This write up examines the Pension Protection Fund (PPF) in the context of the Nigerian Pension Industry (NPI). It draws analogies from Western (UK, USA) and Latin American (Brazil, Mexico) architypes of the pension protection funds and analyzes the treatment, constitution, governance and function of the funds.
It then proceeds to establish the Nigerian Pension Protection Fund through a detailed definition of its use, operation, governance and regulation. It further examines the risks attributable to the establishment of a PPF and possible mitigation strategies to minimize the exposures.
This concludes with the overview of the benefits and impact of the establishment of the PPF in relation to the successful realization on the main objective of the Nigerian pension reform.
The Pension Protection Fund (PPF) is a Nigerian pension guarantee fund established by S82(1) of the Pension Reform Act, 2014 (PRA). The fund is established for the benefits of eligible pensioners covered by any pension scheme established, approved or recognized under the PRA.
The aim of the PPF is to fund the Minimum Guaranteed Pension pursuant to S84(1) and ensure eligible pensioners (as defined by the Act in S84(1) as “all Retirement Savings Account holders”) are guaranteed a minimum pension at retirement and are protected from financial risks associated with the investment of their contributions.
The Act in S82(2) makes provision for the funding of the PPF through:
- An annual Government subvention of 1%of the total monthly wage bill payable to employees in the Public Service of the Federation.
- Pension Protection Levies on:
- the National Pension Commission (the Commission);
- all licensed pension operators; and
- through returns on investment of the PPF.
- Income from investment of the PPF.
-The Commission is required, per S82(2)(b), to develop a framework for determining the levying of the contributors to the PPF.
The Act further prescribers in S82(4) that the Commission shall make regulations relating to the operations, management, custody eligibility criteria and every other matter relating to the PPF. This requirement necessitates the establishment and periodic review of the regulations relating to the PPF on a periodic basis.
The PPF will be sustained on the basis of the power of the Commission to determine the liabilities of the Fund and to enforce levy payments to meet up with the obligations. Unlike other Government sponsored insurance schemes in other jurisdictions, e.g. the United Kingdom, the PPF is not a fully Government sponsored Fund and must institute an effective fund governance structure to ensure the objectives of the Fund is met.
- Global Analysis of the (Pension Protection Fund) PPF
The efficacy of any reform objective can only be realized when pensions are paid to eligible pensioners as and when due.Recent global pension trends like longevity, low returns on investments, low contributions (due to low income and inadequate contributory time frame) etc. have challenged this objective. This has in some instances resulted in situations as drastic as the complete erosion of a retiree’s pension funds, leaving pensioners and operators without a workable framework on managing the situation.
Many advanced countries like the United Kingdom (UK), United States of America (USA), Sweden, Chile, Mexico etc. have 2 or 3-pillar pension systems with extensive and well-developed social security systems. These along with various parametric pension reforms have created safety nets to curtail the adverse effects of the trends earlier mentioned. An example is the Guaranteed Minimum Pension (GMP) which ensures that pensioner lives below the national poverty line.
While still battling the debilitating effects of the trends on the pension system, these nations have institutionalized the concept of MPG, thereby highly reducing the incidences of old-age poverty. Modalities for the funding and operation of the MPG have been fine-tuned and adapted to suit the specificities of each country.
It is imperative to understand the operational frameworks and complexities of countries that have successfully institutionalized the minimum pensions guarantee system, to enable Nigeria as a country draw lessons the from successes and challenges of these systems in establishing the MPG and its funding mechanism, the Pension Protection Fund (PPF), in Nigeria.
The following table represents an analysis of the PPF along certain parameters to enable a good appreciation of the operation of the systems. Some of the features to be analyzed are:
- Establishment of the Fund
- Fund operation and management
- Eligibility criteria
- Replacement rates
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