Appraising the Agitations for the Exemption Police From CPS; By Ivor Takor

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NIGERIA carried out a comprehensive pension reform in 2004 with the enactment of the Pension Reform Act (PRA) 2004, which was later repealed and replaced with Pension Reform Act (PRA) 2014.

The rationales for the reforms were that the defined benefits scheme in the public service was unfunded with unacceptable outstanding pension liabilities in the public service; administration of pension in the public service was weak, inefficient and lacked regulatory control. All of these gave room for corruption; demographic shifts and aging made the defined benefit scheme being operated especially in the public service unsustainable. In addition, most workers in the private sector were not covered by any form of retirement benefits scheme, while the funds of the few private sector schemes that were in existence, were not segregated from the funds of the companies. Consequently, any company that went under, the workers were left without pension.

Nature of the scheme

The Contributory Pension Scheme (CPS) established under the PRA 2004 and later PRA 2014 is a mandatory scheme in the public service and for any employer with fifteen (15) employees and above in the private sector; contributions are made by both employer and employee and put in individual employees Retirement Savings Accounts (RSAs), thereby creating a ready pool of fund for payment of pension; the  nature of RSAs is their portability from one employer to another and from one Pension Fund Administrator (PFA) to another; the RSAs are privately managed by Pension Fund Administrators, licensed for the purpose; withdrawals from the RSA on retirement of the account holder are lump-sum, annuity and programmed withdrawal. The law makes it mandatory for every affected employer to take a life insurance cover for his employees. The CPS is strictly regulated and supervised by the National Pension Commission (PenCom).

The Military, Department of State Security and the Nigeria Intelligence Agency were exempted from the CPS. This exemption had led to several failed legislative attempts in the past to the exemption of personnel of the Nigeria Police Force from the CPS since the 6th National Assembly. In 2011, a private member’s Bill was sponsored at the 6th National Assembly seeking to exempt the police and other paramilitary agencies of government from the CPS.

The 6th National Assembly declined the Bill and resolved that the issue of quantum of retirement benefits of police personnel, which was the main reason for seeking the exemption can be addressed by upward review of the rate of pension contribution under the CPS and not by exemption.

In 2012, the Nigeria Police High Command made another case to the federal government for the exemption of their personnel from the CPS. The then Secretary to the Government of the Federation (SGF) constituted a Joint Committee comprising the National Salaries, Income and Wages Commission, the Nigeria Police and PenCom to consider the submission and present a position to the government. After considering the report of the Joint Committee, the government decided that the personnel of the Nigeria Police Force should continue to be covered under the CPS.

The Nigeria Police Force was further advised by the government to liaise with PenCom to draw-up modalities for addressing all areas of concern. Pursuant to the directives of the government, the Nigeria Police applied to PenCom for, and was granted a Pension Fund Administrator (PFA) licence under the name ‘NPF Pensions Limited’ subject to certain terms and conditions.

In April 2014, the federal government issued a White Paper on the Report of the Presidential Committee on the Restructuring and Rationalisation of Federal Government Parastatals, Commissions and Agencies accepting the committee’s recommendation that the practice whereby certain categories of retirees were agitating to opt out of the CPS should be stopped. Government noted that it would be unable to sustain pension payment under the defined benefits scheme and further directed that only the Military, Department of State Security and the Nigeria Intelligence Agency may withdraw from the CPS.

In 2017, another private member’s Bill was presented to the 8th National Assembly seeking to exempt the Nigeria Police and other Paramilitary Agencies from the CPS. During the Public Hearing on the Bill held on 28 September 2017, the Nigeria Police High Command, the Office of the Secretary to the Government of the Federation (OSGF), PenCom, the Nigeria Labour Congress (NLC), the Trade Union Congress (TUC), the Nigeria Union of Pensioners (NUP) and other stakeholders in the pension industry overwhelmingly rejected the proposal because of the preponderance of its disadvantages. The 8th National Assembly thereby declined the proposal for exemption and resolved that the welfare of the Nigeria Police personnel should be enhanced within the framework of the CPS.

There are currently two pending bills before the National Assembly seeking to exempt personnel of the Nigeria Police from the CPS. The bills are indefensible because they have not presented any new superior grounds that would necessitate a review of the previous parliamentary and executive decisions on the matter. On the contrary, the arguments against the exemption of the Police are more compelling today and reinforced by economic, fiscal, social and public policy reasons. One is therefore tempted to ask if there is no institutional memory in the National Assembly or these private members’ Bills on the subject matter are all based on pecuniary interests.

As at September 2021, there were 304,963 police personnel on the Integrated Payroll and Personnel Information Service (IPPIS) data. An actuarial valuation revealed that the retirement benefits (pension and gratuity) liability of these personnel under the defunct Defined Benefits Scheme would amount to about N1.84 trillion. This liability is expected to significantly increase with the proposed yearly recruitment of 10,000 personnel into the police force and promotions that will be carried out yearly.

Meanwhile, the federal government’s liability under the CPS for the same NPF personnel is made up of N213.4 billion as accrued pension rights and monthly employer pension contributions of about N2.2 billion.

The federal government is already overburdened with the payment of pensions under the unsustainable defined benefits scheme as illustrated in the 2022 Appropriation Act, under the Service Wide Vote, the sum of N577.3 billion was made as total allocation for pension and gratuities. Pension allocation under the Defined Benefits Scheme for military and other security agencies represent 45.5% of the total proposed allocations for pension and gratuity. Meanwhile, only N125 billion was proposed for payment of accrued rights under the CPS for the 2022 prospective retirees of federal government treasury funded Ministries, Departments and Agencies (MDAs).

It is evident that the defined benefits scheme is not sustainable, as exempting the Military, Department of State Security and the Nigeria Intelligence Agency has resulted in very high allocation of resources to fund their retirement benefits. Consequently, it would be fiscally imprudent to increase the number of this category of retirees under that Scheme. It would also render the retirees financially vulnerable and insecure as it was before the introduction of the CPS. The Minister of Finance, Budget and National Planning has already put the nation on notice that the Federal Government is going to borrow N11 trillion to finance 2023 budget.

Exemption of personnel of the Nigeria Police from the CPS would result in the dismantling of the institutions, systems and processes that Government has been putting in place in the last few years towards the implementation of the pension reform programme for this category of public servants. This would also negatively affect the culture of national savings as well as efforts to eradicate the structures that encouraged corruption under the defined benefits scheme.

As it is the case with every human endeavour, the pension reform, no doubt, had its own share of challenges. However, these challenges, which are administrative in nature, could be addressed and are being addressed within the framework of the CPS.

The argument put forward on the floor of the House of Representatives by the sponsor of the present Bill was hinged on low pension, which, incidentally, has consistently been presented as an argument in all previous attempts to exempt the personnel of the Nigeria Police from the CPS. The main grievance of the Police High Command is the fact that certain categories of officers in the Military and the public service retire with their full terminal salaries as their pension. They include Professors, Heads of Service and Permanent Secretaries.

However, it is worthy of note that the PRA 2014 has the adequate provisions that can resolve this concerns without recourse to amendment of the Act.

The rate of pension contribution was increased by Section 4(1) of the PRA 2014 from a total minimum of 15% to a total minimum of 18% of the employee’s monthly emolument. This contribution rate is only a legal minimum, which can be enhanced through Collective Agreement between employer and employees as provided under Section 4(2) of the PRA 2014. An employer can also take full burden of contribution as provided under Section 4(4)(b) of the PRA 2014. Thus, if the current contribution rate of 10% payable by the employer (Federal Government) is inadequate for Police personnel, the Government may consider increasing the employer portion of the pension contribution to a more sustainable level for police personnel below the rank of Assistant Inspector General (AIG) while personnel on the ranks of AIG and Deputy Inspector General (DIG) should be made to draw their full terminal salaries as pension on retirement.

Section 4(4)(a) of the PRA 2014 further provides that notwithstanding the pension contributions made by employer and employee into the employee’s RSA, the “employer may agree on the payment of additional benefits to the employee upon retirement”. Accordingly, the Federal Government may wish to provide additional benefits in the form of gratuity to Police personnel upon their retirement.

Section 15(4) of the PRA 2014 provides for the review of the accrued pension rights and entitlements of the employees of the public service of the Federation by the Federal Government, from time to time, in line with the provisions of Section 173(3) of the 1999 Constitution of the Federal Republic of Nigeria (as amended). The amounts derived from such reviews are to be provided for by the Federal Government and credited directly into the RSAs of individual retirees.

Government had released funds for settlement of pension increases to retirees under the Defined Benefits Scheme for 2007 (15%), 2010 (33%) and 2019 (consequential adjustment). Meanwhile, no funds were provided for payment of pension increases for retirees under the CPS. Implementation of pension increases would substantially address the issue of low pension for Police personnel and other Federal Government retirees under the CPS.

In the light of the foregoing, therefore, it is imperative to note that the National Assembly and the Federal Government had declined all previous attempts to exempt the personnel of the Nigeria Police and other Paramilitary Agencies from the CPS and decided that their issues should be addressed within the framework of the CPS. Indeed, the issues had largely been addressed administratively by PenCom and legislatively by the National Assembly under the PRA 2014.

No doubt, exemption of the Police or any other Agency would also result in loss of confidence in the pension reform and other reform initiatives of the Federal Government, as well as undermine the growing culture of national savings built by the Contributory Pension Scheme within the last decade.

It is imperative for the Federal Government to maintain its decision to retain the personnel of Nigeria Police and other Federal Government employees under the CPS as contained in the White Paper on the Report of the Presidential Committee on the Restructuring and Rationalization of Federal Government Parastatals, Commissions and Agencies;

The solution to the pension challenges of the personnel of the Nigeria Police does not reside in their exemption from CPS and reversion to the Defined Benefits Scheme, which is clearly unsustainable.

As indicated above, the Pension Reform Act 2014 has enough provisions to resolve any challenges being faced by personnel of the Nigeria Police and other Federal Government Agencies on the administration of their retirement benefits.

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