1:1 Background to the Study
Pension as a scheme designed to cater for the welfare of the pensionable retired workers had for long gained global recognition and acceptance. Retired workers from either the public or private sector are expected to live comfortably and not to depend on any body after they successfully retire from active service. The working lives of employees move continuously towards a certain direction, that is, from employment through to retirement period or the “rainy day”’. Ideally, government and non-governmental organizations need to identify a way of accommodating and adequately rewarding employees’ past effort through organized pension plans, so that they can achieve the goals of their existence (Rabelo, 2002:21). Essentially, this is often carried out through different retirement policies, which include the Defined Benefit (pay-as-you-go) Scheme (as it is in America, Canada, etc and was in Nigeria till the new Pension Act 2004 was introduced), the National Provident Fund scheme and the new contributory pension scheme in particular, that is expected to be fully funded. However, some of the existing pension schemes like (Defined Benefit pension scheme, Nigeria Social Insurance Trust Fund, Local Government Pension Scheme, Armed Forces Pension Scheme and Pension Scheme for Judges) seem inadequate and or ineffective in their operation and to the national economy.
The defined benefit or non-contributory scheme as well as the contributory scheme emerged from divergent views. The non-contributory school of thought advocates that employers alone should fund the Pension Asset. (1) The belief of this school is that the sole funding made by the sponsor encourages and attracts more qualified and dedicated employees into the organization. Under this arrangement, the benefit is defined by a formula and pension at retirement is paid either as a lump sum amount or as a life annuity.
(2) The contributory pension plan, scholars argue, encourages the employees to contribute a certain percentage to the plan, so that they will be able to receive the entire or part of the benefits at retirement or in case of termination of appointment or dismissal (Campbell and Feldstein: 2001:48).
According to Nkanga (2007:16), managing and administering pension funds have continued to pose a major challenge to government in Nigeria. Yet, pension that guarantees an employee certain comfort in his or her inactive years is critical to the sustenance of the life of the individual and the society. Today, in our society most workers are not covered by any reasonable form of retirement benefit arrangement, while the few schemes that exist, suffer from poor management.
Pension Reform, as a result of numerous problems associated with pension management, is not a new issue. According to Blake, (2003) as quoted in Olurankinse (2010:179) Pension Reform in any part of the world is not new; it is usually a continuous process, especially with the ever-changing economic and political processes witnessed in all the parts of the world. The United Kingdom, one of the first countries to introduce a pension scheme, has conducted several pension reforms, the latest being the pension reform under the labour government of Tony Blair in 1997 (David, 2003).
Nigeria’s first ever legislation instrument on pension matters, according to Balogun (2006:59), was the pension ordinance of 1951 which had retrospective effect from January 1, 1946. The National Provident Fund (NPF) scheme, established in 1961, was the first legislation enacted to address pension matters in Nigeria. Pension Act No. 102 of 1979 as well as the Armed Forces Pension Act No 103 of the same year, all took their bearing from the 1961 enactment. The Police and other government agencies’ pension scheme was enacted under the pension Act No75 of 1987, followed by the local government pension Edict which culminated into the establishment of the local government staff Pension Board of 1987. In 1993, the National Social Insurance Trust Fund (NSITF) scheme was established by Decree No 73 of 1993 to replace the defunct NPF Scheme with effect from July 1, 1994 to cater for employees in the private sector of the economy against loss of employment income in old age, invalidity or death. Prior to the Pension Reform Act 2004, (PRA), most public organizations operated a defined Benefit (pay-as-you-go) scheme. Final entitlement was based on length of service and terminal emoluments. The scheme, Defined Benefit Scheme, was funded by the Federal Government through budgetary allocation and administered by the Pension Department of the office of the Head of Service of the Federation. According to Komolafe (2004), as quoted in Sule and Ezugwu, (2009:49), “The Nigerian Pension System in general is very much fragmented, lacks adequate overall policy, a legal and regulatory framework and an empowered coordinating body to supervise it”. Adegbayi (2005), as quoted in Sule and Ezugwu (2009:49), also has this to say, “Nigeria must avoid minor pension reforms that are repeated periodically because of political problems associated with such adjustments. When Schemes are frequently redefined, they only create uncertainty”. The Pension Reform Act 2004 (the contributory pension scheme) if well implemented, will go a long way to solving the problems associated with the administration of pension in Nigeria.
1:2 Statement of the Problem
In the last three decades, most pension schemes in
the Nigerian public sector had been under – funded owing to the inadequate
budgetary allocations. The budgetary releases were far short of the due
benefits. The situation had resulted in the unprecedented outstanding pension
deficit, estimated at over
before the commencement of the pension reform act in 2004. The proportion of
pension to salary increase between 1995 – 1999 according Balogun, (2006) moved
from 16.7% to 30%. The administration of the scheme was generally weak,
inefficient and non-transparent. There was no authenticated list/data of
pensioners, while pensioners at retirement were expected to fill up to fifteen
(15) forms or documents for their pension claims. The pension administration
was characterized by sharp practices in the investment and management of the
pension funds. The problems were so much that pensioners were dying of stress
related illnesses, while queuing for verifications. The private/parastatal
schemes were more or less “resignation” rather than “retirement” schemes. Some
were not even covered by any scheme.
Generally, the pension schemes in Nigeria were largely unregulated, without any standard or supervision and were highly diversified before the advent of the Pension Reform Act 2004 (PRA).
Determined to solve the numerous problems associated with the unfunded pension schemes in Nigeria, the Federal Government in June 2004 enacted the Pension Reform Act 2004 (PRA), based on the report of various committees constituted for that purpose. The first, headed by Chief Ajibola Ogunsola, and lastly by Fola Adeola, introduced a contributory pension scheme which is based on the individual retirement savings accounts, managed by private financial institutions.
In order to solve the above mentioned problems associated with the old non-contributory pension scheme, there is the need for an up-to-date information on the investment profiles of the new pension funds in Nigeria, the indebtedness of government, issues arising from the new minimum wage, monetization of fringe benefits as well as the harmonization of the pension of those who retired before and after 1991. All these require close examination to ensure the ability of the new pension administrators to cope as expected. Against this backdrop, the following research questions were structured to guide the study:
1. What are the causes of delay in the administration/payment of pension and gratuity in Nigeria, and the impact on the retired workers?
2. To what extent is the legal framework for pension administration in Nigeria well articulated and implemented? Has it any remedy to the problem of pension administration in Nigeria?
3. What are the strategies for appropriate management of pension and pension funds to improve the condition of the retirees and reduce Government indebtedness?
1:3 Objectives of the Study
The broad objective of this study was to evaluate the implementation of the new Pension Reform Act 2004 in order to find out the major institutional structures responsible for its poor implementation or otherwise, in the federal tertiary institutions in the South Eastern States of Nigeria. The specific objectives are:
- To identify the reasons for the delays in the payment of pension and gratuity in Nigeria, especially in the selected tertiary institutions.
- To ascertain the extent to which the new legal framework for pension administration addressed the problems of the old scheme especially in the selected tertiary institutions in the South East States, Nigeria.
- To assess the management strategies of the new Pension Reform Act in the payment of pensions and gratuities and the reduction of the Government indebtedness in the selected tertiary institutions in the South East States, Nigeria.
4. To offer, based on the findings of this study and, especially lessons from other countries suggestions that will help to improve the pension administration in Nigeria generally and the federal tertiary institutions in South- East States, Nigeria in particular.
1:4 Significance of the Study
Theoretically, the study emphasizes the need to review or evaluate the pension scheme in Nigeria from time to time because of the economic instability, resulting from the global economic crisis. The theoretical significance of this study was further underscored by the work of Hughes (1993:13) that “Employers have found out that a humane and organized pre-and post-retirement policy is a very good investment that makes the employee feel more confident and settled as retirement approaches. He or she is likely to be less stressed and more positive and productive”.
It is therefore necessary to evaluate the implementation of the 2004 Pension Reform Act in the federal tertiary institutions in the South East States of Nigeria, to see if the provisions of the Act were well implemented and the objectives achieved.
The study was expected to contribute to the data bank, for solutions in the administration of pension/gratuity in Nigeria generally and in the selected institutions in particular and thereby, add to the body of literature in the areas of administration of pension and gratuity thus providing useful data for future research in these areas.
Empirically, the study was expected to:
Provide the government and other agencies concerned with a blue print for the improvement of pension and gratuity administration in Nigeria;
draw attention to the critical roles of such bodies/groups as the pension Fund Administrators (PFA), Pension Fund Custodian (PFC), National Pension Commission (NPC), The Contributors (Employers/Employees) etc in the administration of the new pension Reform act 2004; and
enhance the performance of all those involved in the administration of pension in Nigeria.
1:5 Scope and Limitations of the Study
The scope of the study was an assessment of the implementation of the 2004 Pension Reform Act in the selected Federal Institutions in the South East States of Nigeria as shown under the population of study. Although its focus was on the implementation of the Pension Reform Act 2004 in these Institutions, its findings were generalized to all tertiary Institutions.