Pension experts tell FG to establish gratuity fund for sustenance

Pension experts have called on the Federal Government to establish a gratuity stabilisation fund to ensure the sustainability of the newly approved gratuity for federal civil servants under the Contributory Pension Scheme (CPS).They said without a dedicated funding mechanism, these payments could quickly grow into massive fiscal obligations.It was reported that the Federal Executive Council on Thursday, March 5, approved payment of gratuity to Civil Servants which is an equivalent of their 100 per cent total annual emolument for those who have served for a minimum of 10 years. The implementation of the scheme is scheduled to begin on Jan. 1.A pension and retirement Coach, Mr Babatunde Raimi, said if the government relies solely on annual budget allocations to finance gratuity, future administrations could face enormous financial pressure; especially as the size of the civil service and retirement numbers continue to grow.Raimi, also a public affairs analyst, said Nigeria must avoid creating another unfunded pension liability.“The solution lies in building a strong financial architecture around the gratuity system. The most effective step the government can take is to create a National Gratuity Stabilisation Fund.“Such a fund would accumulate resources over time to finance gratuity payments rather than relying solely on yearly budget releases. The fund should operate under the regulatory oversight of the National Pension Commission (PenCom) and be professionally managed within the existing pension investment framework.“By building a long-term reserve, government will ensure that gratuity obligations are funded in advance rather than financed at the point of retirement,” he said.Raimi also called for the introduction of actuarial planning to estimate future retirement numbers, projected gratuity liabilities and required annual funding levels.He said such long-term projections would allow policymakers to anticipate obligations decades ahead and maintain financial stability.“To avoid policy inconsistencies in the future, gratuity provisions should be clearly integrated into the legal framework governing the pension system. Embedding the policy within the provisions of the Pension Reform Act 2014 will ensure clarity on eligibility, funding sources, and institutional responsibilities. This will also protect the policy from abrupt changes or administrative uncertainties.“Funds accumulated within the gratuity reserve should not remain idle.“They should be invested prudently in long-term financial instruments such as federal government bonds, infrastructure investment funds, and high-grade corporate securities.“These investments will allow the fund to grow while also supporting Nigeria’s economic development,” he said.Raimi said the approval of gratuity for civil servants was a commendable step that reflected government’s commitment to improving the welfare of public servants.He noted that the success of the policy would depend on its sustainability.He explained that if properly structured, the gratuity reform could strengthen Nigeria’s retirement system, boost morale in the civil service and further consolidate the gains of the country’s pension reforms.He, however, warned that if poorly managed, the policy could gradually recreate the financial liabilities that previous pension reforms were designed to eliminate. “It was therefore important for policymakers to establish a transparent, well-funded and professionally managed gratuity system capable of standing the test of time”.According to him, with the right structures in place, the reform could become a defining milestone in Nigeria’s pension policy history.A retired staff of the National Pension Commission (PenCom), Mr Ehimeme Ohioma, also called for the establishment of a dedicated gratuity fund would ensure the sustainability and transparency of the newly approved gratuity for civil servants.Ohioma, a former Head of Surveillance at PenCom, said the proposed fund should be professionally managed by transparently selected Pension Fund Administrators (PFAs).According to him, placing the management of the fund directly under government officials could expose the initiative to corruption and excessive bureaucracy.