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Akintola Benson Oke
The Lagos State Government under the leadership of Mr. Akinwunmi Ambode, has long demonstrated its commitment to the implementation of the Pension Reform Act of 2014 which was first passed as 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.
Without a doubt, prioritising pensioners’ welfare has moral, economic, strategic, and social ramifications. Indeed, it is only such a holistic view of the subject that can put the efforts directed by the Lagos State Government at pension management and promotion in perspective. On a moral pedestal, I have always said that all persons of goodwill ought to pause and reiterate that it is 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. Thankfully, this is an area where the Lagos State Government has continued to set an excellent example.
From a legal standpoint, the Lagos State Government, being the first state in the federation to domesticate the provisions of the Pension Reform Act, 2014, has also been the most notably compliant with its provisions. Additionally, and in the noted manner of this administration, the government has invested extensively in the education of the administrators of the pension regulations and in the sensitization of the public officers who stand to be most directly and immediately affected by the pension regulations embedded in the domesticated law. A historical and statutory overview of Contributory Pension Scheme in Lagos State cannot be discussed without highlighting the role that the Lagos State Pension Commission (LASPEC) plays. LASPEC was established by the Lagos State Contributory Pension Scheme Law of 2007 (“the Law”) as a corporate entity to regulate, supervise and ensure the effective administration of pension matters in the Lagos State Public Service in accordance with the provisions of the Pension Reform Act 2004 which the Law domesticated.
Before the coming into effect of the Pension Reform Act 2004, the Federal and State Governments, under the old dispensation, operated the Defined Benefits (DB) Pension Scheme, popularly referred to as the ‘Pay as You Go’ (PAYG) scheme. Under this scheme, pension benefits were defined using the vesting scale which relied on the length of service and final emoluments of an employee. The benefits were thus easily calculated by employees. Employees who had spent five to nine years in service were entitled to a lump sum payment referred to as gratuity, whilst those who had spent ten years, and more were entitled to both the gratuity and monthly pension payment. As with the Federal scheme, the State schemes were also fraught with problems such as lack of adequate funding, irregular pension payments and the rigorous exercise of verification of pensioners. In line with modern global changes, the Federal Government on 27th June, 2004 changed from the Defined Benefit scheme to the Contributory Pension Scheme with the signing into law of the Pension Reform Act 2004 which set up the National Pension Commission (Pencom) to regulate and supervise the scheme and register the operators of the scheme.
The Lagos State Government, against the background of challenges with the Defined Benefit scheme, also adopted the new Contributory Pension scheme and became the first State in Nigeria to commence the new scheme with the signing into law on 19th March, 2007 of the Lagos State Pension Reform Law 2007 and eventual commencement in July, 2009.
The main objectives of the Lagos State Pension Reform Law are: To assist all persons in the employment of the State Government to save towards their retirement. To ensure that persons who leave or retire from the Public Service of the State receive their terminal or retirement benefits as and when due. To establish a set of rules and regulations for the administration and payment of retirement benefits in the Public Service of the State.
The law also established the group life policy for death benefits of employees, whilst in service, as well as the Retirement Bond for employees with past service benefits and the Redemption Fund from which the liability of the bond payment would be made.
This administration is proud to state that its diligent pursuit of the above outlined objectives has yielded fruits such that the pension obligations of the State are now managed to the satisfaction of the officers of the public service. Furthermore, this administration has also ensured that the vision of LASPEC to provide first-class regulatory and supervisory services on pension matters to all stakeholders in the Lagos State Public Service is within reach while the mission to provide exceptional services on pension matters to employees in the Lagos State Public Service is faithfully fulfilled, year-on-year.
The Law provides that there shall be 4 (four) specialized divisions in the Commission. These are: 1. Technical; 2. Administration; 3. Inspectorate; and 4. Finance and Investment divisions. The Technical division has developed and issued guidelines for taking advantage of the pension law and for operation as fund and pension administrators. The Administrative division is responsible for the internal day-to-day management of the commission. The Inspectorate division oversees the third-party stakeholders while the Finance department is responsible for making and recommending investment decisions to the board of the commission. This training will elaborate on these divisions with a view to acquainting participants with how they function and how retiring public officers can take advantage of the information.
The Contributory Pension Scheme allows for the maintenance of a Retirement Savings Account (RSA) by each employee, which gives the workers responsibility over their retirement savings. Pensioners are 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, the 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 continue to 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 now-realised potential to promote national savings and by implication, economic growth, funded pension schemes have the capacity to promote capital market development.
Dr. Benson-Oke is Commissioner, Lagos State Ministry of Establishments, Training and Pensions.
