e-sRC

CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Pension as a subject has witnessed reforms due to its relevance in the world today.
These reforms were made possible with the increasing public interest on the issue of
pension. What has brought about such increased public interest lies mostly on domestic
socio economic factors such as the concerns raised about the ability of members of the
older population to cater for themselves after retirement. Pension scheme is an aspect of
social security scheme; it is a policy that was designed to provide retirement benefits to
employees leaving an organization.
The idea of retirement benefits was introduced into Nigeria public service sector with
the enactment of pension’s ordinance during the British colonial era. This ordinance was
enacted in 1951 and had a retrospective effect from January 1, 1946. The pension system
in Nigeria has witnessed different changes since the country’s independence in 1960.
However, in 1979, the pension decrees No. 102, 1979 (which also had retrospective
effect from April, 1974) was promulgated and it consolidated all previous enactment
(Faruk, 2011).
The primary source of pension laws in Nigeria is the constitution of the Federal
Republic of Nigeria (Promulgation) 1989 No. 12, Section 171, 208 and 309 which
provide for the protection and regulation by law of the pension and gratuity rights of
pension of employees in the federal public services; public service of the state and service
of the local government.
The management and administration of retirement benefit funds was governed by
various statutes and statutory regulations. They include the pension decree No. 102, 1970,
the Armed Forces pension Decree No. 103, 1979, the various state government, local
government staff pension Board Edicts.
For quite a long-time, public sector pension has been the ideal scheme providing a lot
of contingency benefit in addition to gratuity and pension for life, pension rights of
employees of government are protected by law under the constitution and the benefits
increase regularly to cope with rising cost of living. But the system has collapsed as a
result of dwindling revenue of the Federal Government and the fact that the scheme was
not funded and non-contributory coupled with recklessness on the part of government,
mismanagement and corruption.
Nevertheless, the administration of pension in Nigeria was later confronted with a lot
of structural, demographic and institutional problems. It is worthy of note, that the
problems associated with pension administration are not in any way peculiar to Nigeria
alone. Worldwide the administration of pension is bedevilled with a lot of problems.
Consequently, there is global leaning towards pension reform as the traditional system of
pay as you go (PAYG) became inadequate. Pursuant to this development, government of
respective countries, in a bid to address these problems associated with pension
administration saw a general acceptance of the “Contributory Pension Scheme” as the
way forward which Nigeria was not an exemption.
In Nigeria, the pension Reform Act, 2004 provides the framework within which the
new contributory scheme is to be administered. The choice to replace the PAYG is
attributed to the following factors:
i. Prior to 2004, the public service pension scheme was largely unfunded and
wholly dependent on highly unpredictable and epileptic budgetary allocations.
ii. The annual budgetary allocation for pension has been one of the most vulnerable
items in budget implementation in the light of resources constraint. Indeed, even
where budgetary provision is made inadequate and untimely release of funds had
adversely affected the payment of retirement benefits.
iii. It is also envisaged that in a few years to come pension salary might exceed the
salary of active workers (Maiturare 2006:1-2).
The Contributory Pension Scheme is largely a private sector initiative. It is
contributory in nature, fully funded based on individual accounts that are privately
managed by Pension Fund Administrators (PFA). As stated in the Pension Act 2004, the
contributory system requires that employees contribute 7.5% of their monthly emolument
(Basic salary, housing and Transport Allowance) and the employer contributes 7.5% in
the case of the public sector. While the military personnel contribute 2.5% and the
employer contributes 12.5%. Employers and employees in the private sector contribute a
minimum of 7.5% each, of the monthly emolument of employees. An employer is
obliged to deduct and remits contribution to a custodian within 7 days from the day the
employee is paid his salary, while the custodian shall notify the PFA within 24 hours of
the receipt of remitted pension funds (PenCom, 2004).
Flippo (1984; 547) observed that if the first function of a personal manager is that
of procuring employee from the society for use in the organization, it is logical that the
final function should be the returns of those employee to that same society.
According to Chancellor Otton Vonbismarck (Ritter 1983: 131) “whoever has
pension to look forward to in his old age is much more contented and more easily taken
care of than the man who has no prospect of any. On another occasion he remarked that
such pension would teach even the common man to look upon the empire as a benevolent
institution.
1.2 Statement of the Problem
It is possible to envision a Nigeria where the retirees through a well administrated
pension scheme, would live a relatively comfortable life with the ability to afford good
health care, good quality food, housing, and other personal need they desire.
The old pension scheme which was administered in Nigeria, 1951 – 2003, could not
achieve this vision. The course according to Balogun, (2006) emanated from complexity
in its administration which involved the long and tiring process of identification of
pensioners, determination of amount of entitlements, and reconciliation of government
overall pension liability for budgetary and planning purposes. The resultant effects of
these was delay in pension payment which could last for long period of time, and the
difficulty of pensioners to cater for their needs (unavailability of their pension benefit).
The new Contributory Pension Scheme is established to solve some of these
administrative problems experienced with the old schemes. One of such method is to
have eligible individuals (as spelt out in the pension Reform ACT, 2004) have a RSA
where their pensions will be accumulated and saved until retirement. This evidently
would remove the issue of calculating entitlements of retired individuals and also remove
the problem of trying to identify who are eligible pensioners. This therefore means that
the delay in pension payments and the relative reduction of pensioners’ inability to cater
for their needs, as experienced in the old scheme will be eliminated.
However, having being implemented for 10 years (2004 – 2014), by the Pensions
commission, the study tends to find out whether any delay still exist in pension payments,
and whether the pool of saving as suggested by the contributory pension scheme is able
provide the needed livelihood for retirees, a situation which raise questions that
challenges the capacity of the Contributory Pension Scheme to achieve its objectives,
which are: to ensure that all workers in both the public and private sectors receive their
pensions as at when due, and to assist individuals to save in other to cater for their
livelihood during old age. The pertinent question is therefore, have these objectives been
realized?
Research Questions
In view of these research problems identified above, the following questions were
addressed in the course of the research.
i. To what extent has the Contributory Pension Scheme ensured timely payment of
retirement benefits to public services retirees in Nigeria?
ii. To what extent has the Contributory Pension Scheme ensured that the retirement
benefits received are sufficient to cater for the needs of public service retirees in
Nigeria?
iii. What are the challenges of the Contributory Pension Scheme of public service
retirees in Nigeria?