Nigeria's pension system is a story of contrasts. On one hand, the introduction of the Contributory Pension Scheme (CPS) in 2004 marked a significant stride towards ensuring financial security for retirees. This system, characterized by mandatory contributions from both employers and employees, has led to a substantial growth in pension fund assets, reaching an impressive N22.23 trillion in May 2024. The CPS has also demonstrated its ability to deliver retirement benefits of over N2.83 trillion to 1,256,403 retirees in March 2024.
However, the pension system still faces challenges, including the issue of pension arrears for those who were under the Defined Benefit Scheme. While the CPS mandates that contributions continue to be invested even after retirement, ensuring a steady income stream, the transition from the old system to the new has not been seamless for all.
This problem of delayed or unpaid pensions affects countless retirees who rely on these funds for their livelihood. The Nigerian government has struggled with consistent and adequate funding for accrued rights under the defined pension scheme. Budgetary allocations often fall short of the required amounts, leading to delays in disbursement. The lack of a clear plan for paying off this deficit has exacerbated the issue.
Nigeria's economy, characterized by fluctuations in oil prices and other economic shocks, impacts government revenue. Economic downturns reduce the funds available for pension payments, leading to arrears.
As an illustration, at the advent of the Contributory Pension Scheme, every Federal employee was assumed to have retired. As the government did not have the funds to pay out, every employee was issued a bond, to be paid out when the employee officially retires from service. This bond is to be funded through the government into the Retirement Benefit Bond Redemption Fund (RBBRD) account with the Central Bank of Nigeria. The issue emanates from the failure of the government to fund this account. Asa result, they only receive contributions made since joining CPS, neglecting their accrued benefits under the DB scheme. The most direct impact of pension arrears is on the retirees who depend on these payments for their daily needs. Delayed pensions lead to financial instability, forcing many retirees into poverty and debt.
Persistent arrears undermine confidence in the CPS. Both current employees and retirees could lose faith in the CPS ability to manage their retirement funds effectively, due to an issue that is not related to the CPS. Potentially leading to decreased participation in pension schemes. The financial struggles of retirees have broader social implications. Families and communities often bear the burden of supporting retired members, leading to increased economic pressure on younger generations. Pension arrears can have a ripple effect on the economy. Retirees with delayed payments spend less, affecting local businesses and overall economic activity. This, in turn, can lead to reduced economic growth.
Ensuring that pension schemes are adequately funded through improved budgetary allocations is essential. The government must prioritize pension payments and create a sustainable financial strategy to support retirees. Reducing Nigeria's reliance on oil revenues by diversifying the economy can provide a more stable financial foundation for pension payments. A diversified economy is less susceptible to shocks, ensuring more consistent government revenue.
States should join the CPS to ease the burden of budget allocation and delayed payments. This integration would ensure a more streamlined and efficient pension system across Nigeria. By having both state and federal workers under CPS, retirees can receive their pensions promptly and consistently. It is imperative to address the issue of accrued arrears for those who transitioned from the DB scheme to CPS. Ensuring that their previous pensions are transferred and integrated into the CPS will provide these retirees with the full benefits they are entitled to.
Despite the challenges, the CPS has had notable successes. For instance, many retirees under CPS have reported timely and consistent pension payments, providing them with a reliable source of income. The scheme's transparency and efficiency have been praised, especially when compared to the previous DB scheme. Additionally, the CPS has contributed to a growing pension fund industry in Nigeria, driving investments and fostering economic growth.
A stable and reliable pension system is not just a promise to the elderly but a crucial pillar for the nation's socio-economic stability. Amid the challenges, the successes of the CPS offer a beacon of hope, demonstrating that with the right reforms and commitments, Nigeria can build a pension system that truly serves its retirees.
