Police and contributory pension scheme

The Senate, on July 4, 2024, passed for a second reading a bill that seeks to remove police retirees from the Contributory Pension Scheme (CPS). Promoters of the bill, which seeks, among other things, to replace the Nigeria Police Force Pensions Limited (NPF Pensions), the pension fund administrator (PFA) charged with the exclusive administration of police pensions, with the Nigeria Police Pensions Board, aver that it will correct the inequality in the pension benefits paid to police retirees vis-à-vis their counterparts in other security agencies.

Let me state from the onset that it will not. Instead, the exit will make the lot of an average police retiree more precarious. Exiting police from the CPS is an ill-advised gambit, the same way the idea of replacing the high performing NPF Pensions Limited with a nebulous Nigeria Police Pensions Board is harebrained. I will explain shortly.

Leading the debate, the sponsor of the bill, Senator Binos Yaroe, who represents Adamawa-South in the Red Chamber, lamented the poor pension of retired police officers.

“The inclusion and continuous stay of the NPF in the PenCom has placed them on the wrong end of the post-service emolument life, even though the Nigeria Police is saddled with the responsibility of not only protecting the lives and property of the citizenry but detecting crimes,” Yaroe said.

On the face value, his argument is very seductive but it was all déjà vu because the issues he raised are as old as the CPS itself. Numerous public hearings have been organized by both chambers of the National Assembly on the issue of exemption. For instance, on February 22, 2022, the House of Representatives Committee on Pensions held a public hearing on two bills for the amendment of the Pension Reform Act 2014, with the first bill sponsored by Hon. Francis Ejiroghene Waive, seeking “to amend the Pension Reform Act 2014 to provide for the exemption of the Nigeria Police Force from the Contributory Pension Scheme and for related matters.”

To be sure, nothing is wrong with calling for an enhanced retirement package for the police because when it comes to issues of welfare and salaries, they hold the wrong end of Nigeria’s emolument stick.

But the low pension is neither the making of National Pension Commission (PenCom) nor NPF Pensions Limited. The pension is paltry because historically, police salaries remain embarrassingly measly. Therefore, the solution lies outside the exemption paradigm.

Today, NPF Pensions is the most thriving police-affiliated institution because it is run by professionals from outside the police establishment, and not manacled by the asphyxiating police bureaucracy. Not only that, PenCom has carved for itself the niche of being the most efficient regulator in the country’s fiscal space.

When the Pension Reform Act 2004 was enacted, the idea was to have a new scheme that is not only contributory and fully funded but also privately managed, with funds and assets based on individual accounts under third party custody. The overarching goal was to ensure, unlike in the Defined Benefits Scheme (DBS), that everyone who has worked receives retirement benefits as and when due.

But the government, which modelled the country’s CPS after the Chilean scheme that exempted all its armed forces, retained the police while exempting the Army, the Nigeria Intelligence Agency (NIA) and the Department of State Security (DSS).

The subsequent agitation for exit led to the incorporation of NPF Pensions on October 21, 2013, as a mono-clientele PFA exclusively responsible for the pension assets of all police personnel in Nigeria. It started operations a year later, making it the 21st PFA in accordance with the 2014 Pension Reform Act (PRA 2014).

The PFA became a roaring success instantly. Today, not only is it the most successful police investment entity, it has become the measuring rod in the pension industry with Assets under Management (AuM) crossing the N1 trillion threshold, making it the fourth biggest PFA.

Yet, the success has not deterred the exemption protagonists who seek to amend section 5 (1) of the Pension Reform Act of 2014, to include officers of the NPF as part of the categories of persons exempted from contributory pension.

But exiting the CPS will not serve the ultimate goal of enhancing the welfare and wellbeing of officers and men of the Nigeria Police because that route will lead, once again, to the Defined Benefits Scheme which was abandoned in 2004 because of its impracticability.

Exemption as being canvassed will also ultimately lead to the dismantling of the institutions, systems and processes that government has put in place towards the implementation of the pension reform scheme, in addition to upsetting government’s fiscal policy.

Data from PenCom reveals that as at January 31, 2024, Nigeria’s pension fund assets stands at N19.531 trillion, which represents more than ten per cent of the country’s Gross Domestic Product (GDP). When contrasted with Federal Government’s budgetary pension deficit, estimated at N2 trillion as at June 2004 under the Defined Benefits Scheme, it will be suicidal to hearken to the exemption calls.

Therefore, since the elephant in the room is the abysmally low pension of police retirees, which has to do with ridiculously low salaries, rather than legislating for exemption, the government should administratively address the issue of low wages through upward salary adjustment, maximizing the opportunity of the ongoing new minimum wage negotiation. As Aisha Dahir-Umar, PenCom director-general, once noted, “Pension is a function of salary, and as long as the salary of officers continues, then there is no need to exit.”

What needs to be done?

At a three-day investigative hearing by the House of Representatives Committee on Pensions in March 2020, measures were articulated by Dr. Sule Wuro Bokki, former Managing Director of NPF Pensions, which if taken, will holistically address the plight of police retirees and mitigate the constant clamour for exit.

The first is a presidential approval of special gratuity for police retirees at the rate of 300 per cent of their last annual gross pay so that the balances in their Retirement Savings Account (RSAs) will be channeled towards their monthly pension payments. This will be in accordance with Section 4 (4) of the Pension Reform Act which provides that an employer, notwithstanding the provisions of the Act, may agree on the payment of additional benefits to the employee upon retirement. The second is treatment of retired police officers from the rank of AIG and above as public officers who should retire with their full benefits, as it is the case with permanent secretaries.

Besides, the major challenge faced by pension managers is the backlog of accrued rights owed by the Federal Government. Pension is made up of the accrued rights, which is the service rendered by policemen to the Federal Government from the time they enrolled in the CPS in 2004 and only payable when the officer serves notice of retirement, and the contributions from both the employee and employer.

But because the accrued rights are huge, the illiquid Federal Government opted to pay in instalments every year. But the snag is that unless that is received, the PFAs cannot pay the portion that is with them because the account has to be consolidated. Right now, the accrued rights have not been paid in over 15 months, which means that no policeman that retired in almost two years has been paid pension. The government may find a way of paying the accrued rights of retired officers separately to mitigate the delay.

These issues should be addressed administratively by the government. The National Assembly is in a pole position to facilitate the process rather than legislating for the exit of the police from the CPS, a move that will destroy not only the thriving NPF Pensions Limited but also dismantle the entire contributory pension infrastructure and take Nigeria back to the impracticable Defined Benefits Scheme era. It will also orchestrate a fiscal disaster when the federal government, once again, is saddled with the sole responsibility of shouldering the burden of paying police pensions. Not only is such a prospect not feasible given the terrible state of the country’s economy, it will amount to shadow-chasing.

Amaechi, a journalist, is the publisher of TheNiche online news platform