Conceptually, pensions are defined as the remuneration due to a retired civil, public (servant) or corporate individual employee after meritorious services to his/her employers over a defined period. While in the services of an organization (private or public) an employee is entitled to salaries as agreed in the employment contract and duly communicated. This and associated benefits constitute his income from employment. Upon retirement, he no longer earns such salaries. What becomes his income is now pensions payable monthly. Initially, the burden of pensions payment is upon his former employer as provided by law (Employee Compensation Act).
However, due to inherent limitations and poor administration of pensions resulting in avoidable delays and to a reasonable extent; non-payment, accumulated backlog, frustrations and associated pains on the pensioners (beneficiaries), there was the need for a review. This resulted in the current pensions act which gave rise to the emergence of current Pension Fund Administrators (PFAs). PFAs are government-appointed/ approved companies engaged in pension fund administration.
OPERATING DYNAMICS
While in service, the employee contributes 8% and his employer contributes 10% of the employee’s monthly income to the pension fund. The employee’s contribution goes to the dedicated fund managed by his choice PFA while the employer also transfers same to the PFA.
The accumulated contribution is used to pay pensions over a period to the pensioner upon retirement. This payment arrangement could be under Annuity or programmed withdrawal as the pensioner may agree to.
The act further provides that the pensioner is given a bulk payment of at least 25% of his accumulated contribution while the balance is spread for monthly pension payments to the pensioner.
CRITICAL ISSUES AND CHALLENGES
- These PFAs are business entities only interested in profit maximization at the detriment of the welfare of the pensioners.
- Pensioners are sweet – tongued into signing PFA agreements which they least understand, hence regret same after entering into such unexplained agreements.
- Accumulated contributions are savings/ investments by a pensioner and the pensioner deserves to access same as at when needed to solve maturing personal obligations.
- Pensioners are older and elderly people whose maintenance and medical bills are huge, hence the need to remove all restrictions affecting their access to accumulated savings in their PFA accounts.
- Monthly pensions payable are only as agreed and meager;
- They are not susceptible to interest rate changes, especially on an inflationary economic situation like the Nigerian experience.
- Even where interest rate adjustments are made, Pensioners only receive what is given by the PFAs without any choice. Who do you complain to?
- Communication and engagement with the pensioner cease immediately after taking in the pensioner’s accumulated contributions, the pensioner is henceforth ‘on his own’.
- The pensioner suffers financial difficulties and is unable to access his accumulated savings domiciled in the PFA account and sometimes dies while the PFA smiles to the bank consistently with huge interest income earned from the pensioner’s funds.
CRITICAL QUESTIONS
- In whose interest is the current Pensions act as practiced by our PFAs?
- Must PFAs hold individual accumulated contributions compulsorily?
- Why not make such dynamics voluntary so that the pensioner can exercise his natural right of managing his contributions/ savings?
- Such contributions/ savings are the sole efforts of the pensioners while in employment, why now placing unsolicited restrictions/ limitations to access his accumulated funds to solve pressing personal needs?
- Is it not obvious that the present PFA dynamics only benefit owners of PFAS and not the pensioners?
CONCLUSION & RECOMMENDATIONS:
An Employee begins active economic life at a youthful age, full of vigor and energy. At the end of his employment journey, he is old and lost all vitality. He can only age gracefully with the right financial strength arising from his accumulated savings over time. The monthly pensions paid to him cannot guarantee a healthy aging process. Such individuals have the capacity to manage their savings and should not be restricted compulsorily hence the need to make pension fund administration voluntary for the maximum benefits of the pensioners.
It is time we allowed our elder citizens access to their hard-earned savings for a good life after retirement and not allowing them die in penury while their Next of Kin(s)and those who did not labor with them enjoy such funds upon their death.
What affects the current pensioners today would also affect those in active employment as they would be pensioners in the future.
There is a strong need for policy advocacy in this regard.
Professor Frank Amagwu, Ph.D, FCNA, FCCSA(USA), HCIB, WAAD
Faculty Micro & Dev. Finance,
Apollos University Great Falls Montana USA.