President Muhammadu Buhari has started a process aimed at ending delays in the payment of the retirement benefits of Federal Government retirees who transited to the Contributory Pension Scheme (CPS) before retirement.
The President has directed the Minister of Finance, Budget and National Planning, Zainab Ahmed, to appropriate and release in full a total of N62.83 billion to clear backlog of accrued pension rights of retirees in the next three years.
A letter signed by the President’s Chief of State, Abba Kyari, directed the Budget office of the Federation to include N12.83 billion, N25 billion and another N25 billion in the budgets of 2020, 2021 and 2022 respectively to settle the outstanding accrued pension rights of Federal Government employees.
The President also further directed the Finance Minister to ensure that the funds are fully released upon passage of the relevant Appropriation Bills.
He also directed the Minister to ensure “going further that adequate provisions are made in the annual Appropriation for accrued pension rights and funds are fully released upon approval of the Budget.”
The latest development is obviously meant to clear the shortfall of N62.83 billion created in the 2017 budget for the payment of accrued pension rights.
The shortfall resulted in a backlog of unpaid retirement benefits of Federal Government retirees under the CPS for 11 months.
The delay contradicts the 2014 Pension Reform Act, which provides that if an employee retires at the age of 50 years or more he or she can have immediate access to the retirement benefits in the Retirement Savings Account (RSA).
The Act also says if an employee retires before the age of 50 years due to mental or physical incapacity, or in accordance with the terms and conditions of his employment, he or she can have immediate access to his or her RSA. But if an employee loses his or her job or retires voluntarily under the age of 50 years, he or she will not access the RSA until after six months of such retirement if he or she does not secure another employment.
Attempts by the National Pension Commission (PenCom) to capture the shortfall in previous budgets have been unsuccessful, but it appears that the affected retirees now have cause to smile with the latest Presidential directive.
For instance, it was gathered that in 2018, PenCom submitted N112.06 billion to the Budget Office, and this was cut to N110.19 billion, effectively making it impossible to clear the shortfall of N62.83 billion created in 2017 budget.
Accrued right is a term used to describe what the Federal Government owes its workers who have been in service before the commencement of the Pension Reform Act, 2004 (which was reviewed and re-enacted in 2014).
This means that there are two components to benefits paid to Federal Government retirees who transited to the CPS: the contributions accumulated in their RSAs and the retirees’ accrued pension rights earned before they transited to the CPS.
For a Federal Government retiree entitled to accrued pension rights to have access to his or her RSA, the Federal Government must pay the accrued rights and same is consolidated with the contributed savings in the RSA before access is granted to the retiree.
Put simply, accrued rights are the benefits which the workers who had worked for the government prior to 2004 when the CPS was introduced are entitled to. Thus, in addition to the retirees’ contributions from 2004 to date, the federal government must pay the retirees their accrued rights before the total benefits can be paid out.
It would be recalled that PenCom had, in several fora in the recent past, repeatedly expressed concern over the delay in the payment of accrued pension rights, which the Commission observed, had occasioned serious hardship on the affected Federal Government retirees.
Indeed, there were indications that while seeking budgetary solution to the problem, PenCom also made proposals on the possibility of floating a bond by the Debt Management Office (DMO) to fund accrued rights of Federal Government retirees.
However, with the recent presidential directives, it appears that a solution to the problem of the backlog of accrued pension rights of retired employees of the Federal Government is already in sight. As soon as this is achieved, it will make seamless, the payment of retirement benefits of Federal Government retirees under the Contributory Pension Scheme, just as it is the case with their counterparts in the private sector.