States’ pension liabilities to retirees soar

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For about 10 years, pension liabilities of state governments have grown into billions of naira under the Pay As You Go Scheme. The magnitude of the debts is raising concerns; will they ever be settled? Omobola Tolu-kusimo, assesses some states to see their compliant status.

Pension liabilities of state governments to retirees have continued to soar, hitting billions of naira. This, consequently, has put many of them, who are senior citizens – some as old as 120 years- in hardship. They are dying. Those of them, who are ill, could no longer access medication for lack of funds.
Mostly affected are primary school teachers and local government retirees. Many of them are owed pension entitlements dating back to 2008.
Thirty-one states out of the 36 in the Federation are owing over nine years of gratuities and pensions under the ‘Pay As You Go’, also known as the Defined Benefit Scheme. Only five states are paying pensions regularly and they are the ones that have fully transited from the old scheme to the Contributory Pension Scheme (CPS).
According to the National Pension Commission (PenCom’s) report for the first quarter of 2016, 31 states, such as Abia, Adamawa, Akwa Ibom, Anambra, Bauchi, Bayelsa, Benue, Borno, Cross River, Delta, Ebonyi, Ekiti, Enugu, Gombe, Imo, Jigawa, Kano, Katsina, Kebbi, Kogi, Kwara, Nasarawa, Ogun, Ondo, Osun, Oyo, Plateau, Sokoto, Taraba, Yobe and Zamfara, are yet to fully implement the CPS.
While only Lagos, Rivers and Niger have fully implemented the CPS, with Kaduna and Edo just joining the league of pension compliant states that have migrated their pension liabilities to the CPS. The consequence of the non migration into the CPS by these states is that they have refused to comply with the Pension Reform Act (PRA) 2004, repealed by the PRA 2014.
Oyo State, for instance, has over N30 billion pension liabilities owed to about 10,000 pensioners, comprising primary school teachers and local government (LG) retirees.
One of the embattled pensioners, Ojo Bamidele, who retired as a primary school teacher, said he has not been paid his pension and gratuity since he retired in 2008. Bamidele, who is down with kidney failure, said he needs dialysis every week to stay alive. He appealed to Oyo governor, Senator Abiola Ajimobi to pay his pension and gratuity.
Another pensioner, Dauda Adekunle, said he retired as a local government worker. He said he has been suffering since he left the service, wondering whether it was wrong to have retired from active service.
He also said his landlord has threatened to eject him because he is owing three years rent, noting that he barely eats a meal daily.
The Nation’s visits to the Oyo State pensioners office revealed that the state has over 6000 primary school teachers and over 3000 local government retirees. The total pension liability and gratuity of retired primary school teachers is over N20 billion, while those of local government is over N10 billion, bringing the state’s total liability to over N30 billion. This is at variance with President Muhammadu Buhari’s instruction that retired primary school teachers should be paid like other pensioners in the state.
Their payment should be on first line charge like their counterpart who are still in service.
Oyo State Head of Service, Soji Eniade, affirmed that the state has the challenge of payment of gratuity and pensions.
According to him, despite the huge pension liability arising from the Pay as You Go system, they state did not believe that joining the CPS was the way out of the current pension problems. He said the state has over 40, 000 pensioners in the state
“When you look at the history of Oyo State in terms of pension administration, you will find out that our challenge with pension and gratuity payment is a built-up challenge that has been there for ages. It started with the creation of states in 1991 when Osun State was carved from Oyo. The largest chunk of personnel split then was in Oyo and many people voluntarily retired to enable them receive their pensions and gratuity from Oyo State.
“The implication is that Oyo inherited a large number of retirees even back from the old days of western states when it was created and then later when Osun was carved out. Osun is a small state that moved away from Oyo, but when you talk of retirees before 1991, before the creation of states who were indigenes of Oyo, they still collect their pensions and gratuity from Oyo.
“At present, we have about 100,000 workforce. We are aware that as salaries are reviewed pension should also be reviewed, but all these things can’t work in a situation where there is no proficiency of funds to manage the system. Government has the intention of clearing the backlog. At the state level on monthly basis, government dedicates a minimum of N120 million to address the issue of gratuity at the state level but the N20 million above the hundred is dedicated to payment of pensions of retired permanent secretaries. An average retired permanent secretary goes home with a minimum of N15 million as gratuity. It means that N20 million can only pay one permanent secretary at a time.
“At the local government level, government recently released N830 million to address the issue of pensions and another N250 million to address the issue of gratuity. Note that the pensions we are talking about was last paid in 2008 and Ajimobi administration came in in 2011. But the issue of source of funding into the pool especially at the local government where the problem came from became enormous,”he said.

Status of Kwara State Pension
In Kwara, 4000 LG retirees according to the Secretary of the Nigeria Union of Pensioners (Kwara State branch), Chief Samuel Ibidoja, are owed pension and gratuities running into billions of naira.
Ibidoja, who made this known in an interview, said the state owes the local government pensioners 30 months pension and gratuities since November 2008.
He also said pensioners, who have federal pension share and retired primary school teachers are being owed pension since November 2012.
But Senior Special Assistant on Media and Communication to Governor Abdulfatai Ahmed, Dr Muyideen Oluwakorede, said the state has been paying pensioners in bits as a result of the drop in the monthly allocation.
Oluwakorede said Governor Ahmed was deeply concerned not only by the hardship workers and pensioners are going through on account of the drop in allocation which has affected the payment of pension, but by the difficulties the state pensioners are going through on account of delays in payment on their gratuity.
He said the state was doing everything, especially through increasing its Internally Generated Revenue (IGR) reforms and the on-going workers verification, which the state thinks will reduce its wage bill by 30 per cent and increase savings there from, would ensure that arrears with old state government pensioner are cleared.
He said plans were in place by the state to sort out its pension liabilities with the CPS.
“Civil servants employed after 1987 will soon be migrated into the CPS with about N145 million remitted monthly, while workers employed before 1987 will continue in the DBS. The state pays pensioners under the old scheme monthly pension of about N443 million. The government has tentatively estimated about N1.6 billion to be paid as contribution into the CPS for all pension arrears. The Governor believes that allowing workers from 1987 to migrate to the CPS will ensure they have enough pension contribution remitted into their RSA.
“The state would have joined the CPS before now, but it encountered a lot of resistance from the Nigeria Labour Congress (NLC). At present, our monthly pension under the DBS is about N443 million, which will continue on the side and then the monthly commitment that we will have to now do when we go into the CPS will be about N145 million. The state government is looking at all the figures that we have to pay altogether and be sure that the state can afford it, Oluwakorede said.
He added: “We are looking at the cost implications on our finances, not forgetting that the state allocations dropped considerably in the past. Although the state allocation is starting to rise, it has not risen to what it used to be. Migrating the pensioners needs a lot of planning because they have already retired. We have calculated it and the state is trying to correct some paper works, but it is certain that we will join the new scheme.
“We couldn’t compel workers to join the scheme, but we gradually made them understand the reasons why the workers should join the new scheme. We made them understand that there are benefits for workers and the state as a whole to enjoy under the scheme like the pension fund, which the Federal Government has pulled resources from for infrastructure. We explained to them that states that are not under the scheme are not eligible to pull resources or borrow from the fund for infrastructure development. We have also started sensitising workers to let them know why we have to take this step now.”

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Ebonyi State
While some state government are making moves to comply with the CPS, Ebonyi State governor, David Umahi, has said set up its own contributory system. However, this has pitched the leadership of the Nigerian Labour Congress (NLC), Trade Union Congress (TUC) and Joint Public Service Negotiating Council (JPSNC) in the state against the government. The workers have rejected the new pension law, noting that the procedure did not conform to that of the CPS in the PRA 2014.
The state Chairman of the NLC, Comrade IkechukwuNwafor, its TUC counterpart, Comrade Michael Nwaonu and that of the JPSNC, Comrade Patrick Ekwe, said the bill did not meet the provisions of the PRA 2014 as amended.
The organised labour regretted that workers’ salaries were being deducted before signing the bill into law and without creating Retirement Savings Accounts for the workers where the funds deducted from their salaries would be paid.
Consequently, they accused the state of violating the provisions of the pension reform act by contributing five per cent for the workers and the workers contributing eight per cent. The then called on the government to go back to its drawing board.
“The government has decided to go straight to deducting workers’ salaries without following the due process which is also against the financial rules of this country. We are calling on the state government to immediately hold on while the whole processes is completed and the bill be amended for government to contribute 10 per cent while workers contribute eight per cent as mandated by thePRA 2014. This is the position of workers of Ebonyi State.
“But we have discovered that the following steps that are supposed to be taken were not taken. Ordinarily, signing the law is just the first step, but then the contents of the law have to be made known to those whom the law is made for because we seriously observed that the law contains that the state government is going to contribute five per cent while workers of Ebonyi State will be contributing eight per cent which is against the Pension Reform Act and we say no to it and we can never agree to that and we request that the state government goes back and amend that law to be in line with the Pension Reform Act of 2014,” they maintained.
Nwaonu while calling on the state to follow due process before signing the bill into law, decried that the processes of implementing CPS were not followed at all.
He contended that the steps for generating code of MDAs to PENCOM are such that the state would need to appoint Pension Fund Administrators (PFAs).
“The issue of deduction of workers’ salaries in respect to the pension scheme which they first started before passing the law, is even the 8th step. There are so many other steps that should be followed before deducting workers’ salaries.
“The steps of generating code of MDAs to PENCOM are such that the state would need to appoint Pension Fund Administrators (PFAs). The PFAs will go further to register workers and give them their account numbers before deductions are made. These accounts must be ready before the deductions so that immediately you deduct, you pay in the money into the Retirement Savings Accounts(RSA) of the workers. But in this case, all these things were not done,” he said.

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Kaduna State
Kaduna State last week commenced full implementation of CPS with payment of retirement benefits retirees.
Executive Secretary of Kaduna State Pension Bureau, Dan Ndackson, during the launch of the scheme in the state, said the CPS Law was introduced in 2007, but the contributions commenced in March, 2008.
He, however, noted that implementation was not totally in conformity with the provisions of the law before now.
Ndackson said to deliver on its mandate, the Bureau successfully completed the administrative procedures that resulted in the merger of the defunct state Bureaux of Pension in 2016.
He disclosed that as at February, 2017, there were 9,655 pensioners on the payroll of the state pensioners and 6,728 on that of local government areas compared to 11,531 and 6,734 respectively on the payrolls as at July, 2015.
He also said the February 2017 figures were inclusive of additional new retirees on the payroll between August 2015 and January, 2016, who were not part of the July 2015 figures and whose retirement processes had been verified and cleared by the Offices of the State and Local Government Auditors-General.
“We, however, expect a surge on the payroll for pensioners on the Defined Benefits Scheme in subsequent months due to the large number of people, who retired towards the end of 2016 to avoid falling into the Contributory Pension Scheme, whose files are yet to reach the Bureau for processing and inclusion on the payroll. Unless MDAs and LGAs forward the files of all retirees under the Defined Benefits Scheme to the Bureau for processing in good time, our pension payroll may continue to rise throughout 2017. Conversely, we were not able to find many retirees under the CPS in the first quarter of 2017 due to the rush to take early retirement in 2016, especially by such people,” he said.

Lagos State
The Lagos State Pension Commission (LASPEC) Director-General, Mrs Folashade Onanuga, said the state has been remained at the top in pension administration and this has made it a model state.
She said the state’s past pension liabilities is about N200 billion and on yearly basis, its obligation is about N15 billion, which has been budgeted.
“In terms of contributions into the CPS, we have paid nothing less than about N70 billion as at December 2016 and N24. 4 billion as accrued pension rights to 5,668 retirees since August, 2015. We implemented the CPS in 2007 and since then it has not stopped paying accrued right from the DBS. We are able to take a futuristic look into what we are going into it.
“Any state government that puts the Pay As You Go and the CPS together and understands the nitty-gritty, will not take the Pay As You Go as an option for its pension administration. This is because under the old system, all the liabilities fall on the government and that is why the majority of them still have pensioners as far back as 2010 that are yet to be paid. The states keep on loading the liabilities of the government without making provisions for it and at the end, the government is tied to the employees for life,” she said.
She continued: “All over the world, the DBS has been acknowledged as a very expensive way of funding retirement liabilities and a lot of countries are going out of it. So, for you to stay in the old system, it shows you lack understanding of what is going on globally, you are not thinking of a solution and you are compounding your pension problem. If the people that introduced us to it are moving away to something that is more affordable, why should you stay and be stocked.
“So, I think there is need for more education of major stakeholders because with all due respect, they are just creating a mess for themselves. In Lagos State today we can sleep with our eyes closed. Yes, we may have funding challenges because the liabilities of the CPS are huge. Apart from the contributions to Retirement Saving Account holders, the accrued rights obligations are huge.”

PenCom perspective on DBS and CPS
Pencom Director-General, Mrs. Chinelo Anohu-Amazu, while speaking at the launch of Kaduna State CPS implementation and payment of pension under the scheme said there were myriad of challenges bedeviling the DBS in Nigeria which the Commission was trying to solve.
She disclosed that the revised PRA 2014 sought to deepen the pension reform in recognition of the modest gains recorded within the first decade of implementation.
“It, therefore, extended coverage of the CPS to states and local governments. The Commission has enhanced support to the states in facilitating their implementation of the CPS by providing a bespoke technical assistance of guided implementation, through our restructured state Operations Department.
“I am pleased to note that the Kaduna State Government has taken full advantage of this support with outstanding results achieved in a short span of time. The current economic challenges also provide an opportunity to implement strategies for effective financial management by the States. The huge liabilities, which usually build up in the old Defined Benefits Scheme, can be mitigated by the adoption and implementation of the CPS by states in the Federation. The CPS provides a mechanism for eliminating these liabilities while the regular contributions into the scheme are undoubtedly less burdensome.
“The economic challenges also provide an opportunity to implement strategies for effective financial management by the states. The huge liabilities, which usually build up in the old Defined Benefits Scheme can be mitigated by the adoption and implementation of the CPS by states in the Federation. The CPS provides a mechanism for eliminating these liabilities while the regular contributions into the scheme are undoubtedly less burdensome,”she explained.

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