Obasanjo New Pension Reform: Danger Ahead for Workers

On top of all its other anti-working class policies, the Obasanjo regime in Nigeria has recently introduced a new pension scheme, which is nothing other than a privatisation of pensions, with investment funds taking over the running of workers' pensions, funds which could collapse easily, and with no government guarantees, leaving future pensioners destitute.

In line with the same policies being adopted everywhere, the Obasanjo regime in Nigeria has introduced a new pension scheme, which amounts to privatisation of pensions. Workers will no longer pay into a state pension fund, thus having the guarantee of public spending to cover their pensions in the future. Now they will depend on private funds that supposedly will make the money grow by investing it in stocks, shares and other speculative activity. What is worse is that should any of these funds collapse, the government provides no guarantees. A working life in Nigeria is already hard enough. Now these workers will have to live in dread of ending their days penniless. Here we publish an article on the news scheme, which appeared in the Nigerian Marxist journal the Workers' Alternative.


The new pension reform of the Obasanjo regime is another openly anti-worker policy of the government, where the future of the workers is now openly tied to the whims and caprices of a series of emergency investors. These so-called Pension Fund Administrators and Custodians have been licensed by the government to collect compulsorily a substantial percentage of workers' salary every month, which can be spent or invested in other ventures, as the administrators so desire.

The new Pension Reform Act of 2004 is one of numerous "reforms" pushed through by the Obasanjo government to reduce government expenditure on the social welfare of the populace. The philosophy here is to allow the government to shelve a major social responsibility of catering for its workforce after retirement in the form of gratuity and pension payments.

Before now, the position of things in the workplaces was in two forms, depending on which establishment the workers belong, that is, either the private or public sector. The situation in the public sector of the pre-existing pension scheme is that a civil servant or worker working for the government will collect a certain amount of money worked out as gratuity depending on the number of years put into service. The gratuity is expected to be paid immediately the worker stops working. Pensions are also paid immediately on a monthly basis if the worker is of the "pensionable" age of 45 years or more.

The situation in the private sector is different to what is obtained in the public sector. Here, what the worker collect at the end of his/her working life with the company is of a contributory format. The worker contributes a pre-defined percentage of the monthly basic salary to the pension fund and the employer also contributes a related percentage of the worker's basic salary to the pension fund. The worker will then collect the total contribution at the end of the work life with the company.

The new pension act is now making the contributory pension funds compulsory for all categories of workers in both the pubic and private sector. The Act now makes it mandatory for all workers to pay 7.5% of their salary to the Pension Fund; the employer is also expected to contribute another 7.5% equivalent of the worker's basic salary to the monthly contribution.

The reality on the ground is that for the workers in the private sector, it immediately translates into the workers getting less pay than what they are getting previously. The previous contribution used to be 4% but now it has almost doubled to 7.5%. In clear terms, this is a compulsory reduction of 7.5% of the salary of the workers.

Whereas, the new situation is completely anti-worker in the public sector. Here the employer, which is government at all levels, is being relieved of a major social responsibility of caring for its workers after retirement. Now the government worker must cough up 7.5% of his/her salary every month as a contribution to the fraudulent pension fund.

To the workers in the public sector the new situation as per pension contribution is a double blow. This is because, lifelong pension and gratuity is the only thing that each worker probably still looks to as a mild compensation for the very poor salary package they are presently receiving as wages. To now say that they have to contribute for their pension, which will also not last till they die, from their present meagre salary is most uncaring and callous.

Another fact and harsh reality is that the present contributory pension scheme is not guaranteed by the government. In the final analysis, it is not different from any other savings in a bank. In other words if any of the Pension Fund Administrators and Pension Fund Custodians should collapse, the pension fund under their care also collapses. That is the real situation and this is why the government is saying that if this should happen it is the worker's liability because it is the worker's free will to choose his/her own PFA. One can best imagine the possibility of such a scenario, particularly against the background of regular collapses of Banks in Nigeria. It is a regular occurrence.

The truth of the matter is that, due to the many years of default in the payment of gratuity and pensions to workers, particularly the millions of retirees from the public sector, which is now in excess of two trillion Naira, the Obasanjo regime is looking for a way out of its responsibility to these senior citizens.

It is rather unfortunate that the labour leaders allow the government to go this far on this new anti-worker pension policy. Rather than fight the policy to an end with appropriate mobilization of the workers nationwide, the labour leaders remain timidly prostrate before the government, surrendering before the government without a fight.

A clear campaign must begin in all workplaces against the new pension act, and it must be fought to a logical conclusion. The ultimate is for the workers to be left off the hook of any pension contribution; the employers who all the while enjoy the sweat of workers should be the ones to provide for the comfort of their workers in their old age.

May 2006