Implications of the Pension Reform Act

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LAGOS, JULY 12, 2017 – The Lagos State Government under the able and effective leadership of   Akinwunmi Ambode, has long demonstrated its commitment to the implementation of the Pension Reform Act of 2004. Indeed, the provisions of that Act, as domesticated in the Laws of Lagos State have been honoured to the letter under this administration.

The purpose of training officers of the Lagos State Pension commission LASPEC, and all public servants but especially those who are close to retirement are trained on an on-going basis on the implications of the Act with a view to ensuring that the officers of LASPEC can effectively discharge their duties and the generality of the Public Service can adequately prepare for the future.

First, the general benefits of this Act as implemented in Lagos State is that it allows for the maintenance of a Retirement Savings Account by each employee, which gives the workers responsibility over their retirement savings.

Pensioners will no longer be at the mercy of employer, and participants are assured of regular payment of retirement benefits.

Furthermore, workers could choose how to allocate their retirement savings and diversify their investments over a range of investment instruments.  It is also argued that personal accounts would provide all workers a higher rate of return than can be paid under the Direct Benefit plan.

This approach also affords participants an opportunity to pass wealth to survivors in the event of death. In addition, RSA maintained by millions of workers tend to generate massive long-term funds, which are available for investment.

Owing to economies of scale, the cost of investing such funds tends to be relatively lower than if an individual worker were to undertake the investment on his or her own account.

Finally, having a pension scheme that pays out benefits in the form of a life annuity affords workers with protection against longevity risk, by pooling mortality risk across others. On a holistic note, the provisions of the law encourage labour market flexibility. The worker is free to move with his account as he/she moves to another place of employment and/or residence.

In this way, it is an important tool for enabling workers and employers to adapt to changing circumstances especially in a global environment in which change is a constant aspect of social and economic life.

The government also stands to enjoy benefits under the law. The law will stem further growth of pension obligations and provide a platform for addressing this liability.

It will also impose fiscal discipline in the budgetary process because pension obligations would be accurately determined. Also, the health of the economy is always a major concern of the government.

Thus, aside from the law’s potential to promote national savings and by implication, economic growth, funded pension schemes have the capacity to promote capital market development.

Moreover, it is often argued that funded schemes have the capacity to promote economic reforms generally. Another area in which the government stands to benefit from the law is through the scheme’s ability to support the overall macroeconomic policies of reform.

The last two decades have witnessed a growing support to the idea that enterprises are better run by private individuals and the role of government should be limited to providing a conducive regulatory and institutional framework that will enable the private sector to thrive.

Many countries around the world have adopted privatization as an avenue for reform and have often employed similar laws to support the process.  This law will thus facilitate such reforms better than the prior arrangement.

On the occasion of the 38th presentation of Retirement Benefit Bond Certificates to retirees under the Contributory Pension Scheme created Section 3 of the Lagos State Contributory Pension Scheme law of 2007 (hereinafter referred to as “the Law”), I quoted William A. Ward as saying as follows:

“Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save.”.

Indeed, the Lagos State Government has helped and continues to help public officers adhere to this invaluable advice as a result of its commitment to ‘all-round’ welfare of its officers. It is thus important to pause and enumerate how the Lagos State Government has consistently demonstrated its commitment to the post-service welfare of its officers.

Before the 2004 Federal Pension Reform Act, most state governments and companies in Nigeria operated under the Defined Benefits Pension Scheme, popularly referred to as the ‘Pay as You Go’ scheme.

This scheme relied on methods that utilized the parameters of length of service to determine the final emoluments of employees.

The benefits were thus easily calculated by employees. Broadly speaking, employees who had spent five to nine years in service were entitled to a lump sum payment referred to as gratuity, while those who had spent ten years and more were entitled to both the gratuity and monthly pension payment.

The available data and documented history reveal that the model woefully failed as a result of the inability or wilful refusal of employers to budget for and/or properly utilize funds to service pension obligations.

The Lagos State Government considers it morally reprehensible for any employer to neglect or refuse to plan and cater for the retirement benefits of its employees who gave the prime of their active years to the employing institution.

The Lagos State Government thus demonstrated its virtuous moral compass such that, under the administration of  Mr Akinwunmi Ambode, in particular, the Lagos State Government has faithfully honoured its obligations under the Law.

The vehicle for demonstrating this commitment has been the LASPEC, which was as established as a corporate entity to regulate, supervise and ensure the effective administration of pension matters in the Lagos State Public Service.

The passage of the law itself was in response to the new model and standards of pension administration formulated under the federal Pension Reform Act 2004.

Without an iota of doubt, LASPEC has performed brilliantly and commendably in discharging the trust entrusted to its care. Furthermore, and as you well know, the Lagos State Government has been consistently winning the National Pension Commission’s award for the Best Pensions Compliant State in the Federation.

We aim to maintain this rating by continuing and improving on the timely payment of all pensions and other applicable benefits to our retiring workers upon disengagement from service. The objectives of the Law as espoused under section 4. These include:

(a). the assistance of all persons in the employment of the State Government to save towards their retirement;

(b). ensuring that persons who leave or retire from the Public Service of the State receive their terminal or retirement benefits as and when due;

(c). establishing and monitoring the adherence to the rules and regulations for the administration and payment of retirement benefits in the Public Service of the State;

(d). establishment of the group life policy in respect of death benefits for employees who die while in service;

(e). administration of Retirement Bonds for employees with past service benefits; and

(f). the establishment and maintenance of the Redemption Fund from which the liability of the bond payments would be made. In the implementation of these schemes by the Lagos State Government through LASPEC, it is on record that the following successes have been recorded:

a. In spite of the onerous funding obligations under the Contributory Pension Scheme, the administration of Governor Akinwunmi Ambode has been dogged in meeting the funding obligations;

1. The State Government has never failed to remit monthly contributions into the Retirement Savings Account of workers and, as at March, 2017, about N78,592 billion had been credited into employees’ Retirees Savings Accounts maintained by our 10 Pension Fund Administrators;

c.The Lagos State Government has also been consistent in setting aside funds for the payment of accrued rights as provided for in the Pension Reform Law such that the State government has paid accrued pension rights of about N61 billion since the commencement of the Retirement Benefit Bond Certificate Presentations in 2010; and

d.Today, a total number of 339 retirees will have their Retirement Savings Accounts credited with accrued pension rights of N1.6 billion, made up of gratuity and pension benefits under the Defined Benefit scheme for employees who transited into the Defined Contributory Scheme.

With the institution of such elaborate schemes by the Lagos State Government, it is not surprising that retiring public officers now look forward to retirement with more confidence and joy.

This is how it should be. Furthermore, let me assure you that the Lagos State Government through LASPEC will continue to ensure that public service retirees not only get what is due to them statutorily, but also continue to receive, through other agencies and programmes) further and additional support and assistance that will add value to their lives in retirement.

Among others, this commitment is in fulfilment of the declaration by His Excellency who, in his Inaugural Speech said: “I shall run an open government of inclusion that will not leave anybody behind. No matter your age, sex, tribe or any other status as long as you reside in Lagos, we will make Lagos work for you”.

Thus, our retirees can take joy in the fact that they are not, and will not be left behind in the scheme of things by the Lagos State Government.

Being  text of speech delivered Dr. Benson-Oke,  Commissioner  for Establishments Training & Pensions, Lagos. 

DCSL 90X780

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