Social security arrangements are collective remedies against adversity and deficiencies; ranging from pensions to disability compensations, death benefits as well as free/quasi healthcare and education.
One of the Fundamental Objectives and Directive Principles which underpin the policy of the Nigerian government towards its people is “security and welfare of the people”. This is declared as the primary purpose of Government in Chapter II of the Constitution of the Federal Republic of Nigeria, 1999. Given the nationwide import of this duty, driving social security initiatives has been one of the constitutional responsibilities of the Federal Government.
Social security is a shared care arrangement designed to meet contingencies and other conditions of insecurity due to either deprivations or contingencies. It is widely practised globally. Social security arrangements are collective remedies against adversity and deficiencies; ranging from pensions to disability compensations, death benefits as well as free/quasi healthcare and education.Nigeria has over the years tried various social security schemes/systems. However, these have not been implemented satisfactorily. For instance, this apparent gap has led to instances of alleged embezzlement/misappropriation of pension funds, long queues of pensioners to access pension funds and ultimately, stranded pensioners, amongst others in the area of pension fund management in Nigeria.
Below are some of the prominent social security schemes set up by the Federal Government over the years:
- Workmen compensation scheme – 1987 – 2011: The scheme was set up by the Workmen Compensation Act (WCA). This objective was to ensure that workmen were compensated for injuries suffered in the course of their employment. While this appeared laudable, it applied only to unskilled and low level employees. Also, employers were not obliged to pay compensation in certain instances.
- Nigeria Social Insurance Trust Fund (NSITF) – 1961, 1993 – 2003: NSITF was established in 1961 as National Provident Fund (this metamorphosed into NSITF in 1993) with the aim of protecting employees in the Nigerian private sector who were mostly in non-pensionable employment. The scheme was targeted at protecting private sector employees, whose employers were then mostly the multinationals, from financial difficulties in the event of either old age, cessation of employment, invalidity or death. This is more so as most employers did not have such provisions in the employment contracts with their employees.
Under the scheme, a portion of employees’ emolument is deducted and remitted to the NSITF. Unfortunately, the employees that contributed under the scheme did not receive the supposed benefits as the funds were largely inaccessible.
- Pension scheme – 1954 – 2004: This scheme was governed by the Pension Act and other relevant legislation, guidelines and policies issued by the government. Under this scheme, a portion of the emoluments of public servants were deducted and paid into pension funds. Similar, or perhaps worse than the case under NSITF, pensioners have been known to struggle to access the funds. In view of the seeming shortfalls of the above schemes, the Federal Government of Nigeria (FGN), over the past 10 years, has moved to revamp the social security systems by introducing new legislation and setting up requisite institutions. The renewed vigour infused has led to significant improvements and provide a glimmer of hope for workers in Nigeria.
The following are recent legislation enacted by the Federal Government to reinforce the social security framework in Nigeria:
- Pension Reform Act (PRA) 2004; 2014: The PRA was enacted in 2004 to improve on the erstwhile NSITF and public sector pension regimes. Under the PRA, the custody of pension funds is transferred from NSITF to private sector companies – Pension Fund Custodians (PFCs). The PRA also provides some checks and balances by vesting administration of the pension funds with other bodies – Pension Fund Administration (PFAs).
Other laudable improvisations under the PRA include introduction of mandatory life insurance for employees and strict guidelines on investment of funds, thereby protecting the pension assets and ensuring they are not trifled with. This consequently enhances success/longevity of the scheme as employees/contributors are able to access their contributions after a long period of time.
In July 2014, the PRA was further re-enacted; retaining some of the existing structures under PRA 2004 and improving thereon.
The highlights of the improvement include:
- Increased contribution from employers and employees this was increased to 18% (employee 8% and employer 10%)
- Increased powers for Pension Commission (PenCom) – the Commission is empowered to commence criminal action against erring companies
- Creation of a Pension Protection Fund – government is expected to set aside a minimum/guaranteed pensions for contributors
- Employee Compensation Act (ECA) 2010: The ECA, signed into law in 2010 and effective 2011, repealed WCA of 2004. Unlike its predecessor, ECA contains comprehensive provisions ensuring employees are compensated for accidents at work place or outside work place. It covers, medical treatment in case of accident involving no disability, rehabilitation and payment of compensation for disabilities and death. The mandate also covers treatment and payment of compensation to employees who suffer from occupational diseases contracted in the course of employment.
Additionally, ECA improved on WCA by extending its cover to all employers and employees in the private and public sectors of Nigeria. All employers and employees are expected to benefit from the scheme.
The ECA enjoins all employers to contribute 1% of their payroll costs to the NSITF, with a view to enhance proper implementation of the funds. In this regard, employers are required to report any workplace accident, injury, occupational disease or death to the nearest NSITF office. This is required to enable NSITF take over medical treatment for the injured or sick employee; and subsequently process compensation for such employee or his/her dependants, in case of death.
There is the general consensus that the above initiatives are significant steps in the right direction. This should be complemented by sustained public enlightenment and public awareness especially those in the informal sector. In the same vein, there is need to extend the scope of coverage of social security to citizens in that sector. Furthermore, cases of malfeasance in pension fund management should attract the full rigour of the law in terms of prosecution and punishment. Above all, the relevant regulatory agencies (e.g. NSITF, PenCom etc.) should continue to demonstrate strong degree of commitment to ensure sustained efficiency in the system bearing in mind that once confidence is lacking, people will find ways to avoid contributing, even though their need for social protection may be very high.
(Deloitte Nigeria)