By Niyi jacobs
As Nigeria marks the 20th anniversary of its Contributory Pension Scheme (CPS), the pension landscape has undergone significant transformations.
Introduced under the Pension Reform Act (PRA) of 2004, the CPS was a landmark reform that replaced the outdated Defined Benefit Scheme (DBS), which had been plagued by underfunding and inefficiencies. However, while the CPS has led to improvements in pension management, it faces ongoing challenges that need urgent attention.
Shift from the Defined Benefit Scheme
Before the introduction of the CPS, Nigeria’s pension system was based on the Defined Benefit Scheme, where the government bore the full responsibility for pension payments. However, this system was unsustainable as it was underfunded and failed to meet the needs of an expanding workforce. Pensioners often faced long delays in receiving their benefits due to insufficient budgetary allocations, leading to hardships for retirees who had contributed years of service to the nation.
To address these issues, the CPS was introduced, making pensions more sustainable by having both employees and employers contribute to individual Retirement Savings Accounts (RSAs). The contributions were initially set at 15% of an employee’s monthly earnings, split between the employer and the employee. The system was designed to ensure that workers had more control over their pension savings while shifting the responsibility for pension management from the government to the private sector.
Recent Amendments and Gains
The Pension Reform Act (PRA) of 2014 further strengthened the CPS by increasing the total contribution to a minimum of 18% and introducing stricter regulations to ensure compliance from both private and public sector employers. This amendment also included harsher penalties for defaulters and clear guidelines for diversifying pension fund investments to ensure stability and profitability.
One of the key successes of the CPS has been the timely payment of pensions. Under the old system, pensioners often had to wait months or even years to receive their entitlements. In contrast, the CPS has streamlined the process, allowing retirees to access their pensions more quickly through the balances in their RSAs, improving the predictability and transparency of the system.
Additionally, the CPS has alleviated some of the financial burdens on both federal and state governments by transferring part of the responsibility for pension payments to employers and employees. This shift has helped governments manage their budgets more effectively, reducing fiscal pressures.
Challenges Faced by the CPS
Despite these successes, several significant challenges continue to threaten the full potential of the CPS. One of the most pressing issues is the backlog of accrued rights for workers who were already in service under the DBS before the CPS was implemented. Many of these workers have not had their previous pension entitlements transferred to the CPS, resulting in a growing pile of unpaid pensions. According to reports, the federal government has released over N980 billion to settle these accrued rights, but many retirees from 2022 and 2023 have still not received their benefits.
Furthermore, the scheme has faced continuous agitations from specific sectors, most notably the police force. Police officers and retirees have lobbied for a return to the old Defined Benefit Scheme, arguing that the CPS does not adequately meet their needs. A bill to establish a Police Pension Board and remove the police force from the CPS was introduced in the 9th Senate but was declined by former President Muhammadu Buhari. The bill has now been reintroduced in the 10th Senate, highlighting ongoing tensions within the sector.
Need for Reform and Inclusion
Despite these challenges, experts remain optimistic about the future of the CPS. Sani Mustapha, a pension expert, stresses the need for more participation from state governments, many of which have yet to fully transition to the CPS. In addition, efforts to incorporate the informal sector through the micro pension scheme are underway, but more public awareness campaigns are needed to ensure broader participation.
With pension funds projected to reach N22 trillion by the end of 2024, the CPS has proven to be a critical tool in reforming Nigeria’s pension system. However, addressing the issues of accrued rights, sector-specific agitations, and expanding the scheme’s coverage are vital for its continued success and sustainability. The next 20 years will require further reform and cooperation from all sectors to build a truly inclusive and effective pension system for Nigeria’s growing workforce
