and operations of the scheme and shortage of skilled manpower capacity that can cope with the requirements of the scheme were some of the other challenges."
Anohu-Amazu also identified absence of the political will to move from the defined benefit scheme to the defined contributory pension scheme as another challenge that states have contended with in embracing the contributory pension scheme.
The Pension Reform Act, 2004 provides that every worker in an organisation employing five people or more must contribute 7.5 per cent of his or her salary to a Pension Fund Administrator (PFA). The employer under the law is expected to contribute 7.5 per cent of the individual salary of workers to their respective Retirement Savings Accounts (RSA) resident with their chosen PFAs.
In furtherance with the law, the government established PenCom, which in turn licensed the 18 PFAs, 4 Pension Fund Custodians (PFCs) and 7 Closed Pension Fund Administrators (CPFAs) that are now in operation.
As at December 2012, about 5.3 million workers and retirees registered were under the contributory pension scheme with accumulated pension assets rising from N265 billion.
Under the scheme, the number of retirees drawing monthly pensions has risen to 54,558 retirees from both public and private sectors under the scheme as at September 2012.
These have collectively received over N151.52 billion of their accumulated pension savings as lump sum and receive about N1.77 billion monthly as pension payments.