The Contributory Pension Scheme (CPS), introduced in 2004, was a response to the failures and unsustainability of the old defined benefit scheme (DBS).
The Contributory Pension Scheme , introduced in 2004, was a response to the failures and unsustainability of the old defined benefit scheme . Under the DBS, retirees often faced severe delays in receiving their pensions due to a plethora of inefficiencies. The system was plagued by corruption, and other challenges, leaving many retirees destitute and dependent on family members for survival.
The CPS ensures that each worker’s pension is funded by both the employee and the employer, creating a pool of funds that is invested to generate returns. These returns help secure the future of retirees, ensuring a stable income after retirement. Unlike the DBS, where pension payments were subject to government budgetary allocations and uncertainties, the CPS guarantees that workers’ pension savings are readily available for payment of retirement and terminal benefits.
Despite the significant successes recorded in the implementation of the CPS in Nigeria, there are concerns about low pensions, particularly among public sector retirees, who often have lower pay compared to those in the private sector. The issue of low pensions under the CPS can be attributed to several factors:: The amount of pension paid to a retiree is directly related to the contributions made during the retiree’s working years.
It is crucial to understand that profits generated from pension fund investments continue to seamlessly reflect in retirees’ RSA balances, further boosting their pensions. Consequently, in 2017, PenCom introduced the periodic enhancement of pensions for CPS retirees because the returns generated by the PFAs on the RSAs of most retirees were sufficient to enhance their monthly pensions.
As outlined above, various options are available to employers and employees to improve pension adequacy, particularly for public service retirees who are disproportionately affected by lower pay. Offering additional retirement benefits can attract and retain talent, boost employee morale and loyalty, and enhance an organisation’s reputation.
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