CONSTITUTIONALITY OF APPLICATION OF PENSION REFORM ACT 2014 TO STATES PUBLIC SERVICE AND PRIVATE SECTOR EMPLOYMENT – BY GERALD AJOKU ESQ.

INTRODUCTION

The Pension Reform Act came into force on July 1, 2014. In other words, the Act    repealed the Pension Reform Act No. 2 of 2004. The objective of the Act is to create a more effective pension administration system in Nigeria, to boost general participation in the Pension Scheme and to legally enforce worker “welfarism”. The 2004 Act was made applicable to employees in the Federal Public Service as well as those in the private sector organisation that have at least five [5] employees. See Section 1 [2] of the 2004 Act, but not to employees in the public service of the states.

This write-up will examine the legitimacy of the extension of the operation of the Pension Reform Act, 2014 to the public service of states and private sector employments against the backdrop of the constitutional provisions conferring the National Assembly with the power to make laws with respects to Pensions. The Act, as will be referred in this write up shall mean the Pension Reform Act, 2014.

PROVISIONS OF THE CONSTITUTION

The extension of the operation of the Pension Reform Act to private sector employment generated controversy as to whether or not the National Assembly transgressed the bound of its legislative authority. The 2014 Act has gone even further to extend its tentacles to employees in the Public Service of states. The question that arises from the foregoing is: from where does the National Assembly derived the power to enact laws regulating the pension right of employees in the public service  of the states  and private sector organisations?

The relevant constitutional provisions which empower the National Assembly to make legislations with regards to pension include the following:

Section 4[1] of the 1999 Constitution provides that:

“ The Legislative Powers of the Federal Republic of Nigeria shall be vested

In the National Assembly for the federation which shall consist of a Senate

And House of Representatives.’’ 

Section 4[2] of the Constitution provides: 

“the National Assembly shall have power to make laws for the peace, order

And good government of the Federation or any part thereof with respect to

To any matter included in the Exclusive Legislative List set out in Part 1 of 

Second Schedule to this constitution.”

Section 16 [1 & 2d] of the Constitution provide:

Section 16 [1], the state shall, within the context of the ideals and objectives for which provisions are made in this Constitution provides:

“suitable and adequate shelter, suitable and adequate food, 

reasonable national minimum living wage, old age care and pensions, 

and unemployment, sick benefits and welfare of the disabled are

provided for the citizens.”

Part 1 of the Second Schedule [Exclusive Legislative List] especially:

Item 44 provides for Pensions, gratuities and other like benefits payable out of the Consolidated Revenues Fund or any other public funds of the federation.

In the scheme of apportionment of legislative powers between the Federal Government and State Government under the constitution, both have the power to make laws with respect to the pension right of their respective employees. By the combined force of Section 4 [2] together with item 44 in the part 1 of the second schedule to the Constitution, the National Assembly has the exclusive power to enact laws concerning ‘’Pension’’ and Gratuities and other like benefits payable out of the Consolidated Revenue Fund. See section 80 [1] of the 1999 Constitution. This position is supported by the Supreme Court case of Central Bank of Nigeria Vs. Jacob Oladele Amao & Ors [2010] 16 NWLR [Pt 1219] P.271 the court held that:

“the Federal Government has the competence to make laws and regulations

governing the pension and other retirement benefit of employees of the

the appellant, being in the public service of the federation within the

meaning of section 318 [1] of the Constitution.”

On the other hand, the power to make laws with respect to Pensions of the employees in the Public Service of States, which are defrayable from the Consolidated Revenue Funds of the States falls within the residual legislative powers of the state by virtue of Section 4 [7a] of the 1999 Constitution which empowers the Houses of Assembly to make laws with respect to any matter not included in the Exclusive Legislative List. 

The provision of the Pension Reform Act ought not to have been applicable to employees of states. To be applicable to employees of the state, matters regarding pension and pension reforms ought to be in the concurrent list to be legislated by both the National and State Houses of Assemble. In Abdullahi Vs. Military Administration, Kaduna State [2009] 15 NWLR [Pt 1165] P. 417, the Supreme Court affirming the decision of the court of appeal held:

“that the [now repealed] Pension Act, Cap. 346, LFN, 1990 and Act No. 102 of 1979 being  Federal Statutes, applied only to civilian employees in the public service from which the appellant retired from”. 

In the exercise of their constitutional powers according to the 2011 Annual Report of the National Pension Commission [PENCOM], 18 out of 36 states had enacted laws  establishing the contributory scheme as at December 2011, while others are still in the process of doing so.

The Lagos State Pension Model was enacted in 2004 following the then enactment of the Pension Reform Act 2004 at the Federal level. A pension commission for the state was established and the contributory pension scheme took off fully in 2007. Lagos State government and it’s employees have an equal contribution ratio of 7.5% of basic salary, housing and transport allowances. This is however being reviewed by the State House of Assembly in the amendment of its pension reform law. Employees are to  align with the Federal Pension Reform Act 2014 of the State prior to the enactment of the State pension law where beneficiaries to pension bonds upon redemption were transferred into individual RSAs.

The Jigawa State Pension Model is recognised as the pioneer contributory defined benefits pension scheme model in the Nigerian pension landscape. It kicked off in 2011 after the Jigawa state government implemented reforms to its previous defined benefit pension model due to its huge pension deficits, the nonpayment of pensioners as well as multiple and fraudulent pensioner records. The contributory pension scheme in Jigawa has provided an opportunity for the State employees to key into their retirement future. The state government contributes 17% of employees’ basic salary into the employees retirement savings account while employees contribute 8% of their basic salary. It also has a gestation period of five years before employees can draw benefits from their contributions.

Note that even though a state can enact Pension Laws setting up contributory pension schemes for the employees of the state and its local government, the investment of pension fund assets held under such schemes has to comply with the provisions of Pension Reform Act and any regulation made by PENCOM.

TRANSITIONAL PROVISION TO PRIVATE AND PUBLIC CORPORATION

By the provision of Section 1 of the Act, provides for the establishment for any employment in the Federal Republic of Nigeria, a Contributory Pension Scheme (in this Act referred to as “the Scheme”) for payment of retirement benefits of employees to whom the Scheme applies under this Act. 

Section 2 of the Act states that the Scheme established under subsection (1) of this section shall apply to all employees in the Public Service of the Federation, the Federal Capital Territory, States, Local Governments and the Private Sector subject to the provisions of section 5 of this Act.

Section 50 of the Act gives private employees the power and allows all existing pension schemes in the private sector to continue as long as such schemes are fully funded and any shortfall made up within 90 days or as the Commission may prescribe. The Pension funds and assets must be separated from the company’s assets and kept with a Custodian. For defined contribution schemes, contributions in such schemes will be valued and credited to RSA accounts that will be opened for participating employees. In the case of defined benefit schemes, an actuarial valuation must be conducted every year to assess the adequacy of the assets. The Act also provides that licenced Closed PFAs may continue to exist and will be deemed to be PFAs.

The Scheme applies to employees in both the public and private sectors. Mandatory contribution is applicable to organisations in which there are 15 or more employees (previously 5 employees). This effectively reduces the number of employers and employees that are likely to benefit from the scheme. Given the low level of contributors under the Scheme, this change is counterproductive. Contributions are now to be based on ‘monthly emoluments’ being the total emolument as defined in the employee’s contract of employment provided it is not less than the total of the employee’s basic salary, housing and transport allowance. – Only employers with a minimum of 15 employees are required to contribute to the new Scheme. The Act provides that in the case of private organisations with less than 3 employees participation in the Scheme would be governed by guidelines issued by the National Pension Commission (PenCom). However, the Act is silent on the applicability of the Scheme to private organisations with more than 3 but less than 15 employees. Also what happens to employers with 5 to 14 employees regarding their past contributions under the old Act

By virtue of section 4[7] [a] of the 1999 Constitution, the power to enact laws regulating all private sector pension scheme as well as state and local government pension scheme falls under the residual powers of state legislature, as those categories of pensions are not mentioned in the exclusive or concurrent legislative list. See Abia State vs. AG of the Federation [2002] 6NWLR [Pt763] P. 264, AG of Lagos State vs. AG of the Federation [2003] 12 NWLR [Pt 833] P.1

Also, Section 3[1] of the Act state that: 

“there shall be established for any employment in the Federal Republic

Of Nigeria a contributory Pension Scheme for payment of retirement benefit

Of employees to whom the scheme applies.’’”

Section 3[2] of the Act provides for certain classes of persons to whom the contributory pension scheme applies, to wit: employees in the public service of the federation or federal capital territory and any private sector organisation in which there are 15 or more employees, see Section 2[2] of the Act. This class neither encompasses all citizens nor excludes non-citizens. Apart from this class of persons to whom the scheme  applies compulsorily, Section 4 [7] of the Act, however, affords some leeway for any person who is not ordinarily covered under section 3 of the Act.

CONCLUSION

Accordingly, it is my view that by extending the operation of Pension Reform Act to public service of the states and private sector employments, the respective States House of Assembly should ensure and take proactive steps to enact  Pension Laws to conform with the provisions of the Pension Reform Act 2014 . The pension law would govern and regulate the administration of the states pension scheme. This call is to avoid conflict with the Principal  pension Reform Act, 2014 enacted by the National Assembly. This position was further stated in Section 4 [5] of the 1999 Constitution as amended that:

“if any law enacted by the house of assembly of a state is

   is inconsistent with the law validly made by the Natiional

   Assembly, the law made by the National Assembly shall

   prevail, and that other law shall, to the inconsistency, be

   void.’’ 

2. Establish a Pension Bureau and develop a Transitional Framework 

3. Register eligible employees with the National Pensions Commission (PenCom) 4. Obtain employer codes for all its MDAs from PenCom 

5. Remit pension contributions and employee accrued retirement benefits rights if any to a PFA of employee choice. 

While the Act is generally a step in the right direction, some of the changes introduced appear not to have been well thought through and highly appreciated by stakeholders as well as employers of different organisations especially in extension of Pension Reform Act to Private and Public Service of the state as outlined in the provision of the Act and some of the changes appear to have been made at the last minute thereby creating some gaps, ambiguities which this write up does not extend to.