The decision of the Federal Executive Council, made during its two-day meeting on Monday, May 13, and Tuesday, May 14, 2024, to support a series of initiatives aimed at revolutionizing Nigeria’s infrastructure and housing sector through Public-Private Partnerships is indeed a welcome development.
The Hon. Minister of Finance and Coordinating Minister of the Economy, Wale Edun, revealed to State House correspondents after the two-day meeting that the federal government plans to accelerate economic growth by tapping into N20 trillion internationally, including from pension funds. These funds according to the Minister will be utilized to finance crucial infrastructural and housing projects across the country.
The Minister was also quoted to have said that initially, government will stand back and provide some support, particularly in the era of high interest rates but will lesson its involvement as interest rates stabilises.
The assertion by the Honorable Minister is fraught with a lot of challenges regarding the feasibility of sourcing such a substantial fund from pension fund assets and its potential impact on pensioners. In the first place, pension funds are not liquid cash assets stored in a single bank account that the government can simply access at will. Secondly, as of March 2024, the total pension fund assets amount to about N19.66 trillion. Additionally, monthly pension payments are made from these assets, highlighting the challenges of utilizing them for other purposes without affecting pensioners.
The announcement by the Hon. Minister gives the impression that the federal government can access pension funds at will or exert influence over bodies like the National Pension Commission (PenCom) and Pension Fund Administrators (PFAs). However, it’s crucial to remember that Section 18(c) of the Pension Reform Act 2024 mandates PenCom to regulate, supervise, and ensure effective administration of pension matters and retirement benefits in Nigeria. Likewise, PFAs hold sole responsibility for investing pension funds.
One hopes that the assertion by the Minister that the government will provide support, especially in times of high inflation, does not imply that the government, as the promoter of instruments such as infrastructure and housing where pension funds will be invested, will seek to interfere with the rate of return on investment in these instruments. It is important to recognize that governmental support in economic conditions does not equate to controlling investment returns. Pension fund investments in infrastructure and housing projects must still adhere to regulations and guidelines set by PenCom the regulatory body to ensure fair returns and protect pension assets. This separation maintains the integrity of investment decisions while allowing for necessary economic support mechanisms.
Section 85(1) of the Act explicitly states that “All contributions made under this Act shall be invested by Pension Fund Administrators with the objectives of safety and maintenance of fair returns on the amount invested.” This provision emphasizes the responsibility of PFAs to invest contributions in a manner that prioritizes safety and fair returns for contributors. It underscores the importance of prudent investment practices to ensure the long-term financial stability of pension funds and the interests of pensioners. These legal provisions are designed to safeguard pension funds and ensure their proper management, independent of external influences.
Section 85(2) of the Act is clear in its directive, stating that “Pension funds and assets shall only be invested in accordance with regulations and guidelines issued by the Commission, from time to time.” This provision underscores the authority of the PenCom to regulate and guide the investment of pension funds and assets. It emphasizes the importance of adherence to established regulations and guidelines to ensure responsible and prudent investment practices by PFAs, safeguarding the interests of pension contributors and beneficiaries.
In accordance with the provisions of Section 85(2) of the Act, PenCom issued Regulations on Investment of Pension Fund Assets in February 2019. The purpose of these regulations is to establish uniform rules and standards for the investment of pension fund assets. Section 2.6 of the Regulation explicitly states that “A PFA shall not engage in borrowing or lending of pension fund assets,” while Section 2.7 prohibits PFAs from trading in financial instruments with pension fund assets at prices that are prejudicial to pension fund assets. These provisions are essential safeguards designed to protect pension fund assets and ensure responsible investment practices by PFAs, aligning with the overarching goal of maintaining the safety and fair returns on pension contributions.
There are significant issues that the Minister and other government officials should carefully consider. Firstly, as the supervisor of the regulatory agency PenCom, the federal government must maintain transparency and integrity in matters concerning pension administration in the country. Secondly, as the largest employer of labor in the country, the government must set a good example by adhering to constitutional provisions on pensions and complying with the provisions of the Pension Reform Act 2014 as well as Regulations issued by PenCom periodically. These steps are crucial for fostering trust, ensuring accountability, and upholding the rights and welfare of pensioners and contributors across Nigeria.
The available data on the investment of pension fund assets indicate that approximately 70% of pension funds are already invested in government securities. Given this significant allocation, it raises questions about where the Minister intends to source the pension funds he mentioned for investment in infrastructure and housing projects.
Shifting a substantial portion of pension fund investments from government securities to infrastructure and housing requires careful planning, risk assessment, and adherence to investment guidelines. It also necessitates identifying viable projects with sustainable returns to safeguard pensioners’ funds while supporting economic growth through infrastructure development.
The Minister’s proposal underscores the need for clear strategies, transparency, and collaboration between PenCom, PFAs, and relevant stakeholders such as trade unions, the Labour Centers, Nigeria Labour Congress (NLC) and Trade Union Congress of Nigeria (TUC) to ensure prudent investment decisions that balance risk and return, ultimately benefiting both pensioners and the economy as a whole. It remains to be seen how these intentions will be realized while upholding the safety and stability of pension fund investments.
Section 2.8 of the Regulation on Investment of Pension Fund Assets stipulates that pension fund assets can only be invested in bonds, sukuk, or other debt instruments issued by eligible state/local governments and Corporate Entities that are fully implementing the CPS. The emphasis on full implementation is crucial. It is my considered opinion that the federal government is not fully implementing the CPS, and several issues support this argument.
Firstly, in stating the objectives of the Pension Reform Act 2014, Section 1(c) of the Act emphasizes ensuring that every person who worked in either the public service of the Federation, Federal Capital Territory, States, and Local Governments or the Private Sector receives their retirement benefits as and when due. However, it is common knowledge that federal public servants often retire and wait for extended periods, sometimes a year or more, before receiving their benefits.
This delay in payment directly contradicts the objective of timely payment of retirement benefits outlined in the Act. It reflects systemic issues within the government implementation of the CPS, that need urgent attention. These delays not only impact retirees’ financial well-being but also erode trust in the pension system and government’s commitment to fulfilling its obligations under the law.
The second issue has to do with the constitutional provision for increase of pension.
Section 173(3) of the 1999 Constitution (as amended) provides that “Pensions shall be reviewed every five years or together with any Federal Civil Service salary reviews, whichever is earlier.”
Section 39(3) of PRA 2014 provides that “Without prejudice to sub-section (2) of this section, the Commission shall, by the end of every calendar year, determine the adequacy of the Redemption Fund against the projected pension liability of Government arising from voluntary and mandatory retirements, death of employees in service and the right of pensioners to pension review in line with section 173(3) of the 1999 Constitution (as amended), and advise the Budget Office of the Federation of shortfall, if any.”
The governments of Goodluck Jonathan and Muhammadu Buhari breached the provisions of Section 173(3) of the Constitution and Section 39(3) of the Pension Reform Act 2014 by failing to implement pension adjustments for pensioners under the CPS. Unfortunately, President Tinubu’s government has followed the same path, perpetuating the disregards for CPS pensioners’ rights as outlined in these crucial legal frameworks.
Since federal public servants started retiring under the CPS in 2007, there have been four increases of pension for federal public service pensioners under the old defined benefits scheme (DBS) excluding pensioners under the CPS as follows:
- 15% increment in 2007;
- 33% increment in 2010;
- Consequential adjustment in 2019 following the increase in minimum wage; and
- The recent 20% to 28% increase in 2024
While conveying the recent increase, on 30th April, 2024, the National Salaries, Incomes and Wages Commission issued a circular regarding review of pensions, aligning with the provisions of Section 173(3) of the Constitution. The circular explicitly states that the new pension rates apply specifically to pensioners under the DBS.
From the instances stated above, it is evident that the federal government is not fully implementing the Contributory Pension Scheme (CPS). Therefore, pension fund assets should not have been invested in bonds, sukuk, or other debt instruments issued by the federal government in the first place. The omission of listing the federal government in Section 2.8 of PenCom’s Regulation on Investment of Pension Fund Assets may have been based on the assumption that the federal government would fully implement the CPS as mandated by law.
However, the reality of delayed pension payments and other challenges faced by retirees indicates otherwise. This situation raises concerns about the appropriateness of investing pension funds in instruments tied to entities not fully compliant with CPS implementation.
Moving forward, it is crucial for PenCom and relevant authorities to reevaluate investment guidelines and ensure that pension fund assets are directed towards entities that are demonstrably and consistently fulfilling their obligations under the CPS. This alignment is essential for safeguarding pensioners’ interests, maintaining the integrity of the pension system, and promoting confidence among contributors and beneficiaries.
In the pursuit of accelerating economic growth and stabilizing the economy through the utilization of pension fund assets, the government must be cautious of any action that could destabilize the lives and well-being of future and current pensioners. While leveraging pension fund assets for economic development is important, it should never come at the expense of jeopardizing the financial security and welfare of retirees.
Maintaining a balance between investment opportunities and risk management is crucial. Investments should be made prudently, adhering strictly to regulatory guidelines and ensuring transparency and accountability in all transactions. Any mismanagement or undue risk-taking with pension funds could have far-reaching consequences on the stability of the pension system and the livelihoods of pensioners who rely on these funds for their sustenance.
Therefore, it is imperative for the government to prioritize responsible and sustainable investment practices that not only support economic growth but also safeguard the long-term interests of pensioners, ensuring a secure and dignified retirement for all.
