Expert Advises States to Set Aside Sinking Funds

Ebere Nwoji
Pension fund management expert and the Executive Director, Business Development, South and Strategy, Premium Pensions, Mrs Kemi Oluwashina has stressed the need for state governments to set up what she described as ‘sinking funds’ to address problem of arrears of pension entitlements owed to retirees in various states.

Oluwashina, who gave the advice during a courtesy visit to the Head of Service of Enugu State, Mr Chidi Ezema, defined sinking fund as an account that is used to deposit and save money to repay a debt or replace a wasting asset in the future.
According to her, it’s like a savings in which you deposit money regularly that can only be used for a set purpose.

“A sinking fund is essentially established to ease the process of retiring debt or prevent defaulting on debts. It can serve several purposes, but the main purpose is to lower the outstanding principal before it becomes due,” she explained.
According to her, non-payment of pension entitlements, especially accrued rights to retiring or retired workers was affecting the successes recorded in the contributory pension scheme in Nigeria, as she emphasised the need for state governments to establish sinking funds to address the problem.

She pointed out that the liability of unpaid pension entitlements would never go away until it is frontally tackled.
“It is a fact that the real value of unpaid pension liabilities gets eroded with time to the detriment of the retirees who are already passing through untold hardship things only get worse when the liabilities keep piling up. Setting aside this special fund is a midway approach to addressing the liabilities,” she insisted.

Continuing, she said, “While Accrued Rights are largely entitlement of workers before the advent of the private sector – driven contributory pension scheme, its late payment by especially, the various tiers of government renders pension administration cumbersome or even impossible.

“This is because Accrued Rights have to be lumped into Retirement Savings Accounts (RSAs) before lump sum and Programmed Withdrawals could be worked out for retirees. Most, if not all retirees from government establishments for now have their entitlements locked in both the old Defined Benefit Scheme and the new Contributory Pension Scheme,” she noted.

She said backlog of pension liability was more pronounced in most state governments who have neither been making any serious effort to address the issue, nor keyed into the new scheme by domesticating the Pension Reform Act 2014.
According to her, while the federal government is making efforts to offset the unpaid Pension Accrued Rights for the period covering May 2017 to April 2018, which currently stands at N97.55 billion, most state governments still struggle with payment of salaries let alone addressing issues of pension.

Pension liabilities before the advent of the Contributory Pension Scheme stood at N2 trillion while the scheme has accumulated Funds under Management in excess of N8 trillion since inception in 2004.
She said her visit to the Enugu State Head of Service was to demonstrate appreciation for the efforts being made by the state government to join the league of states that had keyed into the contributory pension scheme.

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