- Pension Reform Act Has Enhanced Labour Market Flexibility
Lagos State Governor, Akinwunmi Ambode, has said that the provisions of the Pension Reform Act 2004, amended in 2014, has no doubt encouraged labour market flexibility and saved pensioners the dilemma of hanging their fortunes at the mercy of employers.
Ambode, made this observation, while speaking on the state’s full commitment to pension reforms at the opening session of a training programme for officers of the Lagos State Pension Commission(LASPEC) and public servants in the state.
Ambode, who was represented at the training titled, ‘Implications of the PRA 2004’ by Commissioner, Lagos State Ministry of Establishments, Training and Pensions, Dr. Akintola Benson, said the training was targeted at ensuring that the officers of LASPEC effectively discharge their duties and the generality of the public service adequately prepare for the future.
He stated that the general benefits of the Act as implemented in Lagos State, has boosted the welfare status of workers and pensioners in the state.
He observed that it has allowed the maintenance of a Retirement Savings Account (RSA) by each employee, which gives the workers responsibility over their retirement savings.
“Pensioners on the other hand, will no longer be at the mercy of employer, workers could choose how to allocate their retirement savings and diversify their investments over a range of investment instruments. It has been argued that personal accounts would provide all workers a higher rate of return than can be paid under the Direct Benefit plan, this approach affords participants an opportunity to pass wealth to survivors in the event of death”, he sated.
According to him, RSA, maintained by millions of workers, tends to generate massive long-term funds, which are available for investment.
He said given the economies of scale, the cost of investing such funds tends to be relatively lower than if individual workers were to undertake the investment on their own account.
He said having a pension scheme that pays out benefits in the form of a life annuity, benefits 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 or her account as he or 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,” he observed.
He said on its part,government, also stands to enjoy benefits under the law, adding that the law will stem further growth of pension obligations and provide a platform for addressing this liability.
According to him, it will also impose fiscal discipline in the budgetary process because pension obligations would be accurately determined, adding that the health of the economy is always a major concern of the government.
Ambode also said that aside the law’s potential to promote national savings and by implication, economic growth, funded pension schemes have the capacity to promote capital market development. adding,it is often argued that funded schemes have the capacity to promote economic reforms generally.
He said another area in which the government stands to benefit from the law is through the scheme’s ability to support the overall macroeconomic policies of reform.
He commended the work of the Lagos State Government on pension matters so far, maintaining that the 38th presentation of Retirement Benefit Bond Certificates to retirees under the Contributory Pension Scheme (CPS) created Section 3 of the Lagos State Contributory Pension Scheme law of 2007 (hereinafter referred to as “the Law”).
He said the Lagos State Government, has been consistently winning the National Pension Commission’s award for the Best Pensions Compliant State in the Federation adding that the state s determined to maintain this rating by continuing and improving on the timely payment of all pensions and other applicable benefits to our retiring workers upon disengagement from service.”
He said that in spite of the onerous funding obligations under the CPS, the administration of Governor Ambode has been dogged in meeting the funding obligations.
“The State Government has never failed to remit monthly contributions into the RSA of workers and, as at March, 2017, about N78,592 billion had been credited into employees’ acounts maintained by our 10 Pension Fund Administrators(PFAs). It has also been consistent in setting aside funds for the payment of accrued rights as provided for in the Pension Reform Law such that the State government has paid accrued pension rights of about N61 billion since the commencement of the Retirement Benefit Bond Certificate Presentations in 2010.”
As at today, a total number of 339 retirees will have their RSA credited with accrued pension rights of N1.6 billion, made up of gratuity and pension benefits under the Defined Benefit scheme for employees who transited into the Defined Contributory Scheme, he said.
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