Who should be paid first between workers and retirees?

Based on common labour laws, public policies, and the principles of the Contributory Pension Scheme (CPS), the question of whether to pay workers or pensioners first often involves a conflict between immediate financial needs and statutory obligations. While workers are the most valuable assets of organisations (private, public and civic), especially as they are direct contributors to income generation of their organisation, pensioners were in their shoes before and without pensioners, they would not be where they are. It is usually common to argue for workers because of their many obligations especially as most of them work because of their salaries. Conversely, from a legal and regulatory perspective, particularly in Nigeria under the Pension Reform Act (PRA) 2014, pensioners’ pensions are regularly considered a first-line charge or a priority payment for the following reasons:

• Statutory Rights: Pension rights are constitutional and statutory, making them non-negotiable entitlements for those who have served and retired, rather than a favour. The same way that debenture holders have priority over loan creditors is the way pensioners should have priority over current workers in who gets paid first! While a worker can be sacked for breaching the terms and conditions existing between him and his organisation, pensioners cannot be sacked or their entitlement terminated. They have fully discharged their parts of the contract.
• Protection of aged citizens: Pensioners are considered vulnerable, dependent, often having no other source of income, and courts or national policies usually prioritise their immediate sustenance over active employees who have other, ongoing employment benefits. Most organisations provide staff accommodation for current workers and not for pensioners. Some also provide staff prices and monthly bonuses for their workers including commission on sale which are not applicable to pensioners.
• Legality of non-payment: While non-payment of salary is a serious breach of contract, the failure to pay pensions (or remit pension contributions) attracts stiffer penalties and, in many cases, is legally required to be prioritised to avoid social instability. Non-payment of salaries can be due to economic crises which affect turnover of organisations. Non-payment of pensions can only be due to fraud as the pensioners have contributed money to a pool of funds which is invested to ensure that they get regular income for their upkeep while they are no longer in active service. Nothing should affect this pool of funds to ensure pensioners are taken care of.

Contextual arguments for priority

• Pensioner priority: Proponents of pensioner priority argue that pensioners are vulnerable, have served their time, and are entirely dependent on pensions for survival. Pensions are a meagre part of former salary and are given to take care of feeding of the pensioners.
• Worker priority: Conversely, it is often argued that current workers have immediate responsibilities, higher cost of living, and are still active in the economy, making their salaries paramount to maintaining current productivity. The Bible says, a worker is worthy of his wages and that the sweat of a labourer must not dry before he collects his wage!

Best Practice: Ideally, both pensioner and worker should be treated as high priority, and many, especially in the public sector, advocate for them to be paid simultaneously. However, when funds are limited, the legal obligation to retired citizens usually takes precedence because their pay is a survival stipend to prevent them from becoming destitute, particularly given their inability to survive without compensation. Also non-payment of salaries will affect the ability of workers to work further which will affect production and turnover. Psychologically, the morale of workers is boosted more and their desperation for self-help after service is reduced when they are sure that they will be protected. Ensuring timely payment of both workers’ salaries and retirees’ pensions is crucial for meeting our obligations. If possible, these payments should be made simultaneously, but in reality, especially in the public sector, prioritisation is often influenced by legal requirements and the employer’s immediate capacity.

Reasons to prioritise salaries (current workers) 

1. Operational necessity: Active employees play a vital role in an organisation’s operations, and delayed salary payments can disrupt work activities or lead to strikes, unlike retirees who have less immediate impact on the organisation’s operations. 
2. Economic responsibility: Workers have immediate financial needs such as rent, school fees of their children, and transportation costs that require prompt salary payments.

Reasons to prioritise pensions (retirees) 

1. Welfare and dependency: Retirees, who are often senior citizens, rely solely on pension payments for their survival, including urgent healthcare needs. 
2. Contractual obligation: Pensions are deferred payments for past services and are legally mandated, representing a debt owed to those who have completed their service.

Legal and structural context with examples from Nigeria: – The Pension Reform Act 2014 mandated that pension contributions must be deducted and remitted within seven (7) working days of paying salaries. – Under contributory systems, employee contributions are deducted from salaries and channelled to Pension Fund Administrators (PFAs), making salary payments to current workers essential for funding their pensions.

In conclusion, while workers are typically prioritised due to their active role, many argue that neglecting pension payments is unfair to retirees who have fulfilled their duties. The best measure is to treat both salary and pension payments as non-negotiable obligations that should be paid concurrently, possibly through automatic deductions to ensure timely processing.

It has been argued that workers observe that pensioners from their organisations are not well treated over their pensions, have high rates of employee turnover and make numerous attempts to provide for their life after retirement, including perpetrating fraud while in service.

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OLUFEMI

Olufemi Adedamola Oyedele, MPhil. in Construction Management, managing director/CEO, Fame Oyster & Co. Nigeria, is an expert in real estate investment, a registered estate surveyor and valuer, and an experienced construction project manager. He can be reached on +2348137564200 (text only) or femoyede@gmail.com