Securing better future as PenCom, HoS partner to reintroduce gratuity for civil servants

By Ivo Takor, mni Esq.

Vice Chairman, Nigerian Bar Association (NBA) Epe and Chairman, Human Rights Committee, NBA Epe and Director, Centre for Pension Rights Advocacy.

Vice Chairman, Nigerian Bar Association (NBA) Epe and Chairman, Human Rights Committee, NBA Epe and Director, Centre for Pension Rights Advocacy.
What is Gratuity Paid to a Worker on Retirement?

Gratuity is a lump sum payment made by an employer to an employee upon retirement or when the employee leaves the organization after serving for a specified minimum period. It is a form of financial reward or benefit provided to acknowledge and appreciate the long-term service and loyalty of the employee.

Key Features of Gratuity:

Retirement Benefit
Gratuity is typically paid when a worker retires from active service due to age, health, or other approved reasons.

Eligibility
An employee becomes eligible for gratuity after completing a minimum number of years of continuous service, commonly five years, though this may vary depending on the country’s labour laws or specific company policy.

Not a Part of Monthly Salary:
Gratuity is not deducted from the employee’s monthly salary; rather, it is funded by the employer and paid out at the end of service.

Purpose:
It serves as a financial cushion for retired workers, helping them transition into retirement with some degree of security. For employers, it is a way to show goodwill and maintain a positive image.

Importance of Gratuity:
It acknowledges an employee’s dedication and loyalty to the organization and helps in meeting the financial needs of a retired worker.

Moral Obligation:
Gratuity is a meaningful retirement benefit that promotes employee welfare and dignifies the end of a worker’s career. It is a reward for service, a mark of appreciation, and an important component of social protection for ageing workers.

Legal Backing:
The 1999 Constitution of the Federal Republic of Nigeria (as amended) does not explicitly use the term “gratuity” in any of its provisions. However, the right to receive gratuity and pension by public officers is implicitly under Section 173 for federal public servants.

Section 173(1) provides that subject to the provisions of the Constitution, the right of a person in the public service of the Federation to receive pension or gratuity shall be regulated by law. subsection (2) further provides that any benefits to which a person is entitled in accordance with or under such law as referred to in subsection (1) of this section shall not be withheld or altered to his disadvantage except to such extent as is permissible under any law, including the Code of Conduct.

At the state level, Section 210 of the Constitution mirrors the above provisions for state public servants. While the Constitution does not define or elaborate on gratuity, it recognize it as part of retirement benefits.

The Public Service Rules 2008 Edition, in Section 2 clause 10 under Gratuity, provides that the person engaged will be eligible for a gratuity on the satisfactory completion of a tour of service at the rate of 15% of his/her basic salary, provided that his/her engagement is not terminated as under clause 7 and provided that he/she is not in receipt of, nor eligible for, any other retirement benefit.

Section 4(4)(a) of Pension Reform Act 2014 explicitly allows employers to offer “additional benefits to the employee upon retirement”, which can include gratuity, lump sums, long-service awards on top of the mandatory Contributory Pension Scheme (CPS) benefits.

In April 2017, PenCom published Guidelines for the Administration of Gratuity Benefits, detailing how employers should establish and administer a gratuity fund, appoint a Pension Fund Administrator (PFA) and ensure full funding of gratuity liabilities. The reason for establishing the guideline as stated in clause 1.3 is based on the fact that the promulgation of Pension Reform Act (PRA) did not stop the payment of gratuity, or any form of severance benefits that existed prior to June 2004. It further states that PRA recognizes the need for employers to honour their agreement with employees and also gives place for collective bargaining for enhanced retirement benefits.

Reinstating Gratuity in the Nigerian Public and Private Sectors: A Necessary Step Toward Restoring Workers’ Rights

Gratuity as a form of retirement benefit is not a novel concept in Nigeria’s public service. Long before the advent of the Contributory Pension Scheme (CPS) introduced by the Pension Reform Act of 2004, gratuity was a standard entitlement for public servants under the repealed Pension Act of 1990. In the private sector, gratuity obligations were, and in many cases still are, established through the process of collective bargaining. This gives them legal recognition as part of collective agreements binding on employers and employees alike.

Regrettably, with the commencement of the CPS in 2004, both the Federal and State Governments, alongside a number of private sector employers, abruptly ceased the payment of gratuities to employees. Their justification was that gratuity is not explicitly listed as a benefit under the Contributory Pension Scheme. This narrow interpretation, however, ignores the broader purpose and spirit of pension reform, which was meant to enhance, not reduce the quality of life for retirees.

This posture by government and private sector employers is not unexpected. Historically, government at various levels has shown a troubling tendency to sidestep or discard policies that promote workers’ welfare, often citing flimsy or expedient reasons. In the private sector, driven primarily by the imperative of profit maximization, employers were quick to seize the opportunity to cut costs by eliminating gratuity, thereby boosting returns to shareholders, often at the direct expense of the workers who helped build those profits.

It is in this context that the recent partnership between the National Pension Commission (PenCom) and the Office of the Head of the Civil Service of the Federation (OHCSF) to explore the reintroduction of gratuity under the CPS is a welcome and commendable initiative. However, for this effort to yield sustainable and equitable outcomes, it must go beyond mere policy pronouncements. I offer the following recommendations:

Establish a Legal Framework:
Any decision to reinstate gratuity must be backed by law. This requires an amendment to the Pension Reform Act 2014 to incorporate gratuity provisions as a statutory benefit. Relying on administrative directives or policy guidelines alone will leave the initiative vulnerable to reversal or inconsistent implementation. Embedding gratuity within the legal framework will make it enforceable, transparent, and enduring.

Broaden the Scope of Coverage:
The current terminology referring to “gratuity for civil servants” is too restrictive. The term “civil” in this context typically refers to employees in the core civil service. To ensure inclusiveness and clarity, it is important that the term “public servants” be used instead. This would encompass all employees in Ministries, Departments, and Agencies (MDAs), avoiding ambiguity and ensuring no category of public workers is inadvertently excluded.

Extend the Initiative to States and the Private Sector:
PenCom must ensure this initiative addresses the broader workforce landscape. In many states, workers are completely denied gratuity, even as state governors and their deputies enjoy legally enshrined gratuities, pensions, and lifelong benefits after just eight years in office. Similarly, in the private sector, while ordinary workers have seen their gratuity disappear, senior executives continue to receive generous severance packages, often termed “Golden Handshakes.” This disparity is unjust and should be addressed within the spirit of equity and social justice.

It is important to reiterate that the pension reform of 2004 was conceived to strengthen retirement security and not to strip workers of existing benefits. It was never intended to nullify entitlements previously secured under collective bargaining or established administrative practice. Any reform that diminishes workers’ benefits erodes trust and undermines the very purpose of social protection in retirement.

As such, any move to restore gratuity is not merely a policy correction, it is a moral imperative and a reaffirmation of the dignity of labour.