The Managing Director, Sigma Pensions Limited, Mr. Dave Uduanu, speaks with NIKE POPOOLA on why employers should have Contributory Pension Scheme for workers
Why are many state governments not funding their workers’ Retirement Savings Accounts regularly under the Contributory Pension Scheme?
The first thing is that there must be a political will on the part of the state governments to make the pension work. Once you have the political will, it will work. States such as Lagos, Niger, Rivers, Delta and Ogun have joined the CPS and they are funding it. Kaduna and Zamfara states are also funding the workers’ RSAs. These states have shown that with the right political will, they can do it.
The second is prudent management of resources. The reason why a lot of states run away from the pension scheme is that once you start it, you can’t stop. The workers know their rights. So, once you start funding their RSAs, anytime they don’t see the alert, they will know that something has gone wrong somewhere. There is a particular example of a state that started well, and they couldn’t sustain the contributions.
So, I think that the state governments have to first of all take a holistic view of their finances, get an actuary to value the past activities and advise them on how much it would cost. And then, put that amount in the budget and test it. If the budget can accommodate it, I think they should start. But if you see that the budget cannot accommodate it, then go into the bond market to raise money to push some project bonds and infrastructural bonds that will generate money for the state.
What major benefits will state governments derive from the CPS?
I think that if you are part of the Contributory Pension Scheme, your workers generally will be happy. They will be motivated to work. And because you are part of the CPS, you can access the bond market and use some of the money accumulated to develop your state. In Nigeria, when we want to do a road project, it may take us 10 years but the world has moved beyond that. If you want to do a road project that is commercially viable, you can access the bond market and do the road in 18 months. And if you need to toll the road, you can toll it. If you don’t need to, you collect more tax and pay for it. So, I think the states that have not already keyed into the CPS should put their house in order and join the scheme; it just requires discipline and political will. And I think more importantly, by not being in the scheme, you are postponing the doomsday because the Defined Benefits Scheme has its challenges. It is difficult for any state government to continue to pay pension on a regular basis to workers under the DBS. So it is better for you to make the workers to bear some of the funds by paying part of the contributions, so that when they retire, the PFAs take care of their pensions.
Many workers are retiring with little or nothing in their RSAs because some employers are deducting from their monthly pay but not remitting. What can workers in this situation do?
That is an unfortunate situation. That is really a bad precedence because once you deduct from a worker’s salary for the CPS, you are supposed to remit to the PFA. The workers should report to us and we will get across to the National Pension Commission because PenCom has an enforcement unit that goes round.
First of all, the employers will be made to pay back the money. They will be asked to pay penalties on the unremitted money because under the PRA 2014, failure to remit has consequences. The employers will be dealt with according to the law. But what is happening is that a lot of workers don’t have the boldness to report their employers. One reason is that people say that there are no jobs around so if you report the employers, you might be sacked. But you don’t have to report openly. You can write your PFA or PenCom about what is going on, and we will get across to the employer and deal with such a company.
In December, PenCom ordered the PFAs to increase retirees’ pensions. What percentage increase was added?
It is not a uniform amount. We have invested these funds for almost 10 years. And so, after that period of time, we found that the way the funds work is that the return given to the worker is fixed; that means that the PFAs would always make that amount. However, in most years, the PFAs made more than that amount. The difference between what they paid and what they earned is kept in a reserved account for the retiree. So, depending on how much you have in that reserved account, we then augmented your pensions. If you have more money, you get more increase; but if you have less, you get less.
But the message is that the PFAs don’t touch any money that belongs to retirees. All the returns that we make belong to you. And after every five years, we look at how much you have in your reserve and we augment your pensions. So, it is not a one-off; this is the first time it is done. But periodically, after every three or four years, the PFAs will look at what they have in your reserved account and increase your pension. It is just like a worker who is getting salary increase. It is not a certain percentage but what you have in your reserve.
What structure has Sigma put in place to create value for its contributors and retirees?
In Sigma, we have about 700,000 RSAs, a chunk of it is in the formal sector; the other is in the private sector. In the formal sector, what we discover is that we have a lot of people that have registered but the accounts have become dormant. So we are working with our relationship managers to activate these accounts. We shall be going to them to ensure that those that are around are able to activate the accounts. We have assigned all our contributors to our relationship managers to ensure that the managers can get across to them to deal with their issues. We have a benchmark and a target of how many people to reach every year. One of the big things we are going to launch at Sigma is the loyalty scheme.
That loyalty scheme will be won by our contributors for being loyal to us. We are going to launch it this month (April) and it is going to make a fundamental difference in the lives of our contributors.
In the last one year, we have significantly improved our investment returns. So people saving with sigma are getting to see the benefits of more returns on their investment. If you are saving in the bank, you may be lucky to have about three per cent interest. But with a PFA, you will get at least 10 per cent in your RSA. There is a lot of free money in banking that is not doing anything for people.
You are just making banks profit. You can bring the money into a micro-saving scheme where all the benefits go back to the workers. For the PFAs, as far as I’m concerned, the pension structure is the most efficient structure for saving globally. We only get a few of what comes to us. That’s all, all the returns go to the worker, as opposed to the banking where the banks keep all the profits and pay you a little. So at Sigma, we are looking at how to we impact on the lives of our contributors such that they can live well in retirement.
We have invested in a lot of marketing collaterals, corporate gifts and others just to find a way to give back to our workers. But what we are focusing on now is to give them a descent place to save, good customer service, good call centre. If you go round, you can see that we are modernising our branches, and it is because we want them to come to a descent environment where they can sit down and talk to their pension managers and resolve their issues.