Chinelo-Anohu-Amazu

FG To Float Bond To Offset Pension Arrears

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The federal government is seriously considering the bond option in the next couple of weeks to offset the over N90 billion accumulated pension liabilities owed workers under the Contributory Pension Scheme (CPS).

A reliable source in the Presidency told LEADERSHIP that due to the fact that successive administrations had not been consistent in the remittances of workers’ pensions into their Retirement Savings Accounts (RSA) and myriad of economic challenges bedeviling the current administration, the federal government had been advised by experts in the pension administration sector to approach the bond market to raise funds to clear the backlog.

The government, according to our source, had examined the proposal and was set to make an affirmative decision soon.

LEADERSHIP reported exclusively few weeks ago that unpaid pension arrears running into billions by the federal and state governments as well as private sector employers was threatening the survival of the Contributory Pension Scheme (CPS).

Though the federal government allocated N50.20 billion in the budget of the 2016 fiscal year and projected a sum of N91.91 billion as retirement benefits for federal government workers due to retire in 2016, while the sum of N20.07 billion is required to pay all outstanding accrued benefits for deceased and mandatory retirees of the Federal Civil Service for the period of October to December 2015, and the sum of N79.16 billion computed as arrears under the CPS as at December 2014, the government had yet to raise the money to pay the outstanding pension liabilities.

It was gathered that the Presidency had expressed concern that thousands of workers were due or retirement but there were no funds to pay them their retirement benefits, as contained in the pension Act of 2004, hence the need to explore the bonds option as a way out of the thorny issue.

Although details about the bond issuance were sketchy at the time of this report, sources said the option was being considered by the federal government as the only way to put smiles on the faces of the pensioners as part of efforts by the government to cushion the effect of the economic recession on the retirees.

Since the financial crisis started, precisely in 2015, government has witnessed a serious dip in its sources of revenue, especially, with a sudden drop in the price of oil, Nigeria’s major revenue generating window, in the international market.

This drop in revenue, affected the ability of government to meet its financial obligations as at when due, as it continues to owe pensions both under the Defined Benefits (DBs) and the Contributory Pension Scheme (CPS), while it fails to remit pension contributions into workers’ Retirement Savings Account (RSA) since October 2015.

To this end, thousands of retirees nationwide, especially, those under the Defined Benefits (DBs) have been seriously affected by the inability of the federal government to pay its accrued pensions, as at when due, as some retirees now rely on friends and relatives to meet their financial needs, since their pension entitlements are not forthcoming.

To address this, the FG had, in the past, assessed several funding alternatives to resolve the outstanding pension arrears, but to no avail, before muting the idea of floating bonds to clear the backlog.

The way bond works is that those who buy such bonds are, put simply, loaning money to the issuer (FG) for a fixed period of time. At the end of that period, the value of the bond is repaid as investors also receive a pre-determined interest rate (the coupon), usually paid annually.

Some pension fund operators, who spoke to LEADERSHIP on this new move yesterday, believe that though, government ought not to have owed in the first instance, its commitment to now offset the arrears is a positive development, not only to the pension scheme, but to the retirees who have been affected by the inability of government to promptly pay pension.

The Chairman, Pension Fund Operators Association of Nigeria (PenOp), Mr Eguarekhide Longe, said though he is unaware of this development, if true, it’s a good development not only to the concerned retirees, but for the Contributory Pension Scheme (CPS).

Longe, who is also the Managing Director/CEO, AIICO Pension Fund Administrator (PFA), noted that under normal circumstances, the federal government is not expected to owe and that trying to do something to offset it means government is trying to be responsible.

“Yes, they are not to owe before and if they are now trying to do something to offset the unpaid arrears, it’s positive for the pension industry,” he stressed.

The Managing Director/CEO, FUG Pension, Mr Usman Suleiman, noted that government has been floating bonds in the past to meet its financial needs such as payment of salaries and pension, among others, but that the bonds are not tied to specific items.

According to him, “If the federal government is issuing bond, the bond is not tied to anything. You cannot say whether it will go for settlement of arrears of pension or it would go to some other things. But in the recent time, most of the bonds that government issues do go to recurrent expenditure, like the pension and payment of salaries.”

He stated that the federal government has always promised to pay the pension arrears, although, it’s has not disclose the sources of funding the arrears, noting that if government is trying to pay now, it’s a good news for the pension industry.

Mr Ivor Takor, a federal government retiree, said he is happy that government is trying to clear its backlog of pension, but suggested that the money recovered from corrupt Nigerians through the anti-corruption crusade of the President Muhammadu Buhari’s administration, could equally be effectively deployed to offset pension arrears.

Takor, who is now the Director, Centre for Pension Right Advocacy, said: “We are all aware that the federal government has recovered some loot from corrupt Nigerians recently. They have recovered some of the Abacha loot, and some other people. I believe this money should also be channeled into pensions to pay the backlog of the accrued rights and then, the employers’ contributions.”

LEADERSHIP had earlier gathered that the sum of N91.91 billion was projected as retirement benefits for federal government workers due to retire in 2016, with only N50 billion budgeted for in the 2016 national budget, leaving a shortfall of N41.91 billion as pension arrears, while the sum of N20.07 billion is required to pay all outstanding accrued benefits for deceased and mandatory retirees of the Federal Civil Service for the period of October to December 2015, and the sum of N79.16 billion computed as arrears under the CPS as at December 2014.

The unpaid pension arrears running into billions, by the federal and state governments as well as private sector employers have been a threat to the CPS.

The pension fund presently stands at N5.8 trillion, with about 6.8 million pension contributors. However, experts believe there ought to have been more growth in the volume of the fund if the tiers of government as well as other employers of labour were remitting their workers’ pensions on monthly basis.

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