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THE IMPACT OF THE IMPLEMENTATION OF PENSION
REFORM ACT 2004 ON THE PENSIONERS’ WELFARE: A
STUDY OF NNAMDI AZIKIWE UNIVERSITY, AWKA FROM
2004 – 2012
BY
NWAFOR, MABEL NWAYONDU
PG/M.SC/12/62404
DEPARTMENT OF PUBLIC ADMINISTRATION AND LOCAL
GOVERNMENT
FACULTY OF SOCIAL SCIENCES
UNIVERSITYOF NIGERIA, NSUKKA
SUPERVISOR: DR. (MRS.) S. U. AGU
NOVEMBER, 2013
i
TITLE PAGE
THE IMPACT OF THE IMPLEMENTATION OF PENSION
REFORM ACT 2004 ON THE PENSIONERS’ WELFARE: A
STUDY OF NNAMDI AZIKIWE UNIVERSITY, AWKA FROM
2004 – 2012
BY
NWAFOR, MABEL NWAYONDU
PG/M.SC/12/62404
A THESIS REPORT SUBMITTED TO THE DEPARTMENT
OF PUBLIC ADMINISTRATION AND LOCAL
GOVERNMENT FACULTY OF SOCIAL SCIENCES
UNIVERSITYOF NIGERIA, NSUKKA
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR
THE AWARD OF MASTERS OF SCIENCE (M.SC.) DEGREE
IN PUBBIC ADMINISTRATION AND LOCAL
GOVERNMENT
(Field of Specialization: Human Resources Management)
NOVEMBER, 2013
APPROVAL PAGE
ii
This research work/thesis entitled, “The Impact of the Implementation of Pension
Reform Act 2004 on the Pensioners’ Welfare: A study of Nnamdi Azikiwe University, Awka
from 2004 – 2012”, written by Nwafor, Mabel Nwayondu has been approved for the
Department of Public Administration and Local Government as having met the requirement
for the award of Masters of Science Degree in Public Administration and Local Government
of the Department of Public Administration and Local Government of the University of
Nigeria, Nsukka.
……………………………… …………………………… Dr. (Mrs.) S. U. Agu Date Supervisor ……………………………… …………………………… Dr. (Mrs.) S. U. Agu Date Head of Department ……………………………… ……………………………. Prof. C. O. T. Ugwu Date Dean Faculty of Social Sciences ……………………………… ……………………………. External Examiner Date
iii
DEDICATION
This research work/thesis is dedicated to the Almighty God who is faithful to me in
all aspects of my life. His grace and mercy have been and remained fresh for me each new
day to weather both seen and unseen storms of life. To Him be all the glory. Amen. And also
to my Late Mama, Ma Jemaimah Agulonu Nwafor, whose inspiring life is evergreen in my
heart.
iv
ACKNOWLEDGEMENTS
My gratitude and thanks go to God Almighty who has made this research project a
dream come true.
I commend my Project Supervisor, Dr. (Mrs.) S. U. Agu for her immense contribution
and encouragement towards the success of this research work. May the Almighty God reward
her richly.
My thanks also go to all my lecturers who have contributed in one way or the other to
the success of this work, namely: Prof. F. C. Okoli; Prof. F. O. Onah; Prof. (Mrs.) C.
Oguonu; Prof. C. Ofuebe; Prof. (Mrs) R.C. Onah; Dr. (Mrs.) M. A. O. Obi; Dr. A. O.
Onyishi; Dr. B. A. Amujiri, etc.
I must not forget Dr. E. M. Izueke who always made himself available whenever the
need arose for the progress of the work.
I also commend my computer analyst, Mr. T. Akobi, who contributed immensely not
only in the data analysis but also in the formatting and arrangement of the work. He was
always available whenever the need arose.
Mention should also be made of the following Postgraduate Students who were
consulted from time to time when the work was in progress. They are: Mr. E. Okoye; Dr.
Aja; Mr. Nnamani; Miss Chinyere Onalu; Mr. F. Omoja etc.
Time and space will not permit me to mention everybody. May the good Lord bless
all and sundry. Amen.
v
TABLE OF CONTENTS
Chapter I: Introduction
1.1. Background to the study - - - - - - - 1
1.2. Statement of the Problem - - - - - - - 9
1.3. Research Questions - - - - - - - - 11
1.4. Objectives of the Studies - - - - - - - 12
1.5. Significance of the Study - - - - - - - 12
1.6. Scope and Limitations of the Study - - - - - - 14
Chapter II: Literature Review - - - - - - - 16
2.1. Introduction - - - - - - - - - 16
2.2. Concept of pension - - - - - - - - 17
2.3. Conceptual framework of pension reforms - - - - - 19
2.4. Selected countries and their pension scheme arrangement - - - 25
2.5. Historical background of pension scheme in Nigeria - - - - 30
2.6. The old pension scheme administration - - - - - - 33
2.7. The effect of old pension scheme administration on the active workers’
and pensioners’ welfare - - - - - - - - 37
2.8. Enactment of the pension reform Act 2004 - - - - - 40
2.9. Highlights of the Pension Reform Act 2004 - - - - - 46
2.10. Comparison between the old and new pension scheme - - 58
2.11. Comparison of Chilean and Nigerian mandatory pension system - - 60
2.12. The impact of the implementation of pension Reform Act 2004 on the pensioner’s
welfare - - - - - - - - 61
i. Achievements of the pension reform act 2004 - - - - 61
ii. Challenges in the implementation of the Pension Reform Act 2004 - 63
vi
iii. Benefits of Pension Reform Act 2004 - - - - - 69
2.13. Gap in Literature - - - - - - - - 73
2.14. Theoretical Framework - - - - - - - 76
2.15. Hypotheses - - - - - - - - - 83
2.16. Operationalization of key concepts in the hypotheses - - 84
Chapter III: Study Area and Research Procedure - - - - 87
3.0. Introduction - - - - - - - - - 87
3.1. Study Area - - - - - - - - - 87
3.2. Research Design - - - - - - - 88
3.3. Population sample size and Sampling Procedure - - - - 88
i. Population of the study - - - - - - - 88
ii. Sample Size - - - - - - - - 89
iii. Sampling Technique - - - - - - - 89
3.4. Sources and Methods of Data Collection - - - - - 90
i. Sources of Data Collection - - - - - - 90
ii. Methods of Data Collection - - - - - - 91
3.5. Reliability and Validity of Instruments - - - - - 91
i. Reliability of Instruments - - - - - - - 91
ii. Validity of Instruments - - - - - - - 92
3.6. Method of Data Presentation and Analysis - - - - - 92
Chapter IV: Data Presentation, Analysis and Findings - - - - 93
4.0. Introduction - - - - - - - - - 93
vii
4.1. Presentation and data analysis - - - - - - - 93
4.2. Findings - - - - - - - - - - 97
Chapter V: Discussion of findings - - - - - 98
5.0. Introduction - - - - - - - - - 98
5.1. Findings of hypothesis one - - - - - - - 98
5.2. Findings of hypothesis two - -- - - - - - 99
5.3. Findings of hypothesis three - - - - - - - 100
5.4. Implications of the findings - - - - - - - 101
Chapter VI: Summary, Recommendation and Conclusion - - - 103
6.0. Introduction - - - - - - - - - 103
6.1. Summary - - - - - - - - - - 103
6.2. Conclusion - - - - - - - - 106
6.3. Recommendation - - - - - - - - 107
References - - - - - - - - - - 110
Appendixes - - - - - - - - - 117
viii
List of Tables
2.1. The World Bank’s Pension Conceptual Framework - - - - 19
2.2. Comparison between the Old and New Pension Schemes - - - 57
2.3. Comparison of Chilean and Nigerian Mandatory Pension System - - 59
3.1. Population Distribution of Pensioners of Old and New Pension
Schemes and Serving Workers in Unizik - - - - - 88
3.2. Sample Frame for Pensioners of Old and New Pension Schemes and
Serving Workers in Unizik - - - - - - - 89
4.1. The impact of old pension scheme on pensioner’s welfare - - - 93
4.2. Implementation of the pension reform Act 2004 and enhancement of pensioners’
welfare - - - - - - - - - 94
4.3. The effectiveness and efficiency of the institutional framework for pension
Reform Act 2004 in delivering pensioners’ welfare - - - - 95
4.4. Chi-square analysis of hypothesis one - - - - - 96
4.5. Chi-square analysis of hypothesis two - - - - - 96
4.6. Chi-square analysis of hypothesis three - - - - - 97
ix
List of Figures
2.1 Schematic Representation of Pension Reform Act 2004 - - - 74
2.2 A Unified Pension Model - - - - - - - 77
2.3 Diagrammatic Representation of Riggs Prismatic Theory - - - 81
x
List of Abbreviation
PAYG - Pay-As-You-Go
PENCOM – Pension Commission
PFA – Pension Fund Administrator
PFC – Pension Fund Custodian
CPFA – Closed Pension Fund Administrator
PTAD – Pension Transitional Arrangement Department
NAICOM – National Insurance Commission
DCPS – Defined Contributory Pension Scheme
DBPS – Defined Benefit Pension Scheme
EFCC - Economic and Financial Crime Commission
NSITF - Nigeria Social Insurance Trust Fund
RSA - Retirement Savings Account
CPS - Contributory Pension Scheme
NEEDS - National Economic Empowerment and Development Strategies
MDGs - Millennium Development Goals
PCs - Personal Computers
ILO - International Labour Organization
IMF - International Monetary Fund
PRTT - Pension Reform Task Force Team
PRA 2004 – Pension Reform Act 2004
SOEs - State Owned Enterprises
RBBRF - Retirement Benefits Bond Redemption Fund
NECA - Nigeria Employers Consultative Assembly
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NUP - National Union of Pensioners
NDC - Notionally Defined Contribution
BOT - Board of Trustees
SEC - Securities and Exchange Commission
JTB - Joint Tax Board
TUC - Trade Union Congress
NLC - Nigerian Labour Congress
IDTs - International Development Targets
NPF - National Provident Fund
Unizik - Nnamdi Azikiwe University
ASUTECH - Anambra State University of Technology
SPSS - Statistical Package for Social Sciences
ANOVA - Analysis of Variance
xii
ABSTRACT
The thrust of this study is to examine the impact of the implementation of the Pension Reform Act 2004 with particular reference to Nnamdi Azikiwe University, Awka from 2004 – 2012. The primary objective was to systematically study the Pension Reform Act 2004 and to find out its effectiveness and efficiency in enhancing pensioners’ welfare. To achieve this objective the researcher stated three research questions and three hypotheses for which a structured questionnaire containing thirty seven (37) question items was constructed. The responses to the question items constituted the data for the study. The data extracted from the questionnaire were presented and analyzed from which the following findings were made: Majority of the respondents agreed that the problems of the Old Pension Scheme negatively affected the pensioners’ welfare; the respondents agreed that the implementation of the Pension Reform Act 2004 has not significantly enhanced the pensioners’ welfare; the respondents agreed that the institutional framework for the implementation of the Pension Reform Act 2004 is not significantly effective and efficient in delivering pensioners’ welfare in Nnamdi Azikiwe University. Based on the findings, the following major recommendations were made: Public enlightenment mechanism for the beneficiaries and the public about the operations of the new pension scheme should be instituted; Pension Fund Administrators should ensure that they have a credible and competent workforce that will guarantee the issuance of accurate statement of account regularly. Any employer who fails to account accurately for his employees’ contributions should be adequately sanctioned as provided by law to serve as deterrent for others. There is urgent need for regular training and development for human resource managers and others, etc. The researcher hereby recommends further research on possible amendments on the gray areas in the Pension Reform Act 2004 and the impact of the reform on the private sector’s employees and pensioners.
.
1
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND TO THE STUDY
It is in the nature of man to pass through a life cycle (childhood, youth and
adulthood/old age), except in an occasion when this cycle is cut short by premature death. In
like manner, the working lives of employees move continuously towards a certain direction
that is from employment, to growth, to retirement (or can be terminated either by death or
disability). Since man is naturally born to grow and become old – the stage when it is usually
too difficult to work and earn a living – planning for retirement/old age becomes expedient.
The extent an individual is committed to this cause during his active productive years makes
a difference in the quality of life he enjoys at his old age and longevity.
As people grow old they work, produce, and earn less and therefore need a secure
source of income to see them through their lifetime. To this extent societies and governments
have developed mechanisms to provide income security for their older citizens as part of the
social safety net for reducing poverty. No doubt, these arrangements should be a source of
concern for everyone – rich as well as poor, young as well as old – because the arrangements
adopted can either help or hinder economic growth (World Bank, 1994).
Pension has been a common global discourse in the contemporary literature. The past
decade has brought recognition of the centrality of pension systems to the economic stability
of nations and the quality of life and longevity of their workers after retiring from active
service (Holzmann and Hinz, 2005). This notwithstanding, there has been an emergence of
what Barr (2006) called ‘a pension crisis’ caused by high and rising pension costs which has
created worries. In fact, the global trend is a total paradigm shift towards definite and fully
funded contributory schemes. In most countries pension plans are defined benefit plans
financed on a Pay-As-You-Go (PAYG) basis, through pay roll taxes that can be adjusted
2
periodically to ensure that revenues are sufficient to meet current pension obligation (Dalang,
2006).
The World Bank, in 1994 published a path-breaking seminal book on pension reform
entitled, “Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth”
(Orszag and Stiglitz, 1999). The Bank delivered its new ideas on pension systems in this
landmark report which became the reference point for the Bank’s approach to pension
reforms. It advocated a move away from pay-as-you-go financing which has dominated
pension provision in both rich and poor countries. The report backed compulsory funded
pensions, and paid for by workers saving part of their earnings in retirement accounts.
Since1994 the Bank has been involved in pension reform in more than 80 countries, and
provided financial support for countries to grow. According to the Bank, the main objectives
of pension systems are: poverty alleviation, consumption smoothing from one’s work life into
retirement and the broad goal of social protection. Consequently, reforms along these lines
have been carried out mainly in Latin America and the post-Soviet “transition countries”.
Chile was the first to embark on the reform as early as 1981. In all, twelve countries in Latin
America have passed laws introducing mandatory savings; ten have implemented them. In
Europe and Central Asia, fourteen countries have decided to introduce individual accounts
whilst ten actually made the change (Dalang, 2006; Holzmann and Hinz, 2005).
After a critical assessment of the various pension schemes of the various countries,
the World Bank on 21st February, 2005, released a new report titled “Old Age Income
Support in the 21st Century”: An International Perspective on Pension Systems and Reform”.
The report emphasized the need for change as most pension schemes in the world do not
deliver on their social objectives. Pension schemes create distortions, impose marginalization,
old age poverty, post retirement sufferings and ultimately lead to untimely death. Above all,
they distort market economies and are financially unsustainable because they are expensive to
3
run and the process fraudulent even by those mandated to administer the pensions (Asuquo,
Akpan and Tapang, 2012).
In an attempt to reposition pensions, the report stated that any pension reform should
consider:
i. The informal sector which incidentally makes up for more than half of the labour
force
ii. Catering for people who will be poor throughout their lives, and
iii. Those that will be physically challenged
In 1996, the International Development Targets (IDTs) were set to improve economic
well-being, social and human development and ensure environmental sustainability and
regeneration in readiness for the fight against poverty in the emerging Millennium. In
September, 2000, 149 world leaders adopted the United Nations Millennium Development
Declarations which its fundamental values bind countries to do more in the realm of human
development. Part of the mandate was to ‘halve the proportion of people whose income is
less than one dollar a day and who suffer from hunger’. Emerging from the Millennium
Development Declarations are Millennium Development Goals (MDGs), which are a set of
specific, qualified and time-bound targets on the various dimensions of human development –
income, poverty, hunger, health, education, gender, equality, and environmental
sustainability. Their importance for the global community is exemplified by their increasingly
becoming the driving force for development policy internationally, the means for productive
life for the billions plus people living in extreme poverty as a way to secure a peaceful world
for all (UN, 2013; NEEDS, 2004).
Income security in old age is a worldwide problem, but its manifestations differ in
different parts of the world. In Africa and parts of Asia, the old make up a small part of the
population - and have long been cared for by extended family arrangements, mutual aid
4
societies, and other informal mechanisms. Formal arrangements that involve the market or
the government are rudimentary. But as urbanization, mobility, wars and famine weaken
extended family and communal ties, informal systems feel the strain. That stain is felt most
where proportion of the population that is old is growing rapidly, in consequence of medical
improvements and declining fertility (Word Bank, 1994). Agreeably, in Nigeria, old people
were cared for through the extended family system. The aged had the opportunity to live with
the children and younger relatives who provided him with his needs.
Today, the story is different because the society is dynamic. There has been
dislocation in the societies set up brought about by rural-urban migration of youth and young
people in search of white collar jobs. The demographic changes have affected the traditional
parent-offspring relationship. They now live in very distant locations apart from one another.
Western civilization made it possible for people to seek for paid employment in urban cities
which sometimes are far away from their villages. The evolution of paid employment
precipitated the concept of pension. The idea is that since workers spend the whole of their
productive lives working for their employers, they (employers) in turn should, of necessity,
make adequate plan for the up-keep of their workers after they retire from active service.
Pension, simply put, connotes a form of official obligation in any employment
relationship. It is a legal and economic obligation in which employers of labour are mandated
to fulfill in her contractual relationship with employees. It is a form of employers’
benevolence towards employees (Pitch and Wood, 1979) quoted in Inyokwe (2013). Pension
plans are usually established by a legal document called a trust deed with the declaration that
the funds would be administered in accordance with the rules spelt out in the document.
Employers offer pension benefits to attract, retain and reward employees. Employees, on the
other hand, rely on retirement benefits as a form of financial security in their less productive
years (Babatunde, 2012).
5
Pension industry in Nigeria has witnessed reforms over the years with the prevalence
of crisis. Employees and employers do not usually realize the necessity for planning
adequately ahead for their retirement and retirement of their employees, respectively because
the concept of pension is alien to them. This explains why most private sectors had no
pension schemes for their employees and as such the workers who retired from such private
sector organizations had no retirement benefits. Even where the scheme existed it was poorly
organized. The same poor attitude to pension schemes was prevalent in the public sector
where governments saw pension scheme as altruistic and public civil servants in pension
management handled it unethically, hence, the preponderance of crisis (accumulation of huge
pension liabilities, large scale misappropriation of pension funds, etc.) in the pension industry
before the enactment of Pension Reform Act 2004.
The first pension law in Nigeria was the Pension Ordinance of 1951. It was later
transformed into Pension Act 1958. This was the first attempt by the colonial administration
to provide for the full pension rights of the colonial administrators. However, some limited
right was granted to the Nigerian workers in the civil service at the discretion of the colonial
Governor General. This was followed by National Provident Fund (NPF) scheme established
in 1961 by an Act of Parliament 1961. The NPF was changed to Nigeria Social Insurance
Trust Fund (NSITF) in 1993 via a decree No.73 of 1993. The effective date was from July,
1994. This Act was broader based than NPF. This was the first legislation enacted to take
care of pension matters in the private organizations. Thereafter, the Pension Act No.102 of
1979, the Police and other Government Agencies’ Pension Act No.75 of 1987, and Local
government Edict which precipitated the establishment of Local Government Staff Pension
Board of 1987 (Fapofunda, 2013; Odia and Okoye, 2012; Barrow, 2008; Akhiojemi, 2004;
Balogun, 2004).
6
However, there were several government circulars and regulations issued to alter their
provisions and implementation. For example, mandatory retirement at the age of 60 years or
35 years of service, whichever comes earlier, in 1988, and in 1992, the qualifying period for
gratuity was reduced from 10 years to 5 years and that of pension from 15 years to 10 years
(Barrow, 2008) cited in Gunu and TSADO (2012).
The government operated a pay-as-you-go pension system. The pension
administration in the public sector was largely Defined Benefit (DB) pension scheme which
was neither funded nor contributory. The pay-as-you-go (PAYG) scheme was mandatory to
the public sector but optional in the private sector. The scheme was characterized by massive
accumulation of pension debt which made the scheme unsustainable due to lack of adequate
and timely budgetary provisions as well as increases in salaries and pensions. There were also
demographic shifts due to rising life expectancies, pensioners live longer which added to the
pension expenditure (Ahmad, 2006; Balogun, 2004).
Besides, the administration of the scheme was very unrealistic, inefficient, less
transparent and cumbersome. This precipitated bureaucratic bottle necks and corrupt
practices. Huge amount of resources were expended in yearly verification exercises. This
also failed to provide the desired prompt and efficient payment of pension. One of the
dailies, in collaboration observed that:
…From the revelations, it had been a conduit for a bazaar of looting and
fraud masterminded by serving civil servants against their colleagues who
had left service. The 18-page report by the Abdulrahsed Maina stank with
details of organized crime in government offices… had revealed that since
1976, N3.3 trillion had been deducted from the pensions fund nationwide
without proper accountability… Shocking also was the fact that while the
serving workers lined their pocket with the loot, an average of 50,000
7
pensioners had not been paid their pension since retirement in the past 42
years. (Sun, Monday, Nov. 5, 2012).
In spite of huge revenue accruing from oil, successive regimes could not pay the
salaries of working employees as and when due let alone pension entitlements. The looting
and “scramble” for pension funds by the pension “chieftains” were so suffocating that
President Olusegun Obasanjo, seemingly concerned about the near destitution of the
pensioners, said:
Over the years, retirement in our societies has become synonymous with
suffering as if ageing were a course rather than a blessing that it really is. Often
pensioners are forgotten by their former employers who thus accentuates
society’s attitude that rejects pensioners as spent shells. The culmination of this
persistent neglect of pensioners has become a threat to national security and
indignant pensioners are made more and more inclined to public protests and
demonstrations (Adedapo, 2004).
As already stated, old pension crisis is a global problem but the Nigerian version is
coloured with corruption and large scale embezzlement of pension funds. This is because
abinitio the pension industry was not properly organized. There were poor supervision of
pension fund administrators in the effective collection, management and disbursement of
pension funds; the various governments were insincere about pension. The aftermath of these
developments and more led retirees to become more or less baggers (Toye, 2006).The
administrators developed some unwholesome behaviours in the disbursement of pension
funds. They organized unorthodox individual retirement scheme such as large scale fraud and
collection of 10 percent kick back from pensioners as a condition for payment. These pension
administrators constituted themselves into beasts/birds of prey to their former colleagues
(pensioners).
8
It was against these myriad of problems that the Federal Government of Nigeria
constituted various committees headed by Chief Ajibola Ogunsola and Mr. Fola Adebola at
different times to look at the challenges of pension schemes in Nigeria and proffer solutions.
Fola Adebola’s committee report was enacted into the Pension Reform Act 2004 and came
into operation on 1st July, 2004 (Fapofunda, 2013; Balogun, 2004).
The reform was a part of the main policy pursued by the Obasanjo administration to
address the Millennium Development Goals (MDGs) which is anchored on National
Economic Empowerment and Development Strategies (NEEDS). The macroeconomic
framework of NEEDS under ‘Empowering the people’ involves issues relating to health,
education, environment, integrated rural development, safety nets, gender, and geopolitical
balance as well as pension reforms. The achievement of the objectives of NEEDS’
programme rests on four key strategies, one of which is ‘implementing a social charter’. In
order to harness the full potentials of the citizenry, NEEDS aims at alleviating poverty
through ensuring functional, sound and qualitative health and educational systems,
employment generation for the youth. This is the overarching ultimate goals of NEEDS. The
previous pension scheme which was in crisis was then replaced with a Contributory Pension
Scheme by (the Act) to give the retired citizens a better life after retirement (ArticleNG,
2013; NEEDS, 2004; Charles, Mordi, and Abwaku, nd.).
The Pension Reform Act 2004 (the Act) was therefore enacted to correct these
abnormalities in the system. Based on these wrong attitudes, Obasanjo administration
introduced a pension system that is, according to him, sustainable and has capability to
achieve the ultimate goal of providing a stable, predictable and adequate source of retirement
income for each worker in the country (Ahmad, 2012). The pension reform Act 2004 (the
Act) was signed into law which gave birth to Contributory Pension Scheme (CPS) fully
funded, privately managed, and based on individual account for both the public and private
9
sector employees in Nigeria. The main objectives of the Act is to ensure that every person
that worked in either the public or private sector in Nigeria receives his/her retirement
benefits as and when due. The Act, among its various provisions, repealed the Pension Act
1990 and other Acts pertaining to pensions were either entirely repealed or amended
(Adedapo). The Federal Government has found the global trend in paradigm shift in pension
industry – Contributory Pension Scheme. It is in realization of this fact that the researcher
decided to conduct a study on the impact of the implementation of the Pension Reform Act
2004 (Contributory Pension Scheme) on the pensioners’ welfare in Nigeria with particular
reference to Nnamdi Azikiwe University, Awka. The justification for the sample is that the
University has operated old pension system (PAYG) and is currently operating the
contributory pension scheme. The sample also possesses the same characteristics with other
federal Universities.
1.2. STATEMENT OF THE PROBLEM
The issue of receiving retirement benefits is becoming increasingly a nightmare to the
Nigerian ‘senior citizens’ (retirees). Life after retirement is one of the dreaded periods of
most workers in Nigeria. The fear of uncertainty after retirement is also responsible for age
falsification among civil servants in Nigeria. Retirement in Nigeria is now synonymous with
deprivation and suffering. Most often gratuities and pensions are not paid as and when due,
consequently, retirees cannot afford three square meals a day, let alone paying school fees
for their children, pay house rents or take care of other necessities of life (Global Action on
Ageing, 2006). It is observable that most often a number of these pensioners die without
accessing their entitlements. In a bid to make ends meet, retirees even at very old age look for
employment or jobs. Although the pension industry has witnessed series of reforms since
independence, the implementation has not actually made any significant impact in the welfare
of the beneficiaries – pensioners. This is because pension administration in Nigeria is poorly
10
handled. The problem with Nigeria is that most of its laws are only good on the paper.
Nigerians are recently projected globally in very bad image because of scandalous and
startling revelations of massive looting and fraud masterminded by serving civil servants
against their former colleagues who had left service. A staggering amount running into
inestimable trillions was looted from pension funds by the stakeholders in the administration
and management of pensions (Gbenga, 2012; Emewu, 2012). This was just one out of many
of the massive looting and “scramble” to empty public treasury. The fraud is not only in
pension funds, it is also obtainable in the entire public service. It is only in this era of societal
decay and deadly quest for materialism that “a rat can conveniently eat the fish hung round its
neck”. It is only in today’s Nigeria that public servants embezzle funds in their custody
without adequate punishment. The institutionalized procedures for sanctions against fraud are
treated casually as mere rituals. These precipitated neglect in the administrative
accountability and transparency in daily activities of public servants.
The humiliating aspects of the pension administrators are many. They loot the pension
funds. Starved and deprived pensioners are forced to queue as well as mill around the
verification centres at regular intervals for verification and biometric capture across the
country. These tactics create confusion, delay payment or prepare grounds for outright fraud
in pension fund management. It was Balogun (2006), who affirmed that restrictive and sharp
practices in the investment and management of pension funds exacerbated the problem of
pension liabilities. The implication is simple to observe, huge budgetary allocations made in
the past for the payment of both pensions and gratuities did not trickle down to the pensioners
in general and those of Nnamdi Azikiwe University Awka, in particular. Nigeria is fast
losing its retirees due to greed and insensitivity of the government and those charged with
both pension and gratuity funds. It is in the spirit of improving the economic well-being of
pensioners in their post-retirement lifestyle that the Federal Government of Nigeria carried
11
out a general overhaul of the Defined Benefit Scheme hinged on Pay-as-You-Go (PAYG) via
the Pension Reform Act 2004; and how far the implementation of this Act has gone in
improving the welfare of these pensioners is the worry of this study.
Section 23, Chapter 11 of the 1999 Constitution says: “The National Ethics Shall Be:
(i) Discipline (ii) Integrity (iii) Dignity of Labour (iv) Social Justice (v) Religions Tolerance
(vi) Self-Reliance and (vii) Patriotism”. The civil servants’ attitude to work and their
response to globally accepted norms control the quality of service that they render to the
public. But rather sloths, delinquent, disrespectful, and negligent, were the negative traits of
their performance which the citizens perceive the public service portrays. The public servants
must be truly committed to hard work, sacrifice, discipline and patriotism for positive change.
These are the fundamental objectives and directive principles the State Policy needs to steer
and stir the ship of the New Pension Reform Act 2004 (the Act) by all the stakeholders. It is
in the light of the above that the researcher poses the following research questions.
1.3. RESEARCH QUESTIONS
1. Did the problems of the Old Pension Scheme negatively affect the pensioners’
welfare in Nnamdi Azikiwe University, Awka?
2. Has the implementation of the Pension Reform Act 2004 significantly enhanced the
pensioners’ welfare in Nnamdi Azikiwe University, Awka?
3. Is the institutional framework for the implementation of the Pension Reform Act 2004
significantly effective and efficient in delivering pensioners’ welfare in Nnamdi
Azikiwe University, Awka?
4. What are the possible measures for effective and efficient implementation of the New
Pension Reform Act?
12
1.4. OBJECTIVES OF THE STUDY
The general objective of this study is to systematically study the Pension Reform Act
2004 and to find out its effectiveness and efficiency in enhancing pensioners’ welfare.
The specific objectives are to:
1) determine whether the problems of the old pension scheme affected the welfare of
pensioners in Nnamdi Azikiwe University, Awka.
2) ascertain whether the implementation of the Pension Reform Act 2004 has
enhanced the pensioners’ welfare.
3) find out if the institutional framework for the implementation of the Pension
Reform Act 2004 is effective and efficient in delivering pensioners’ welfare in
Nnamdi Azikiwe University, Awka.
4) suggest possible measures for effective implementation of the Pension Reform
Act 2004.
1.5. SIGNIFICANCE OF THE STUDY
The study has both theoretical and practical significance. From the theoretical view
point, the study has theoretical significance for productivity theory of pension as propounded
by Dorsey; Cornwell and Macpherson (1998), and The Theory of Prismatic Society, by Fred
W. Riggs, 1964 in (Onah, 2008; Ezeani, 2005; Okoli, 2004; Kasfir, 1969).
The productivity theory of pension has two sides: demand and supply sides. The
demand side of the theory posits that employers make payments to employees’ pension funds
because workers are keen or prefer pension savings to cash payments to their emoluments
because of the benefits attached such as reduction in income tax, retirement benefits, annuity
etc. The supply side of the theory posits that employees’ gain from pension tends to raise the
level of workforce productivity and reduce labour costs. This is because employers tend to
invest adequately in the training of workforce, improved condition of service, provision of
13
adequate resources, etc., that are greatly offset by the workforce’s improved output or
productivity, workers retention, which are inherent in defined benefit pension scheme.
The knowledge of this theory will help the employers and implementers of the
pension Act to acknowledge the fact that the enactment of the Act is as important as its
implementation and that for this well-designed pension plan to deliver on its policy outcome
this theory must serve as a reference point by all the stakeholders and must rise up to the
inherent challenges. It is also expected that the knowledge of this theory will help
contributors and pensioners to develop confidence in the pension scheme.
The prismatic theory deals with a range of social phenomena and behaviour which
influence the political and administrative aspects of life in developing countries. The
knowledge of this theory will expose the extent to which negative work ethics in the Nigerian
public service has affected the pension industry and the need for the political will to curb the
corrupt practices in public life.
The study is also very important and useful, particularly as the Federal Government’s
Vision 20:2020 is on course - (NV20:2020 portrays Nigeria’s intent to improve the living
standard of her citizens as well as place Nigeria among the top 20 economies in the world).
The study may be of practical significance because the findings would enlighten both
the government and public servants on the need for international best practices needed for the
success of the implementation of the Act. It would guarantee improvements in the
management of pensions in Nigeria. The findings would educate the pension fund operators
(PFAs, PFCs, etc) on how to operate with competitive spirits. The findings will go a long
way in benefiting the pensioners, their dependants and survivors, government and public at
large because a well implemented pension scheme makes for healthy living of the pensioners
14
and the society in general. A healthy society is a powerful economic resource to any
government.
The knowledge of the prismatic theory of administrative weakness in developing
countries will help the government and policy makers to appreciate the impact of
environmental factors on the Nigeria pubic administration which calls for urgent change in
attitude and will also sharpen their competence and expertise in policy designs, possible
reforms targeted at institutionalizing corporate best practices particularly in the pension
industry. The result of this study may elicit the urgent need for regular training for higher,
middle and low cadre manpower that constitute the institutional framework for the
implementation of Pension Reform Act 2004. The findings would serve as guide for possible
amendments in the Act.
Finally, the findings will contribute to the existing knowledge for students of Public
Administration and Local Government. It would also elicit further research.
1.6. SCOPE AND THE LIMITATIONS OF THE STUDY
This work is geographically restricted to Nnamdi Azikiwe University, Awka,
Anambra State for the purpose of effective research work. The content scope covers the
implementation of the Pension Reform Act 2004 as it affects the pensioners’ welfare in
Nnamdi Azikiwe University, Awka, from 2004 to 2012.
The researcher encountered some difficulties in the course of this study. It was
difficult to get the retirees to complete the questionnaire. This was because the retirement
benefits are being paid in their individual banks as against the old method of converging in
the school or at a designated bank on a pay day to collect their pension entitlements; as such
the pensioners had to complete the questionnaire at their convenient time with the help of two
trained Research Assistants. This prolonged the time for completion and collection of the
questionnaire.
15
Also there was the problem of the respondents supplying valid data. Some people
tended to report idealized situation rather than what is done in practice while some just
treated the exercise with levity. To bridge these lapses the researcher administered the
questionnaire twice to some key respondents (head of departments, senior lecturers and
senior administrative officers). Also the existing knowledge about the issue under
investigation and findings through documentary review helped to analyze the data supplied.
However, the researcher enjoyed the full cooperation of a good number of the
serving workers by their being prompt and earnest in completing the questionnaire because
pensions administration is topical.
There was also the challenge of using computer for sourcing internet materials,
processing and analyzing data in the course of the study since the researcher is just a first
timer in the exercise.
16
CHAPTER TWO
LITERATURE REVIEW
2.1. INTRODUCTION
This chapter focuses on the review of related works on our chosen topic. It is broken
into the following main sub-headings:
(i) Concept of pension and pensioners’ welfare
(ii) Historical background of pension scheme in Nigeria.
(iii) The problems of old pension scheme administration
(iv) The effect of old pension scheme administration on the active workers’ and
pensioners’ welfare
(v) Highlights of the Pension Reform Act 2004
(vi) The impact of the implementation of the Pension Reform Act 2004 on pensioners
welfare
(a) Achievements of the contributory pension scheme
(b) Challenges in the implementation of the contributory pension scheme
(c) Benefits of the contributory pension scheme to pensioners
(vii) Differences between Old and New Pension Schemes.
(viii) Comparison of Chilean and Nigerian Mandatory Pension Systems.
(ix) Schematic Representation of Variables of Pension Reform Act 2004.
(x) Theoretical Framework.
(xi) Hypotheses
(xii) Operationalization of key concepts in the hypotheses
17
2.2. CONCEPT OF PENSION
The concept of pension can be said to be in consonance with the Igbo adage, “the
firewood that one gathers in the raining season, one uses to keep oneself warmth during the
dry season”. It means that how well he/she leaves during his/her old age is dependent on how
well he/she plans for his/her future during his/her active productive years. “When someone
fails to plan he plans to fail”, as the saying goes.
Pension is simply the amount set aside either by an employer or an employee or both
to ensure that at retirement, there is something for the employee to fall back on as income. It
ensures that at old age workers will not be stranded financially. It is aimed at providing
workers with security by building up plans that are capable of providing guaranteed income
to them when they retire or to dependants when death occurs (Fapohunda, 2013).
According to Encyclopedia Americana, Vol. 21, 19, pension is a periodic income or
annuity payment made at or after retirement to an employee who has become eligible for
benefits through age, earnings and service. Benefits may also be paid in the event of death,
total disability or job termination. Pension payments are usually in monthly installments.
Also, World Bank (2004) defines pension as a form of income that workers or their
spouses receive after the workers retire, become disabled or die. Pension entails money paid
at regular bases by government or any establishment to someone who is officially considered
retired from active service after serving for a stipulated time usually minimum of ten years
and maximum of thirty five years (Ikeji; Nwosu and Agba, 2011). Pension schemes are social
security maintenance plan for workers after their disengagement as employees through
retirement (Ilesami, 2006). A pension fund is any collective arrangement or scheme which
has as one of its main objectives, the provision of retirement benefits for working persons
either in the form of regular income during retirement years or a lump sum at retirement.
Pensions are usually established by a legal document called a Trust Deed with the declaration
18
that the funds would be administered in accordance with the rules spelt out in the document.
Employers offer pensions benefit to attract, retain and reward employees. Employees on the
other hand, rely on retirement benefits as a form of financial security in their less productive
years (Babatunde, 2012). Fapohunda (2013) also posits that the reason for pension scheme
stems from the fact that first; an organization has a moral obligation to provide a reasonable
degree of social security for workers especially those who have served for a long period.
Second, the organization has to demonstrate that it has the interest of its employees at heart
through pension schemes.
Since pension is meant for persons in societies that are dynamic, it is constantly
undergoing changes or reforms. Across the globe, the wind of reforms in the pension system
has blown in virtually every continent (http//onegoodmove.org/lgm/marchive/
2004/12/privatization_ s.html) in Orifowomo (2006). Countries around the world need to
reform their pension systems to meet demographic challenges and to reflect changes in labour
markets and industrial, economic, and social structures. The spread of these schemes through
Latin America from the mid 1990’s and through Eastern Europe in the years since then is
quite dramatic (Orifowomo, 2006). Countries that have introduced various forms include:
Bolivia, Chile, El Salvador, Mexico, Argentina, Costa Rica, Uruguay, Croatia, Latvia,
Poland, Hungary, Bulgaria, Sweden, Lithuania, Colombia, Australia, and Slovak Republic
(White house, 2005). Many more countries are at various stages of the reform process,
including Lebanon and Ukraine. Nigeria introduced its Pension Reform Act in 2004.
19
2.3. CONCEPTUAL FRAMEWORK OF PENSION REFORMS
Table 2.1: The World Bank’s Pension Conceptual Framework
Initial Conditions I. Inherited System
• Elderly vulnerability and poverty prevalence in absolute terms and relative to other age groups
• Existing mandatory and voluntary pension systems
• Existing social security schemes
• Existing levels of family and community support II. Reform needs – such as modifying existing schemes in the face
of fiscal unsustainability, coverage gaps, aging and socio-economic changes assessed against the primary and secondary evaluation criteria below
III. Enabling environment
• Demographic profile
• Macroeconomic environment
• Institutional Capacity
• Financial market status
Core Objectives of
Pension Systems • Protection against the risk of poverty in old age
• Consumption smoothing from work to retirement
Modalities for
achieving
objectives
• Zero Pillar – non-contributory basic benefits financed by the state, fiscal conditions permitting
• First Pillar – mandatory with contributions linked to earnings and objective of replacing some portion of lifetime pre-retirement income
• Second Pillar – mandatory defined contribution plan with independent investment management
• Third Pillar – voluntary taking many forms (e.g. individual savings; employer sponsored; defined benefit or defined contribution)
• Fourth Pillar – informal support (such as family, other formal social programs (such as health care or housing), and individual assets (such as home ownership and reverse mortgages)
Primary
Evaluation
Criteria
• Adequacy
• Affordability
• Sustainability
• Equity
• Predictability
• Robustness
Secondary
Evaluation
Criteria
• Contribution to output and growth through
• Lowering labour market distortions
• Contributing to savings
• Contribution to financial market development
Source: Holzmann; Hinz and Dorfman (2008)
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Conceptual Framework
The World Bank’s experience suggests that there are no universal solutions to the
complex array of pension issues nor is there a simple reform model that can be applied in all
settings. The Bank has, however, developed principles of analysis and a conceptual
framework to guide its’ work in this area. This framework incorporates assessment of initial
conditions and capacities in relation to a multi-pillar model of the potential modalities for
pension systems that establish a broad but defined range of potential reform designs. These
possible designs are evaluated against a set of primary and secondary evaluation criteria in an
attempt to reach an outcome is contoured to country-specific conditions, needs and
objectives.
The conceptual framework starts with an assessment of the initial conditions that
establish the motivation for, and constraints on, feasible reform options. Initial conditions
include inherited systems, the reform needs of such systems, and the enabling environment
which may or may not be conducive to potential elements of a reform design and process.
The inherited system includes existing mandatory and voluntary pension systems, the
acquired rights of workers and retirees, related social security schemes, existing family and
community support of retirees, and old age vulnerability and poverty prevalence. Reform
needs are determined by applying the adequacy, affordability, sustainability, equity, and
predictability and robustness criteria. Finally, the enabling environment includes the
demographic profile; the macroeconomic environment; the capacity of administrative,
regulatory and supervisory institutions; and the breath, depth and efficiency of financial
markets, particularly with respect to long-term instruments (Holzmann; Hinz and Dorfman,
2008).
Having evaluated the initial conditions and the capacity to improve the enabling
environment, the policy framework then focuses on how best to work within these to achieve
21
the core objectives of pension systems – protection against the risk of poverty in old age and
smoothing consumption from one’s work life into retirement. In setting out the objectives of
the pension system, policymakers need to consider the poverty and vulnerabilities of different
income groups. Key questions for consideration in this context are, for example, should
scarce fiscal resources be devoted towards providing old-age poverty protection in those
societies where data suggests that there are other groups such as children that may face
greater poverty prevalence of vulnerability? How much should a society aim to redistribute
income through the pension system and how can it ensure that this redistribution is made
transparent and progressive? What measures should be taken to strengthen the enabling
environment that is conducive to reform options best satisfying the core objectives? Once
these core objectives have been identified, one can then identify the mandate of the public
pension system, the balance between insurance and adequacy functions and appropriate
system design options. The framework then applies a five-pillar model defining the range of
design elements to determine the pension system modalities and reform options that should
be considered.
i. Five-Pillar Pension Model
• a non-contributory or “zero pillar” (e.g. in the form of a demogrant, social pension,
or general social assistance typically financed by the local, regional or national
government), fiscal conditions permitting, to deal explicitly with the poverty
alleviation objective in order to provide all of the elderly with a minimal level of
protection. This ensures that people with low lifetime incomes are provided with basic
protection in old age, including those who only participate marginally in the formal
economy. Whether this is viable – and the specific form, level, eligibility and
disbursement of benefits depends upon the prevalence and need of other vulnerable
22
groups, availability of budgetary resources and the design of complementary element
of the pension system;
• a mandatory “first pillar” with contributions linked to varying degrees to earnings
with the objective of replacing some portion of lifetime pre-retirement income. First
pillars address, among others, the risks of individual myopia, low earnings, and
inappropriate planning horizons due to the uncertainty of life expectancies, and the
lack or risks of financial markets. They are typically financed on a pay-as-you-go
basis and thus are, in particular, subject to demographic and political risks;
• a mandatory “second pillar” that is typically an individual savings account (i.e.
defined contribution plan) with a wide set of design options including active or
passive investment management, choice parameters for selecting investments and
investment managers, and options for the withdrawal phase. Defined contribution
plans establish a clear linkage between contributions, investment performance and
benefits; support enforceable property rights; and may be supportive of financial and
agency risks as a result of private asset management, the risk of high transaction and
administrative costs, and longevity risks unless they require mandatory annuitization.
• a voluntary “third-pillar” taking many forms (e.g. individual savings for retirement,
disability or death; employer sponsored; defined benefit or defined contribution) but
is essentially flexible and discretionary in nature. Third pillar compensate for
rigidities in the design of other systems but include similar risks as second pillar; and
• a non-financial “fourth pillar” which includes access to informal support (such as
family support), other formal social programs (such as health care and/or housing),
and other individual financial and non-financial assets (such as home ownership and
reverse mortgages where available). The availability and type of such support for the
23
aged has major bearing on the design and implementation of the pillars, including
target benefit levels.
ii. Goals of a Pension System (Reforms)
The Bank’s policy framework evaluates the overall systems designs through the
application of a combination of primary and secondary criteria. The primary criteria are the
ability of the reform to maintain adequacy, affordability, sustainability, equity, predictability
and robustness while achieving welfare-improving outcomes in a manner appropriate to the
current and expected environment of individual country:
• An adequate system is one that provides benefits sufficient to prevent old-age poverty
(at a country-specific absolute level) to the full breadth of the population in addition
to providing a reliable means to smoothing lifetime consumption for the vast majority
of the population;
• An affordable system is one that is within the financing capacity of individuals and
the society and does not unduly displace social or economic imperatives or have
untenable fiscal consequences.
• A sustainable system is one financially sound and can be maintained over a
foreseeable horizon under a broad set of reasonable assumptions.
• An equitable system is one that provides the income redistribution from the lifetime
rich to the lifetime poor consistent with the societal preferences in a way that does not
tax the rest of society external to the system; and one that provides the same benefit
for the some contribution.
• A predictable benefit is provided by a system where (i) the benefit formula is specific
by law and not subject to the discretion of policymakers or administrators, (ii) the
defined benefit formula is designed to insulate the individual from inflation and wage
24
adjustments prior to retirement or the defined contribution investment policy can
insulate the beneficiary from material effects on benefits from asset price adjustments
prior to retirement; and (iii) the benefit is automatically indexed retirement so as to
shield the worker from effects of price adjustments and
• A robust system is one that has the capacity to withstand major shocks, including
those coming from economic, demographic and political volatility
(iii) Types of Pension Reform Options
The two broad types of pension reform options are parametric and the systemic
pension reform:
(a) Parametric Reform: This involves adjustments to the parameters of the pension systems,
such as increase in retirement age, reduction in annual accrual factor, change in benefit
indexation and increase in contribution rate. These adjustments which may be ad hoc or
discretionary tend to create uncertainty and problem in the system. Majority of pension
reforms have involved adjustments to the parameters of Defined Benefit (DB) pension
systems (or points systems). Between 1995 - 2005, 18 countries increased retirement age, 57
increased contribution rates, 28 modified benefits formulas, 10 changed vesting periods, and
14 changed the contributory base and/or indexation mechanisms. However, adjustments tend
to be ad-hoc or discretionary, which create uncertainty regarding the future evolution of the
system and most often financial problem is the motivation. Parametric changes can be a
stand-alone reform as in Jordan or a part of a systemic reform as in Latin America and
Eastern Europe (Odia and Okoye, 2012; Holzmann, 2009; Ahmad, 2006; Robalino, 2005).
(b) Systemic (Paradigmatic) Reform: This involves a complete shift in the pension
systems by a country. For instance, a shift from a Defined Benefit (DB) system to a Defined
Contribution (DC) system, from unfunded to funded and from public to private
administration. Depending on the level of mix or combination of the various systems, the
25
reform may be a single pillar or multi-pillar ((Ahmad, 2006); Holzmann & Hinz, 2005). In a
World Bank’s study, Holzmann & Hinz, recommended pension reforms with multi-pillar
designs that contain some funded elements as a means of achieving effective old-age
protection in a fiscally responsible manner. The study concluded that a system that
incorporates as many of these elements as possible, depending on the preferences of
individual countries as well as the level and incidence of transaction costs, can through
diversification, deliver retirement income, more effectively and efficiently.
2.4. SELECTED COUNTRIES AND THEIR PENSION SCHEME ARRANGEMENT
The United States: The US is adjudged one of the advanced countries that set the pace in all-
round development while other countries follow. But this is not the case with her old age
pension system that has been described as ‘disappearing’. According to Capretta and Jackson
(2007), the reform of old age benefit systems… is made difficult in the United States… Most
Republicans strongly favour moving toward defined contribution personal accounts in social
security and intensifying market competition to control health-care costs, while the
Democrats favour retaining social security’s defined benefit structure and relying on
government regulation to control health-care cost. Over the years, as politicians have adhered
ever more rapidly to these opposing views, reaching a broad consensus in Congress over
reform has become nearly impossible… Unfortunately, a long delay before prudent reforms
are adopted could have the United States in no better fiscal position than, many other
industrialized countries, despite its demographic and economic advantages.
The US Senate Committee on Health, Education, Labour and Pensions, chaired by
Tom Harkin, in July, 2012 came up with a startling report titled, “The Retirement Crisis and a
Plan to Solve it”. In his comments Harkin, submitted that, after a lifetime of hard work,
people deserve the opportunity to live out their golden years with dignity and financial
independence. But for most of the middle class, the dream of a secure retirement is slipping
26
out of reach. He unequivocally remarked, “We are facing a retirement crisis. Consider the
following:
• The retirement income deficit – i.e., the difference between what people have
saved for retirement and what they should have at this point – is $6.6 trillion;
• Only one in five people in the private sector workforce has a defined pension plan;
and
• Half of Americans have less than $10, 000 in savings.”
According to the report, the retirement crisis is directly attributable to the breakdown
of the traditional “three-legged stool” of retirement security – pensions, savings, and social
security. Out of the three plans only social security is still strong, but it was always intended
to be supplemented by other sources of retirement income. In Harkin’s words, ‘the retirement
crisis is simply too big to ignore, and it is time for us to roll up our sleeves and get to work”.
A recent survey found that 92% of the people think there is a retirement crisis in America
(Allianz, 2010). The Centre for Research at Boston College estimates that USA ‘retirement
income deficit’ is $6.6 trillion. Employee Benefit Research Institute (2012) reported that,
only 14% of the people say they are very confidence they will have enough money to live
comfortably in retirement. And 69% of the people believe they could save until age 65 and
still not have enough (Transamerica Centre for Retirement Studies, 2012), while employers
are even more pessimistic; only 4% are ‘very confident’ their employees will retire with
sufficient assets (Hewitt, 2012).
Traditionally, in the US, defined benefit pension plans (“pensions”), personal savings,
and social security were seen as the three pillars creating a solid foundation for the retirement
system, each playing an important role in supporting people in old age. However, the pension
system have been in a steady decline for decades, and only one out of every five people
working in the private sector has a pension (Bureau of Labour Statistics (2010), and as
27
pensions disappear, we are losing a key source of investment capital and a driving force
behind our economy. Employers have largely stopped offering pensions at all. Those that
choose to offer their employees a retirement plan tend to provide defined contribution plans
(DC Plans), such as 401k(k) plans. Defined Contribution Plans can be an effective way to
help people save for retirement, but they are not substitutes for pensions because they do not
provide people with the same level of protection from financial risk and do not provide a
guarantee stream of income for life.
At the same time as middle class families have seen their pensions disappear,
economic conditions are making it tougher and tougher for people to save through DC Plans
or on their own. People are working longer and harder than ever before, and productivity has
steadily increased. The middle class is being squeezed, and we are at a point where half of
households would not even be able to come up with $2, 000 in 30 days if faced with an
emergency (Lusardi, Schneider and Tufano, 2011). Now, the middle class is struggling just to
keep its head above water. Thanks to social security which prevents millions of Americans
from slipping into poverty when their working years are over because, like a pension, social
security provides Americans with an income stream that they cannot outlive. However, social
security was never meant to be people’s sole source of retirement income, the programme
replaces only about 40% of the average person’s income after retiring, but people typically
need 65 – 85% of pre-retirement earning to maintain their standard of living (Social Security
Administration, 2012).
In 2010, nearly 6 million Americans aged 65 and over were living in poverty or near-
poverty (Department of Health and Human Services, 2011). Below, also, are comments by
some American citizens concerning the old age retirement; culled from Harkins (2012):
• I, like millions of people in this country, have worked all my life and I have worked
very hard. And I have no retirement savings at all (Karen O’Quinn).
28
• Pensions are virtually important for keeping older Americans out of poverty. The
poverty rate in 2010 for older US households lacking pension income was nine
times greater as compared to households with pension income (Diane Oakley).
• I have paid into social security. That is one benefit to look at down the road. But in
today’s economy… social security is not going to be enough (David Muse).
• We don’t make enough to save and have no pension coming… Retirement is
supposed to be a time when you cherish your family… For me, retirement will be
the time to pick up a second, low-paying career (Teresa Law).
In his opening remarks, Gary Koenig, Director of Economic Security at AARP
described inadequate savings as an international problem and said the system in the US is not
working well enough for everyone and needs significant tinkering. At September, 17th 2013’s
event at Brookings Institute, hosted by Retirement Security Project and the AARP Pubic
Policy Institute, Speakers and Panelists discussed what the US could learn from the
retirement savings systems in Australia and Asia.
If a country like US could have its pension system in crisis so much that they needed
urgent study of some countries’ pension systems, how much less developing countries.
Nobody, no country is a custodian of knowledge. This is instructive to Nigerian policy
makers.
Sweden: In Sweden pensions are a Notionally Defined Contribution (NDC)
supplemented by mandatory funded individual retirement accounts. This leaves Sweden
better positioned to confront the age wave than most countries (Capretta and Jackson, 2007).
The UK: In the UK pension system provides an affordable public pension safety net
supplemented by a large, funded employer-based pension system as well as personal
pensions. But the interaction of public pensions with the voluntary “contracted out” employer
29
and personal pensions is complex and has come under heavy criticism for leaving a growing
number of British workers with uncertain retirement income prospects (ibid.).
Australia: In 1993, in recognition of the demographic changes, the Australian retirement
system was reformed. Australia provides a two-pillar system. The first pillar is a means-
tested program known as the Age Pension which is financed by general revenues. The second
pillar, called the Superannuation Guarantee, requires employers to contribute on behalf of
their employees to privately managed funds. Employers make contributions to these funds at
the rate of nine percent of employee earnings and some employers make contributions that
are above what is required. Benefits may be paid out as early as age 55, either as an annuity
or as a lump sum. Thus, Australia has approached the problem of improving retirement
income not by expanding public programs, but by imposing a mandate on all employers to
offer at least one contributory retirement plan to all employees. The accounts are intended to
be portable and are managed by the private sector. However, because the accounts are
provided on an individual employer basis with the fund selected by the employer, there are
over 277,600 different funds, 99 percent of which are very small.
(http//onegoodmove.org/lgm/marchive/2004/12/privatization_s.html) in (Orifowomo, 2006).
The reform over the past decades has successfully improved retirement income prospects for
workers while increasing national savings and at least potentially lowering long-term
government costs. Australia has been described as the world reform leader by Capretta and
Jackson (2007). According to them, only Australia can legitimately claim to have solved its
old age support problem…Despite recent reforms, public benefit system in most developed
countries remain unsustainable - and even where long-term costs have been controlled,
serious concerns remain.
30
Nigeria and Chile each operated a rather fragmented system. By 1980, there were some
32 different pension schemes in Chile and under these nearly 100 different plans. Although
three schemes accounted for the majority of contributing members - blue-collar and white-
collar workers and public sector employees - these were not uniform in their conditions. The
scheme for the public sector workers was the most favourable in terms of retirement age and
benefit calculation formula (SAFP, 2003). Also in Nigeria before 2004 Reform, there were
many pension schemes (Pension Subcommittee, 1997; quoted in IMF, 2005). The NSITF
covered only the private sector workers. It was overshadowed by the various schemes for
public sector employees. There were special schemes for federal public servants, for the
(federal) police and security services and for the military. At the same time, each of the 36
federal states, plus the capital territory, had its own pension system for its public employees,
as did each of the 774 local government authorities. In addition, each of a multitude of
publicly owned (federal or state) enterprises (often referred to as ‘parastatals’) had its own
pension scheme (Casey and Dostal, 2011).
2.5. HISTORICAL BACKGROUND OF PENSION SCHEME IN NIGERIA
The first pension legislation in Nigeria was enacted in 1951 by the colonial masters,
though its retroactive effect started in 1st January, 1946. It was termed Pension Ordinance
1951 and was designed primarily for colonial officers that were deployed from one post to
another in the vast British Empire. The essence was to facilitate continuity of service
wherever they were deployed to serve. Though pensions and gratuities were provided for in
the legislation, they were not a right as they could be reduced or withheld altogether if it was
established to the satisfaction of the Governor-General that an officer was found guilty of
negligence, irregularity or misconduct (Barrow, 2008; Akhiojemi, 2007; Balogun, 2006;
Mboto, 2005). This ordinance transformed into the pension Act of 1958 (Barrow, 2008).
31
National Provident Fund (NPF): National Provident Fund was the first formal social
protection scheme in Nigeria established in 1961 by an Act of Parliament to provide income
loss protection for employees as required by the International Labour Organization Social
Security (Minimum Standards) Convention 102 of 1952 (Fapohunda, 2013). The NPF
scheme however covered only employee in the private sector, and the monthly contribution
was 6% of basic salary, subject to a maximum of N8.00 to be contributed in equal proportion
of N4.00 each by the employer and the employee. The NPF was later converted to a limited
social insurance scheme established by Decree No.73 of 1993 and administered by the
Nigeria Social Insurance Trust Fund. This was followed by the Local Government Pension
Scheme established by military Fiat in 1977 (ibid.). Pension Decree 102 of 1979 was enacted
with retroactive effect from 1st April, 1974 ( replaced by New Pension Act CAP 346 of 1990
Law of Nigeria) (Uzoma, 1993, cited in Fapohunda, 2013). Akhiojemi (n.d) observed that in
the special case of the public scheme the office of Establishment and Pensions acts as the
trustee and constitutes the rules of the scheme. The scheme was for all public servants except
those who were on temporary or contract of employment. The compulsory retirement age for
such workers was 60 years for both male and female workers except for High Court Judges
that was 65 years and 70 years for Justices of the Court of Appeal and the Supreme Court.
However, the earliest retirement age was put at 45 years provided the workers had put in 15
years of service or more. In the same 1974 the Armed forces Pension Act No. 103 was
enacted with retroactive effect from April 1974 (ibid.)
There was also the Pensions Rights of Judges Decree No. 5 of 1985 as amended by
the Amendment Decree Nos. 51 of 1988, 29 and 62 of 1991. The police and other
government agencies pension scheme were enacted under Pension Act No.75 of 1987. The
Local Government Pension Edict culminated into the establishment of the Local Government
32
Staff Board in 1987, Academic Staff of Federal Universities Act No. 11 of 1993, Security
Agencies, Police, Customs, Immigration and Prison Services Act No.75 of 1993 etc.
Nigeria Social Insurance Trust Fund: Nigeria Social Insurance Trust Fund (NSITF) was
established by Decree No.73 of 1993 to provide enhanced social protection to private sector
employees. The NSITF took over the assets of the NPF and commenced operations in July
1994. Thus, all registered members of the NPF became automatic members of the NSITF. It
was a compulsory scheme for employers with 5 workers and above and their workers
(Ahmad, 2006). Furthermore, the first private sector pension scheme in Nigeria was set up for
the employees of the Nigerian Breweries in 1954, followed by United African Company
(UAC) in 1957.
In 1997, parastatals were allowed to have individual pension arrangements for their
staff and appointed Boards of Trustees (BOT) to administer their pension plans as specified
in a Standard Trust Deed and Rules prepared by the Office of the Head of Service of the
Federation. Each BOT, according to Ahmad, was free to decide on whether to maintain an
insured scheme or self-administered arrangement. There were three regulators in the pension
industry prior to the enactment of the Pension Reform Act 2004, namely Securities and
Exchange Commission (SEC), National Insurance Commission (NAICOM) and the Joint Tax
Board (JTB). SEC was saddled with licensing pension managers while NAICOM was
responsible for licensing and regulating insurance companies in the country. The JTB
approved and monitored all private pension schemes with enabling powers from schedule 3
of the Personal Income Tax Decree 104 of 1993. The Pension Reform Act 2004 is the most
recent legislation of the Federal Government aimed at addressing the associated problems of
the old pension system. It established a uniform system for both the public and private sectors
respectively with National Pension Commission (PENCOM) as the apex regulatory body
(Ahmad, 2006).
33
2.6. THE OLD PENSION SCHEME ADMINISTRATION
(i) The public sector, prior to 2004 pension Reform Act, operated Defined Benefit (DB)
pension scheme, which was unfunded and noncontributory. The pay-as-you-go (PAYG)
scheme was mandatory to the public sector but optional in the private sector. It was revised
under the Pension Act of 1990. Under the Act, the pension or gratuity granted to retirees was
on the basis of fiscal pay and the sums were made chargeable to the Consolidated Revenue
Fund of the Federation (Adegbayi, 2006). Government taxed active workers to pay for the
benefits of retired workers which meant that the retirees may or may not receive their benefits
depending on whether or not their employer has sufficient cash resources to make payments
at that time (Orifowomo, 2006).
(ii) Problems of Old Pension Scheme Administration: The problem of the pre-PRA 2004
became thorny in all ramifications. It created a situation whereby, even though government
guarantees gratuity and pension, the pension scheme is not funded by the setting aside of
money from which the commitments, could be serviced. Thus the scheme accumulated a
huge unsustainable pension deficit estimated at about N2 trillion (Ikeji; Nwosu and Agba,
2011). For instance, according to the Bureau for Public Enterprises (BPE) report, the
unfunded pension liabilities in NITEL and NEPA alone were estimated at N43 billion and
N75 billion respectively.
The question that readily comes to mind that needs immediate answer is, could this be
as a result of poor economy/financial difficulties, inadequate government commitments, high
rate of corruption and insincerity in the system? (Orifowomo, 2006). The system was
bedeviled by a multiplicity of problems. According to Ahmad (2006), the scheme became
unsustainable due to lack of adequate and timely budgetary provisions and increases in
salaries and pensions. There were demographic shifts due to rising life expectancies, thus,
pensioners live longer, which was a phenomenon that affected the support ratio. The situation
34
of rising pension liability was so critical that one time governor of Ogun State, Gbenga
Daniels raised an alarm. He was quoted as saying, “the imminent collapse of the PAYG
scheme is real and very unsettling for a nascent democracy. At the moment, the pension
liability in the public sector is about N2 trillion and it is on the increase every passing day.
There is likelihood of the pension salary bill out-running the salary of our active workers in a
few years”.
The crisis of non-payment or delayed payment of pension and gratuity transverse the
public sector - the mainstream civil service, parastatals, military, state governments,
universities, local governments etc (Lakemfa, 2004). Commentators on this issue agreed that
the over-bloated size of the public sector workforce in Nigeria has made it difficult for the
government to pay its workers their salary, let alone adequately meeting its pension
commitments. It is a common knowledge that sometimes employments done in the public
service are motivated by selfish and political interests with the result that some workers have
no schedule of duties.
Other perspectives held that the old pension scheme was characterized by high level
corruption and massive looting of pension funds by the officers in charge. Prompted by this
ugly development, the National Assembly, in 2012, instituted a probe into the activities of
Pensions Office and the Police Pension Fund, among others. The probe produced startling,
scandalous and heart-breaking revelations. Gbenga (2012), writing on the “Historic Nigerian
Pension Looters”, stated,
the scale of fraud in the federal pensions scheme is first just huge,
shocking and scandalous, in that disheartening stories involving very
senior officials, including a Permanent Secretary and Director of Pensions
who allegedly stole billions of naira have continued to emerge…The
Economic and Financial Crimes Commission (EFCC) in conjunction with
35
the Pension Verification Committee reportedly discovered N180m, N50m
and $2m in an account of a certain Deputy Director (Finance and
Accounts) and N12m in the account of a 29-year old lady, who is also a
clerk in the office, among others, who equally shared in various sums in
pension booty.
Gbenga went further to list the amount looted by the officials as found in various
reports. He revealed, “thus far, reports have indicated that stolen pension fund, ranging from
N2 bn, N3 bn, N4 bn, N9 bn, N25 bn, N32 bn to N152 bn has been discovered by the Pension
Task Force Team on different occasions in the course of investigation”. These are funds
carefully and specifically budgeted for the up-keep of pensioners to protect them against the
risk of poverty in old age; but unfortunately, these monies are siphoned into private coffers.
Also, political instability and unstable labour policies, such as massive premature and
review which adjusted pensions and gratuity of retirees without provision of funds to back
them up created an unstable pension-to-active workers ratio. The proportion of pension to
salaries increased from 16.7% to 30% between 1995 and 1999 (Balogun, 2006). The problem
of inadequacy of fund to cater for the pensions stemmed largely from the lack of commitment
and insincerity of government and pension administrators and not budgetary provisions. This
was backed up by Balogun (2006), who affirmed that restrictive and sharp practices in the
investment and management of pension funds exacerbated the problem of pension liabilities
to the extent that pensioners were dying on verification queues and most of the over 300
parastatals schemes were bankrupt before the new scheme came on board.
Furthermore, there was no authentic list/data base on pensioners (ILO, 2006) while 14
documents were required to file pension claims (Balogun, 2006). This is generally a very
serious problem in Nigeria’s administrative system. Some retirees including those of Nnamdi
Azikiwe University, Awka, do not usually see the up-dating of their records as a serious
36
business. In some cases, some retirees ignorantly and constantly refused to fill the clearance
forms prior to retirement. This has created a lot of problems for the pension office and often
resulted to delay in the processing, frequent verification exercises and payment of their
entitlements. In most cases, files were poorly handled, sometimes misplaced, abandoned in
the open leading to loss of documents and in very bad condition. Subsequently, vital and
relevant information on the affected retirees is lost by the pension office. It was consequent
upon this that The Punch Editorial (2010) warned that “never again should the elderly be
forced to sleep at verification centres or forced to travel long distances for verification”.
The existence of ghost pensioners, phony (fake) bank accounts, and falsification of
documents was largely rampant. For instance, “… have traced stolen pension funds to well
over 73,000 phony banks opened by corrupt officials of federal pension
department…141,799 pensioners were registered and listed on the government’s payroll, only
70,657 were genuine” (Mayah, 2012).
In a memorandum sent to the Senate Committee on Establishment, Police Service
Matters and Management of Pension Funds, the National Union of Pensioners had
complained that “legion of ghost pensioners received monthly payments through bank
transfer, while names of genuine pensioners were expunged from payrolls” (ibid.).
It is just impossible for us to fully account for the inexhaustible problems of old
pension scheme administration. Corruption and embezzlement in the country affected the
pension scheme and funds meant for it. The administration was largely weak, inefficient and
lack transparency in their activities (Gbite, 2006) in Fapohunda (2013). There were poor
supervision of pension fund administrators in the effective collection, management and
disbursement of pension funds; the various governments were insincere about pension. The
aftermath of these developments and more led retirees to become more or less baggers (Toye,
2006)… retirement in our society has become synonymous with suffering as if aging were a
37
curse rather than a blessing that it really is (Obasanjo quoted by Adedapo). A direct result of
these myriad of problems was that the federal Government constituted various committees at
different times to look at the challenges of pension schemes in Nigeria and proffer solutions
to move forward. One of these committees was the Fola Adeola Committee whose report was
enacted into the pension Reform Act (PRA) on the 1st of July, 2004 (Fapohunda, 2013).
2.7. THE EFFECT OF OLD PENSION SCHEME ADMINISTRATION ON THE
ACTIVE WORKERS AND PENSIONERS
Workers commitment to organization goals is crucial to the success of the
organization. Commitment involves attitudes or orientation towards organization goals or
objectives (Hall and Schneider, 1972, quoted in Ikeji, Nwosu and Agba, 2011). Commitment
is tied to how well an employee is motivated. Motivation here entails the process of
influencing employees’ behaviour towards the attainment of organizational goal (Dhameji
and Dhameji, 2009). Motivation includes meeting the psychological, financial and emotional
needs of workers. Pension is part of motivation and could help attain the psychological and
emotional needs of workers, because it assures them of life after retirement. A good pension
scheme could determine the level of workers’ commitment as well as influence whether an
employee will do his/her work properly. Good pension guarantees employee’s comfort and
commitment to the organization during his/her active years (Sule and Ezugwu, 2009). Writers
also posit that there is a relationship between pension and workers’ turnover/retention.
According to Becton, Wysocki and Kepner, (2009), staff retention refers to the necessary
measure put in place by management of an organization to encourage workers to remain in
the establishment for a maximum period of time. But Agba (2007) and Ushie (2000),
regretted that in Nigeria, rather than providing the means by which workers could be retained,
employees are continually deprived of their psychological needs. Agba further stated that the
delay in payment of salaries and fringe benefits to workers even after retirement has negative
38
behavioural consequences among employee in Nigeria. This also is responsible for low
morale among workers and workers’ ineffectiveness in most organizations (Ushie; Agba;
Agba and Best, 2010). To buttress the above assertion, Agba and Ushie (2010) affirm that
workers in the hospitality industry in Nigeria are always moving to where good condition of
service exists and where their future is protected after retirement.
Arguing along this line, Akingbade (2006) observed that there is high labour turnover
in the medical sector in Nigeria and that the movement of medical personnel especially to
USA and UK is not unconnected with payment of benefits including retirement benefits. This
ugly development cuts across all sectors of the Nigeria labour markets.
Massive looting of pension funds has enthroned a vicious circle of “organized crime”
in government offices whereby serving officers “scramble” for pension funds leaving their
retired colleagues deprived of their entitlements. Commenting on this situation, Nwoji (2012)
posits that the instability in the public service makes public servants prefer to make it on
active service rather than relying on post service pension. In the same vein, Uduanu in
Ogidan (2012) made bold to argue that:
Everyone who is working should have a pension plan in place because when
you retire you must have something to fall back on. You find out that in
countries where pension is working well, it is one way of checking corruption
because often times the reason why people are corrupt is that they do not know
what is going to happen to them when they retire from service if there is
nothing to fall back on. So when people have adequate pension arrangement,
there is no need to dabble into fraudulent activities and corrupt practice which
might end their service life prematurely when they know that if they retire
after working for 30 to 35years, they retire well and the pension’s scheme will
finance them into their old age.
39
He further stated that the informal sector should be looked at critically and incentives
like guaranteed minimum pensions which have been done in other countries be introduced
and guaranteed by the government. Armstrong (2010) opines that pension helps employees to
readjust themselves properly into the society after leaving employment. It constitutes an
important tool in the hands of management for boosting employee morale which may lead to
efficiency and increased productivity of employees in particular and the organization as a
whole. Besides, pension is a device which employers use to meet their social responsibility
and thereby attract good will.
The fear of uncertainty after retirement is also responsible for age falsification among
civil servants in Nigeria. Retirement in Nigeria is now synonymous with deprivation and
suffering. Most often gratuities and pensions are not paid as and when due, consequently,
retiree cannot afford three square meals a day, let alone paying school fees for their children,
pay house rents or take care of other necessities of life (Global Action on Ageing, 2006).
Most often a number of them die without accessing their entitlements. The plight of Nigeria’s
senior citizens is pitiful. Denying them access to the nation’s resources is a violation of their
human rights; they deserve better treatment.
There is a saying that he who is penniless (impoverished) does not have any friend.
Retirement in Nigeria therefore goes with poverty and social isolation. In a bid to make ends
meet, retirees even at very old age look for employment or jobs. The above scenario suggests
that the implementation of old pension scheme impacted negatively on the welfare of active
workers neither did it promote the welfare of pensioners.
2.8. ENACTMENT OF THE PENSION REFORM ACT 2004
The old Defined Benefit (DB) pension scheme which was mostly being operated in
the public sector was largely unfunded and non-contributory. The scheme led to massive
accumulation of pension debt and became unsustainable largely due to lack of adequate and
40
timely budgetary provisions as well as increase in salaries and pensions. The administration
of the scheme was very weak, inefficient, less transparent and cumbersome, leading to the
bureaucracy and highly liable to corrupt practices. Due to lack of reliable records of pensions,
huge amount of resources on what became yearly verification exercises were expended which
did not result into timely and efficient payment of pension (Ahmad, 2012). These issues led
to the decision of Federal Government in June, 2004, to introduce a system that is sustainable
and has the capacity to achieve the ultimate goal of providing a stable, predictable and
adequate source of retirement income for each worker in the country. Thus the Pension
Reform Act 2004 (the Act) was signed into law ushering in a Contributory Pension Scheme
(CPS) that is fully funded, privately managed and based on individual accounts for both the
public and private sector employees in Nigeria (ibid.).
(ii) An Overview of the Introduction of the Pension Reform Act 2004 (Contributory
Scheme)
The Nigerian Pension Reform Act 2004 is a variant of Chilean model of contributory
pension scheme introduced in that country in 1981. The new system was a product of a
deliberate attempt to transfer - a transfer both of broad principles of policy and of
administrative and delivery structure (Casey and Dostal, 2011). It was the view of the
Nigerian policy makers that if the country could initiate contributory pension reform, it would
produce the same benefit for the country as they saw it having produced for Chile. However,
by the time the Nigerian government was giving serious attention to pension reform, the
Chilean model was being criticized (Casey and Dostal, 2011). The World Bank had come to
recognize that Chilean-like reforms had not always delivered the benefits that had initially
been proclaimed, that too many assumptions have been made, and that other reforms were
also required - reforms that at best complement, or even preceded pension reform (Gill;
Pachard and Yermo, 2005; Holzmann and Hinz, 2005; World Bank, 2005). The
41
dissatisfaction with the system in terms of its costs and its failure to make adequate provision
for many of the old had been a persistent theme of the 2005 - 2006 Chilean presidential
elections (Casey and Dostal, 2011).
The idea of Nigerian contributory pension reform is traceable to as early as 1997. It
was an element of the Vision 2010 Project under which the then military government charged
a team to chart the goals to be reached by the 50th Anniversary of its independence (Pension
Commission, 1997) cited in Casey and Dostal (2011). One of the objectives was that “by the
year 2010 most Nigerians shall have access to some form of social protection offered by the
formal social security programme”. The Committee examined pension systems of Ghana, the
UK, the United States and Chile and was emphatic that “a Chilean-type system provided the
solution”. They unequivocally suggested that:
The Chile’s economic circumstances in the 1980 were almost similar to
Nigerian’s today; low GDP per capita, low savings, high unemployment, high
inflation, etc. Nigeria desires a quantum leap in her economic output just as in
Chile in early 1980. If the informed pension system facilitated Chile’s economic
renaissance, adopting Nigeria’s system to some of the good attributes is only
natural and sensible.
The report was not acted upon until 1999 when the Obasanjo civilian government
came into power. One of the major problems of Nigeria is that her policy makers are experts
in “copying and pasting” policies, even in this case, pension reform that has already been
presenting serious problems in the model country – Chile - for over a decade earlier. Dike
(2006) rightly observed:
“Pension schemes adopted must take into cognizance of our peculiarities as a
nation and those in our economy. It should not be implemented in the typical
fashion of other economic policies, which are just cut and paste models of those
42
obtainable in the more advanced nations. It should be tailored to the needs of
the beneficiaries”
Arguably, Nigeria may have similar economic conditions with any country but
Nigerian citizens, most obviously, differ from that country’s citizens. To that extent the
policy that worked perfectly well in that country may not necessarily work in Nigeria.
So, on this premise, some of the international institutions like World Bank,
International Monetary Fund (IMF) and International Labour Organization (ILO) though they
assisted in preparing Nigeria for the take off of the pension reform did not quite support the
Chilean-type pension reform. But there is an extent to which they can interfere in a country’s
policy. The world Bank had claimed it advised against the establishment of a multi-pillar”
pension system in Nigeria on the grounds that the financial sector in the country was
insufficiently developed (World Bank, 2005). In fact evidence abounds to prove that Nigeria
cannot successfully run funded pension scheme. There was no satisfactory information on
pensioners’ number or pension liabilities. Many pensions promised were either totally unpaid
or only partly paid, making the size of the published public debt unreliable. But the
government was only interested in its economic reform agenda characteristics of Nigerian
regimes to prove legitimacy and attract cheap popularity. ILO (2006) rightly observed “as far
as Nigerian government was concerned, taking steps to reform pensions was seen as a way of
improving the country’s credibility. Pensions were a component of public expenditure, and
one over which little control had been exercised in the past. Thus, reforming pensions was
seen as consistent with efforts to improve fiscal policy making as a whole”. Although the
ILO did not favour Chilean style pension systems, it saw itself as having a more general
obligation to ensure that people affected by reform did not lose the rights that they had
acquire (Casey and Dostal, 2011).
43
It is important also to state here that the clienteles/stakeholders were skeptical about
the reform but had to let it go but not without some conditions given to the Federal
Government. Therefore, in 2003 president Obasanjo set up the Fola Adeola Pension Reform
Committee. Meanwhile the interested and affected parties were already nursing the fear that
one purpose of the reform might be to acquire these assets built up by Nigeria Social
Insurance Trust Fund (NSITF) and use them to solve the pension crisis in the public sector
(Oshinowo, 2003). Following the demands of business and labour, NSITF was allowed to
establish a Pension Fund Administrator (PFA) called “Trustfund”, co-owned by the Nigerian
Employers Consultative Association (NECA), the Nigerian Labour Congress (NLC), the
Trade Union Congress (TUC), and three other financial service companies with equal
representation of business and labour on its governing board. The NSITF was to manage the
assets of the Fund for five years and then hands them over to the Trustfund, because under
the new system no government agency is allowed to manage the pension fund.
Writing under the title, “Pension Reform in Nigeria five years on: Great leap or
inappropriate policy design”, Dostal (2010) posits that:
The Chilean-type contributory pension reform rubbished the World Bank’s
advocacy that contributory pension is the best solution to pension crisis.
World Bank experts had earlier in 1994 suggested that Chilean case proved
that a shift of pension provisions from the public to the private sector and
from PAYG to DC would maintain social protection while increasing
economic growth via the deepening of financial markets.
Dostal went on to add that the World Bank’s earlier advocacy of private pensions has
by now lost its appeal for a number of reasons. Firstly, the Chilean case proved to be less
successful than was originally assumed. Although the Chilean system succeeded in making a
large share of workers formally subscribe to individual funded pension accounts, the level
44
and length of contributions and subsequent expected pension payments remained on average
quite low. Concluding he said, “in fact, the system delivered poverty pensions rather than old
age security to most contributors”. In reaction to the coverage gaps of the funded system, the
Chilean government took the option to strengthen the public and tax-financed basic social
pension system in order to provide additional income for current and future pensions with
low funded pensions.
As stated earlier, the Nigerian reform was inspired by the Chilean model and Nigerian
policy makers have continued to refer to Chile’s experience with funded pensions in order to
combine pension policy with economic development. Meanwhile, at this stage they were not
mindful of the changes to the Chilean model so far. Only in May, 2009, a former pension
Administrator was invited to deliver a key note speech at a conference on pension reform in
the Nigerian capital, “however, he only mentioned the latest Chilean policy changes in
passing and did not focus on their potential relevancy for Nigeria” (Del Campo, 2009).
According to (IMF, 2005), one might detect three main explanatory factors for the
decision to enact the Pension Reform 2004:
(i) The existing unfunded pension promises under the pre-reform Defined Benefit
system for civil servants resulted in quick growing pension entitlements that
the government was unable or unwilling to fund
(ii) The example of Chile suggested that pension reform can be a significant
component in improving the functioning of Nigerian financial markets
(iii) The government hoped that pension reform would add to the credibility of the
general economic reform effort since funding pensions would put the Nigeria
Federal State Budget on a fiscally sustainable footing.
A great number of Nigerians outside the government circle will quickly dismiss these
ideas, because if the huge amount of oil revenue could not transform the economy, pension
45
fund (workers retirement savings) will not do the magic. No wonder Dostal, (2010)
categorically states that:
In the Nigeria context, analysis of how compulsory individual funded
pensions might affect national savings levels and economic growth must be
read against conventional wisdom… Using funded pensions to develop the
Nigerian financial market to provide long-term funding for productive
investment and higher growth in the future is an experiment rather than a
precondition for development in the present.
Other experts who share the same view with Dostal include: (Barr and Diamond, 2009:
24-5, 2008: 4-110, 159-73; Davis and Hu, 2006; Davis, 1995) quoted in Dostal (2010). The
academic literature suggests that there exist a very close link between GDP per capita and the
development of financial markets. It is impossible to skip stages in the build-up of regulatory
capabilities and financial market development must be advanced enough to allow for funded
pensions to contribute to the system. Thus, if regulation is poor and promising investment
opportunities are limited, enforced long-term saving might fail to develop financial markets.
Dostal, to buttress his argument that the pension reform is an inappropriate policy
design submitted that:
The Vision 2010 document published in 1997 suggested that Nigeria should
be able to provide some form of formal social security to the majority of its
citizens by 2010…But the share of workers covered has not been expanded
by the 2004 reform and might have declined further. It is obvious that this
target has been missed and more importantly, there has not even been any
move in the right direction.
46
2.9. HIGHLIGHTS OF THE PENSION REFORM ACT 2004 (CONTRIBUTORY
PENSION SCHEME)
The Pay-As-You-Go (PAYG) or Defined Benefit (DB) operated in Nigeria was
burdened with a lot of problems as it became unsustainable as is common with other
countries of the world. In an attempt to redress the huge deficit, arbitral increases in salaries
and pensions as well as poor administrative structures, the idea of Pension Reform Act 2004
was muted. This section examines the elements of the new contributory pension scheme as
highlighted by PENCOM (2006):
1. The Key Objectives of the Pension Reform Act 2004 are to:
i. Ensure that every person who has worked in either the public or private sector
receives his retirement benefits, as and when due;
ii. Assist improvident individuals by ensuring that they save to cater for their
livelihood during old age;
iii. Establish a uniform set of rules and regulations for the administration and
payment of retirement benefits in both the public and private sectors; and
iv. Stem the growth of outstanding pension liabilities.
2. Pension Reform Act 2004 (Contributory Pension Scheme)
The systems operated from the first law on pension till the enactment of this Act are
different - the Pension Ordinance 1951, the Pension Act 1990, Nigeria Social Insurance Trust
Fund Act 1993 and the Preservation Right to Pension as contained in the 1999 Constitution.
Under this new system, the employees contribute a minimum of 7.5% of their total monthly
emoluments (basic salary, housing and transport allowances) and 2.5% for the military
(though military has opted out). Employers shall contribute 7.5% in the case of the public
section and 12.5% in the case of the military. Employers and employees in the private sector
will contribute a minimum of 7.5% each. An employer may elect to contribute on behalf of
47
the employees such that the total contribution shall not be less than 15% of the Basic salary,
Housing and Transport allowances of the employees.
An employer is obliged to deduct and remit contributions 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 contribution. Contribution and retirement benefits are tax exempt.
The deductions are credited directly to the relevant Retirement Savings Account (RSA).
3. Fully Funded
The contribution of an employee is deducted monthly from the employee’s salary
while the employer will provide the counter contribution for the employee, which will both
be transferred to the relevant retirement savings account. By so doing, the pension funds exist
from the onset and payments will be made when due.
4. Retirement Savings Accounts (RSA)
Each employee is required by law to open a ‘Retirement savings Account’ in his name
with Pension Fund Administrator of his choice. This individual account belongs to the
employee and will remain with him for life even if he/she changes employers or pension
Fund Administrators (PFAs)
5. Retirement Benefit
There are three types of retirement benefits:
(i) Normal Retirement Benefit: This is for those retired or is disengaged and who are not
less than 50 year of age. A lump sum with their monthly pension is paid to them if the
balance in their RSA is up to N550, 000.00. A retiree (RSA holder) may opt for annuity
instead of programmed withdrawal. In that case his chosen or preferred insurance company
buys his RSA. His PFA then hands over his RSA to the preferred Insurance Company after
the holder and the insurance company must have made the necessary arrangement.
48
(ii) Voluntary Retirement Benefit: This is meant for those who retire or their appointments
terminated or are disengage at less than fifty years of age. They are allowed to apply for
payment of lump sum of 25% of the balance standing to the credit of his RSA, provided he
could not secure a new job after six months of his disengagement. When he is up to 50 years
of age he is entitled to lump sum and pension if the remaining balance of 75% is up to N550,
000, otherwise he is paid off.
(iii) Survivor’s Benefit: This is paid to a deceased employee’s next-of-kin.
Verification is done by PENCOM yearly for public sector employees for those who
are due for retirement in two year’s time to enable PENCOM to meet the requirement of
preparing and releasing their bond into their RSAs.
6. Life Insurance Policy: Every employer shall maintain life insurance policy in favour of an
employee for a minimum of three times the annual emolument of the employee. In the event
of death while in service, the value of the policy shall be remitted by the insurance company
into the RSA of the deceased employee and paid to his/her beneficiary as part of the survivor
benefit.
7. Group Life Insurance Policy
The insurance companies had used the group life Assurance either as complementary
or supplementary products to the retirement benefits paid under the group life insurance
scheme in addition to benefits under the retirement schemes. It is supplementary when the
benefits under the retirement scheme are augmented by the Group life Assurance.
8. Institutional Framework for the Pension Reform Act 2004
(i) The National Pension Commission (PENCOM): The Act has established the National
Pension Commission (PENCOM), to regulate, supervise and ensure the effective
administration of pension matters in Nigeria. The Commission achieves the above by
ensuring that payment and remittance of contributions are made and beneficiaries or
49
retirement savings accounts are paid as and when due. The Commission ensures that pension
funds are safe through issuance of Guidelines and Regulations for licensing, approving,
regulating and monitoring the activities of Pension Fund Administrators (PFAs) and Pension
Fund Custodian (PFCs).
Under the contributory pension scheme, PENCOM, as the regulator of pension
matters shall receive and investigate any compliant of impropriety leveled against any PFA,
PFC or employer or any of their staff or agents.
The Commission stands as a watchdog, with the overriding objective of ensuring that all
pension matters are administered with minimum exposure to fraud and risk. The guidelines
issued by the Commission require the use of approved risk rating agencies to determine the
liability of an investment instrument.
(ii) Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs)
The New scheme requires pension funds to be privately managed by Pension Fund
Administrators (PFAs) and Pension Fund Custodians (PFCs).
(iii) Pension Fund Administrators (PFAs) are limited liability companies duly licensed by
PENCOM as special purpose vehicles to carry out pension business only. The PFAs open
retirement savings accounts for employees, manage the pension funds as the commission may
from time to time prescribe, maintain books of accounts on all transactions relating to the
pension funds under their management, provide regular information to the employees, or
beneficiaries and pay retirement benefits to employees in accordance with the provisions of
the Pension Reform Act 2004.
(iv) Pension Fund Custodians (PFCs): Pension Fund Custodians (PFCs) are appointed by
Pension Fund Administrators. They are responsible for the warehousing of the pension fund
assets. The employer sends the contributions directly to the custodian, who notifies the PFA
of the receipt of the contribution and the PFA subsequently credits the Retirement Savings
50
Account (RSA) of the employee. The Custodian would execute transactions and undertake
activities relating to the administration of pension fund investment upon instructions by the
PFA. Before it is issued with the operating license, the Pension Assets Custodian must be a
limited liability Company incorporated under the Company and Allied Matters Act 1990 and
a licensed financial institution. The Custodian shall hold pension funds assets on trust for its
clients.
9. Approved Existing Schemes: Many private sector organizations and self funding public
organizations had pension schemes existing prior to the commencement of the contributory
pension scheme. The pension reform Act has provided that organizations running such
schemes may wish to apply for the continuation of the scheme for their employees. However,
the schemes must fulfill certain conditions, including the separation of the assets of the
scheme from the assets of the organization and the management of the schemes must be
transferred to license PFAs. Where there are funding gaps, the organizations must offset such
funding gaps within 90 days. Similarly, the scheme must be limited to existing members and
any employer who would like to exercise the option of joining a PFA must not be compelled
to continue on the existing scheme.
10. Closed Pension Fund Administrators (CPFAs): In addition to the approval for
continuation of the existing schemes, organizations who would like to manage their existing
schemes shall apply to the National Pension Commission for license to operate as CPFA to
manage the pension funds directly or through a wholly owned subsidiary dedicated
exclusively to the management of such pension fund asset. The assets of the pension fund
must be at least N500m. In the event that the assets of the scheme are less than N500m such
schemes should be managed by a PFA.
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11. Six Pension Departments: The Pension Reform Act 2004 has established six Pension
Department for non-private (public) sector organizations covered by the contributory pension
scheme. The established Departments are:
(1) Military (2) Police (3) Civilian (4) the Customs (5) Immigration and Prisons (6) other
security Agencies and FCT Pension Boards were transformed into respective Pension
Departments. The National Pension Commission supervises these Pension Departments.
12. Nigeria Social Insurance Trust Fund (NSITF): Nigeria Social Insurance Trust Fund
(NSITF) was mandated to establish a company to undertake the business of a PFA in
accordance with the provisions of the Pension Reform Act 2004. Contributors under the
NSITF Act shall, at least 5 years after the commencement of the contributory pension
scheme, move the assets standing to their NSITF accounts to their Retirement Savings
Account. However, the pension funds and assets held by NSITF shall be transferred to a
Custodian. NSITF shall also be supervised and regulated by the PENCOM. Contributors to
NSITF scheme can obtain their account details from Trustfund PFA, (the PFA registered by
NSITF).
13. Eligibility for the Scheme
The law makes it mandatory for all workers in the Public Service of the Federation
and the Federal Capital Territory, and workers in the private sector where the total number of
employees is 5 or more to join the contributory scheme at commencement.
14. Exempted Individual from the Scheme: Existing pensioners and workers who at the
commencement of this Act is entitled to retirement benefits under any pension scheme
exiting before the commencement of this Act but has 3 or less years to retire shall be
exempted from the scheme (Act) – those scheduled to retire mandatorily on or before 30th
June, 2007). Also exempted are Chief Justice of Nigeria, a Justice of the Supreme Court,
President of the Court of Appeal, a Justice of the Court of Appeal who retires at or after the
52
age of 65; they retire with their salaries as stated in section 291 of the constitution of the
Federal Republic of Nigeria 1999 - Judicial officers or any persons whose pensions have been
defined and provided for in the constitution are exempted from the scheme. All the exempted
persons shall continue to derive their retirement benefit under the defined Benefit scheme. It
will be worthy of note that in the old scheme, academic staff of the Universities who retired
after 15 years as Professors, or at the age of 65 years, from 1991, retired with their salaries.
But the new scheme did not make such provision, except for judges.
15. Transitional Provisions for the Public Sector: The responsibilities for funds and assets
of the relevant existing Pension Boards or Offices shall be transferred and vested in the
respective Pension Departments established for the Scheme. The Departments cease to exist
after the death of the last pensioner.
16. Retirement Benefit Bond: This is a bond that will be issued to those who are currently
in employment of the public sector of the Federation and the Federal Capital Territory where
the pension scheme were unfunded, who are not exempted from the contributory pension
scheme and have worked for a specified number of years, in recognition of their accrued
rights under the defunct pension scheme. This bond recognizes government indebtedness to
them. However, it is only due and payable when they retire.
17. Retirement Benefit Bond Redemption Fund: A fund known as Retirement Benefits
Bond Redemption Fund is established and maintained by the Central Bank of Nigeria. The
Federal Government pays an amount equal to 5% of the total monthly wage bill payable to
employees in the Public Service of the Federation and Federal Capital Territory. The total
amount in this fund is used to redeem any retirement benefit bond issued and payments into
this fund ceases after all retirement benefit bonds have been redeemed.
18. Transitional Provisions for the Private Sector: In the private sector, existing viable
pension schemes are permitted to exist, if the employer wishes, provided that they can
53
demonstrate that they are fully funded at all times with any shortfall to be made up within 90
days; the assets of the company are fully segregated from the pension fund assets; the pension
fund assets held by a Custodian, and the company has the requisite capacity for the
management of the pension fund assets. The company must also show that they have
managed pension schemes efficiently for at least 5 years before the commencement of the
new scheme. However, existing members shall have the option to join the new scheme.
Whereas an employee exercises that option, the employer shall compute his retirement
benefits to date and such amount will be transferred to his retirement savings account as
maintained with a PFA of his choice. Where an employer is managing pension fund assets of
less than N500m and desires to maintain its existing scheme, such an employer shall have
such pension scheme administered by a duly licensed PFA.
Nigeria Social Insurance Trust Fund (NSITF) has established a PFA and was granted
license to undertake the business of a PFA in accordance with the provisions of the Act.
Contributors under NSITF Act shall, at least 5 years after the commencement of the Act,
select a PFA of their choice for the management of pension fund standing to their credit.
However, the pension funds and assets held by NSITF shall be transferred to a Custodian.
NSITF shall also be supervised and regulated by PENCOM.
19. Safe-Guards/Safety Nets in the Pension Reform Act 2004
The importance of safety of the pension fund assets cannot be over emphasized as the
success of the pension reform is hinged on the availability of funds to contributors when they
retire. Since the pensioner will utilize the funds at the end of his working life, it becomes
imperative that adequate measures be taken for its protection. Consequently, there are a
number of stringent provisions contained in the Act with the singular objective of protecting
the pension assets. Some of the measures provided in order to preserve the pension fund
assets include:
54
(i) Separation of PFA and PFC: While PFA invests the funds, the custodian of the assets is
the responsibility of PFC. The clear delineation of their functions makes it difficult for either
to misuse the pension funds assets to the detriment of the account holder.
(ii) Pension Fund Custodian Guarantee: It is mandatory for every PFC to issue a guarantee
to the full sum and value of the pension fund and assets held by it or to be held by it.
(iii) Government Pension Contribution: Government contribution is a charge on the
Consolidated Revenue Fund of the Federation. In the event of default by the Government in
the payment of contributions, the Pension Reform Act 2004 has empowered the Commission
to direct the Accountant General of the Federation to deduct the amount due as contribution
at source.
(iv) Risk or Credit Rating Agencies: These are agencies that will be responsible for rating
the instruments that pension funds will be invested in. PENCOM requires that these risk-
rating institutions possess the professional capacity and are licensed to rate the risk of
investment instruments.
(v) Compliance officers: Every PFA shall employ Compliance Officers that will be
responsible for ensuring compliance with the provisions of the law regarding pension matters
as well as the internal rules and regulations of the particular PFA. They will be required to
liaise with PENCOM and the Board of Directors of the PFC with regards to the activities of
the PFA.
20. Reporting Requirement for PFAs and PFCs: In order to keep track of their activities,
the licensed operators are required to make a regular report of its activities to PENCOM. This
will enable PENCOM to detect any wrong doing early.
(21) Statutory Reserve Fund: Every PFA is required to maintain a statutory Reserve Fund,
which shall be credited annually with 12.5% of the net profit after tax, or such percentage of
the net profit as may be stipulated by PENCOM to meet claims.
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22. Public Disclosure of Information: PFAs and PFCs are required to disclose their rates on
return and publish their audited accounts.
23. Approved Fees Structure: The following fees structure has been approved by PENCOM
for services rendered by operators of the new contributory scheme:
i. Pension Fund Administrator and Closed Pension Fund Administrators: The PFA
and CPFA are charged N100.00 per month per account holder as administrative fee
and 2% of the value of assets managed as management fee.
ii. Pension Commission: Pension Commission is entitled to 0.4% of total pension fund
assets to enable it run its operation of the scheme.
iii. Investment of Pension Funds: The Act provides that all contributions into the RSA
(Retirement Savings Account) of employees should be invested by the PFA with
the objective of safety and maintenance of fair returns on amount invested. The
guidelines on investment limits stipulated by PENCOM are as follows:
(i) Federal Government Securities - up to 100%.
(ii) State Government Bond/Securities – 20% maximum.
(iii) Corporate Bonds/Debt (Real Estate Unit Trust) - 30% maximum.
(iv) Money Market - 5% maximum.
(v) Ordinary shares of quoted companies - 25% maximum.
(vi) Offshore: Investment on offshore is subject to the subsiding Central Bank
of Nigeria foreign exchange rules, recommendations of PENCOM and
Presidential approvals.
However, PFAs are forbidden from investing pension fund assets in the shares, or any
other securities issued by:
(a) Pension Fund Administrator or Custodian.
(b) A shareholder of the Pension Fund Administrator or Custodian.
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(24) Penalty for Non-compliance with the Act: Any PFA who fails to comply with any
provision of the Act is liable to a penalty of an amount not more than N500, 000.00 for each
day that the non-compliance continues and the PFA shall forfeit the profit from that
investment to the beneficiaries of the RSA and if the investment has led to a loss, the PFA
shall provide for the loss. Operators are also liable to pay N1milion for violation and or one
year imprisonment PENCOM revokes license of operator for persistent contravention.
Employers that violate the provision of the Act shall also be penalized by the PENCOM.
However, where the PENCOM cannot arbitrate between PFA or PFC and RSA
holders, then aggrieved parties should seek the intervention of the court of law.
(25) Supervision and Examination: The Act provides that the PENCOM shall at least once
in each year authorize an inspection of PFAs, PFCs or the Pension Departments for the
purpose of determining whether or not any regulations made there under are being complied
with.
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Table 2.2: Comparison Between the Old and New Pension Schemes
Characteristics Old Scheme New Scheme
1 Type Largely defined benefit Defined contribution
2 Funding Mostly unfunded and pay- as-you-go (PAYG)
Contributory and fully funded
3 Membership Voluntary in private sector Mandatory for all employees in public and private sectors except pensioners and those with 3 years to retire
4 Pension portability
Not portable Personalized and very portable
5 Management Largely State and Management Union
Private sector and individual choice
6 Retirement benefit
Discriminatory Uniform application
7 Supervision Fragmented and unregulated (SEC, NAICOM and JTB)
Strictly regulated by PENCOM
8 Pension liability Implicit and not transparent Explicit through retirement bond and capped
9 Tax exemption Limited Contribution and retirement benefits
10 Insurance policy Voluntary and mostly in private sector
i) Mandatory for all employers
ii) Three times the employees emolument
11 Dismissal from service
No pension benefits Full pension rights
12 Collateral for loans
Benefits could be used as collaterals
Benefits cannot be used as collaterals
13 Deduction from benefits
Benefits can be subjected to deductions especially employers in any financial obligations in the employee
Contents of RSA can be used for payment of retirement benefits only
14 Claiming retirement benefits
Cumbersome Straightforward
14 Minimum service year
Generally 5 years for gratuity and 10 for years pensions
Month of employment for all benefits subject to minimum age
15 Gratuity Provided to those qualified Provision for lump sum withdrawal
16 Risk management
No provision Adequate provision
Source: Ahmad, M.K. (2008a) in Odia and Okoye (2012)
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2.10. Comparison Between the Old and New Pension Schemes
A comparison of the old and new pension schemes shows some remarkable difference
between them as shown in table 2.2. For instance, starting from the type of scheme, funding,
membership to risk management of the pension fund, the new scheme seems to be broader,
inclusive and more adequately provided for. While the old pension scheme was largely
defined benefits and unfunded, the new scheme is defined contribution and fully funded. The
new scheme is very portable and enjoys uniform application unlike the old which was not. In
fact, employees who leave one employment for another or even dismissed from service have
no fear of losing entirely their pensions or other retirement benefits under the new pension
scheme. The regulation and supervision of the new scheme is by PENCOM whereas the SEC,
NAICOM and JTB were jointly responsible for the old scheme
Akeni (2009) in Odia and Okoye (2012) made a comparison of nine items in the old
and new schemes by conducting a survey of the Pension Fund Administrators, Pension Fund
Custodians and the Beneficiaries in the public and private sector. He found that the new
scheme was better than the old in terms of: accountability, accessibility, ease of payment of
pension and gratuity, funding, management of pension fund, transparency, stakeholders’
confidence in the scheme, auditor’s control and corporate governance. Although there was
agreement that the new scheme was applauded as far better than the old, he discovered that
the new scheme may not address the difficulties currently encountered in the pension industry
in Nigeria nor impact positive or the standard of living of retirees and pensioners unless there
were proper coordination and supervision of the Pension Fund Administrators and Pension
Fund Custodians by the National Pension Commission.
Therefore, PENCOM must undertake periodic review of the investment guidelines of
pension fund and create conducive environment for smooth operations by the pension fund
administrators and custodians. It must ensure that the administrators and custodians abide by
59
the rules of the pension game in order to ensure their efficient and effective performance. The
public must be regularly enlightened and adequately keep abreast of development in the
pension industry by the Commission and the administrators. The government must also
continuously monitor the operations of PENCOM and conduct external checks to get rid of
excesses (Odia and Okoye, 2012).
Table 2.3: Comparison of Chilean and Nigerian Mandatory Pension System
Chile Nigeria
Public PAYG Covered workers
Closed All employees, including agricultural workers and domestic workers
Closed All federal civil servants, military, police, private sector employees in enterprises with 5 or more employees
Non-covered workers Self-employed (unless choosing), family workers, the military
State and local government employees, self-employed and employees in enterprises with fewer than 5 employees (unless choosing)
For new/for existing employees
Mandatory/initially voluntary Mandatory/mandatory (unless within 3 years of retirement)
Contribution (pension only) 10%, employee only Private sector and federal government - 7.5% employee, 7.5% employer, military - 2.5 employee, 12.5% employer
Payout Annuity, deferred annuity and drawdown, scheduled drawdown
Annuity, deferred annuity and drawdown, scheduled drawdown
Minimum pension Yes, but set on ad hoc basis at about 75% of minimum wage, subject to min. 240 months contributions
Under old system 80% of minimum wage, under new system, yes but not specified
Disability pension Excluded, requirement to take out a separate insurance with pension fund
Early pension permitted but no enhancement of benefits
Survivors benefit Covered by supplementary disability insurance
Employer required to take out life insurance for the employee
Mandatory investment targets
Relative to average Separate targets per asset category (e.g. for government bonds, weighted average of 2 year bond rate; for equities, Nigeria all shares index
Asset allocation rules or Asset allocation rules Asset allocation rules
60
‘prudent man’ Contribution collection Decentralized (by pension
funds) Decentralized (by pension funds)
Past contributions Covered via recognition bonds (redeemed at point of retirement)
Public sector unfunded schemes - covered via recognition of bonds (redeemed at point of retirement) financed by transfer of 5% of wages into special redemption account at CBN; private sector (in old PAYG) - accrued values to be calculated and credited to new individual accounts
Charges Average 1.61% of wages on top of contribution (effectively making average contribution rate c.11.6%) [approx. equal to charge of 1.2% of assets under management over 20 years]
Maximum 3% of assets under management (plus trivial Naira 100 per month as contribution) [approx. equal to making total contribution rate c.19.5% over 20 years]
Transfers between funds Max. twice per year Max. once per year
Source: Casey and Dostal (2008): httpi//ggsp.sagepub.com
2.11. Comparison of Chilean and Nigerian Mandatory Pension System
The Nigerian new system imitates the Chilean system closely except in coverage. The
Chilean system covers all employees while the Nigerian system is discriminatory. The
similarities abound as can be seen in table 2.3. Transfer from the old to new system is
mandatory. The replacement rate for Chile is about 75% while the World Bank and IMF’s
estimate for that of Nigeria is 40% as against 80% in the old system for Federal Civil
Servants and 65% under NSITF. But the new scheme is silent in this aspect.
The total amount to be accumulated by an employee who worked for about 30 years
on the current minimum wage of N18, 000 is N972, 000 – less than a million naira for a
lifetime of employment unless the contributions are invested in safe, but high yield
investments that would increase faster than the rate of inflation and exchange rate
deterioration (Ahmad, 2012). Although this suggests a substantial cut in benefits, the IMF
argued that the new system, unlike the old, ensures pensions will actually be paid, so that
61
effective replacement rates might not be so different (IMF, 2005). The Chilean system keeps
disability benefits outside the old age pension system while supplementary disability
insurance provides for survivors benefits. The new Nigeria scheme follows from the NSITF
scheme in offering an early pension to those deemed ‘no longer mentally or physically
capable’ of carrying out their current job or are obliged to retire due to ‘total or permanent
disability either of mind or body’. The Nigerian Federal Government Retirement Bonds cover
only the pensions of federal civil servants and other federal employees while in Chile’s, a
recognition bond was made out in the name of each contributor and placed in his or her
individual account, the value being calculated as an amount sufficient to pay that fraction of
the full pension that had been earned by service and wage to date (Casey and Dostal, 2008).
2.12. THE IMPACT OF THE IMPLEMENTATION PENSION REFORM ACT 2004
ON THE PENSIONERS’ WELFARE
i. Achievements of Pension Reform Act 2004 (Contributory Pension Scheme)
The Pension Reform Act 2004 (the Act) has established the National Pension
Commission (PENCOM) as the sole regulator and supervisor of all pension matters in the
country. Within the seven years, the CPS, under the regulation and supervision of PENCOM
has made the following achievements (Ahmad, 2012):
(a) Pension Fund Administrators (PFAs): Eighteen (18) PFAs have been registered.
Initially, about 27 PFAs were licensed but along the line, some had to give up their
operational licenses, reducing the number to 23. Also in the course of the just concluded
recapitalization programme, five other operators threw in the towel. Currently, there are 18
PFAs.
(b) Pension Fund Custodians (PFCs): Four (4) PFCs were registered.
(c) Closed Pension Fund Administrators: Seven (7) CPFAs were registered. The
commission has also developed systems and processes for the smooth implementation of the
62
CPS that meet international standards and maintains strong commitment and partnership with
key stakeholders such as the Nigerian Labour Congress (NLC), Trade Union Congress
(TUC), Nigeria Employers Consultative Assembly (NECA), National Union of Pensioners
(NUP) etc, in its efforts to successfully establish a sound pension industry.
(d) Employees: As at March, 2012, over five million employees had been registered in the
private and public sectors. Breakdown of the figure: federal employees had 31%; state
employees had 23% while private sector employees had 46%. The implication is that the
scheme, so far has recorded a very low coverage of both the private and public sectors.
According to the CIA World Fact Book, the total labor force in the country was 52.5m in
2011. Using 2011 statistics to calculate even though the numbers must have risen giving the
teeming population of graduates churned out daily from our institutions of higher learning,
the probable number of employees in the country is nothing less than about 39.9m at present
(El-Rufai, 2013).
(e)Pension Fund Assets: The employees and employers fund assets stood at N2.45 trillion
as at December, 2011 with a monthly contribution of N20 billion and 30% annual growth
rate. According to PENCOM, the Federal Government has been consistent in the remittance
of the monthly pension contributions of its employees. A total of N604.27 billion had been
credited into the Contributory Pension Account (CPA) with the Central Bank of Nigeria as at
December 2011. The sum of N449.35 billion had been remitted into the Retirement Savings
Accounts (RSAs) of FGN employees domiciled with the various PFAs. The funds and assets
of CPS have aided the transformation agenda of government in the provision of
infrastructure, energy, employment generation and the development of the real sector of the
economy. The proportion of the pension assets to Nigeria’s GDP grew from 1.4% in 2006 to
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7% in 2010.The CPS, no doubt, is meeting its objective of accumulating funds for
investment.
(g) The CPS requirements for employees to commence the process of accessing their benefits
six (6) months before the date of their retirement provides for necessary documentation and
the procedure for payment of benefits. The FGN had paid the sum of N20.11 billion to its
48,587 retirees and deceased employees under the CPS as at January, 2012.
(h) El-Rufai (2013) as a follow up link, reported that as at September, 2012 only a paltry
13.2% (5.8m) of workers had been registered under the scheme according to the immediate
past CEO of the Commission. The statistics are bleak for the pace of work carried out in the
whole of 8 years, and more needs to be done. In addition to the snail pace at which the
scheme is being executed, a major issue with the pension administration in Nigeria is
execution at the State level. At the end of 2012, very few state workers were beneficiaries
from the scheme, mainly because the states are allowed to enact their own laws and the PRA
2004 is not binding on them. So far, about 21 states have adopted the contributory pension
scheme while 14 others have initiated the process of enacting versions of contributory
pension schemes in their states. Lagos State is the only state, according to PENCOM, that has
fully funded its pension obligation to its workers. Katsina used to be another state until
recently when arrears have accumulated without any justifiable cause. The problem with
Nigeria is that most of its laws are only good on the paper. Despite the Pension Reform Act
of June 2004 the retirees are not getting paid (Dike, 2006).
ii. Challenges in the Implementation of the Pension Reform Act 2004 (Contributory
Pension Scheme)
The major challenges in implementing the CPS which go a long way in affecting the
pensioners’ welfare according to Ahmad are highlighted below:
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(a) Inadequate funding of FGN Employees’ Retirement Benefits Bond Redemption
Fund (RBBRF): The federal government has not been faithful in paying the 5% monthly
wage bill into the) account with the Central Bank of Nigeria (CBN) from which the accrued
pension rights of federal government retirees who had worked for the federal government
prior to June, 2004 are paid. Therefore, there has not been sufficient fund to settle the pension
liabilities of those affected. This lack of commitment is characteristics of governments in
developing countries according to Riggs Prismatic Theory.
(b) Low level of monthly pension: There have been some retirees whose monthly pensions
are low when compared with their terminal salaries. The reasons are:
(i) There have been substantial increases in salaries after the enactment of PRA 2004,
especially with the introduction of consolidated salary, a situation which was not envisaged
by the Act. Salaries had increased between 2004 and 2010 by averages ranging from 76% to
276% in the arms of federal government (Ahmad, 2012). This made monthly pensions low
when compared to defunct DB Scheme, particularly for those who retired immediately after
the salary increase.
(ii) The bulk of the retirement benefits of those who may be retiring within the first 10 years
of the scheme would definitely comprise the accrued pension rights calculated based on the
salary levels as at 2004 which are very low when compared with current salaries. Such
category of retirees would not have enough time to accumulate pension contributions under
the CPS.
(iii) The scheme has low pension replacement ratio of 40% as against 80% replacement ratio
of DB scheme.
(iv) Certain categories of retirees, particularly in the private sector, have had small balances
in their RSA that were insufficient to be subjected to a programmed withdrawal or the
purchase of annuity. The implication here is that the high inflationary trend characteristics of
65
the Nigerian economy is likely to eat deep into the accumulated fund in the individual
retirement saving account.
(c) Periodic Review of Pension Benefits. The CPS was not designed to incorporate increases
in pension as inflationary adjustments are reflected in the investment yield of accumulated
pension assets, while monthly contributions do increase whenever salaries are reviewed.
(d) Remittance of pension contributions
There is lack of accurate information for prompt remittance of monthly pension
contributions of FGN employees into their RSAs as there is no comprehensive database of
FGN employees. And many ministries, Departments and Agencies (MDAs) are reluctant to
submit their nominal rolls to the Commission, which results in late or non-remittances of
pension contributions of their employees. The Commission is unable to exert supervisory role
over them in clear violation of sections 30 to 38 of the PRA 2004.
(e) Compliance and coverage in the private sector: According to Bureau of statistics,
there are no fewer than 14 million enterprises with over 5 workers in the country. Only about
170,000 (or 1.21% of private employers) have registered in the scheme. A lot of companies
are not even registered formally with the Corporate Affairs Commission. Some employers are
so small that they can barely manage to pay salaries of those working for them and so see the
payment of pensions for staff as additional burden. The scheme has a low coverage ratio.
Umar stated that the coverage ratio of companies in the scheme is 3%, while that of the
working Nigerian is still 7%. The Commission imposes sanctions on errant employers by
publishing their names in the newspapers (that is, naming and shaming strategy) and filing
legal action. It has also appointed 172 debt recovery agents to recover unremitted
contributions and interest penalties from defaulting employers for the accounts of RSA
holders in line with the provision of section 1 (7) of the PRA 2004.
66
No doubt, it is difficult to enforce an Act when there is no data on the number of
private companies in informal businesses contributing to the GDP of the nation. Also it will
not be uncommon to observe some high rate of evasion of the scheme by small businesses
that operate under harsh political, economic and business environment. Thus confirmatory
assertions made by El-Rufai (2013) that majority of the small businesses evade the scheme
because of the cost to them and minimal penalties for evasion. PENCOM has barely been
able to cover the urban areas much less the rural areas. The implication of this is that the
scheme is highly imbalanced, focusing mainly on employers of the public sector and urban
dwellers while neglecting the private and informal sectors as well as the rural areas. To
worsen the matter, the Pension Reform Task Force Team (PRTT) set up sometime in 2010 to
bring some sanity to the system and ensure that pensioners receive their pensions as and
when due, rather than perform their task, only succeeded in embezzling the funds at their
disposal. While claiming to have uncovered misappropriated funds, the committee itself
depleted pensioners’ funds, worth billions of naira on frivolities and corruption (ibid.).
f) Inadequate supervision control: The Commission is unable to exert supervisory control
over the Pension Offices as they have little regard for the Commission’s supervisory role over
them, in a clear violation of sections 30 to 38 of the PRA 2004, in spite of the fact that the
Commission and the Offices had jointly worked out a supervisory framework and issued
regulations on the conduct of the offices. In collaboration, Research Institutes’ retirees
alleged short-payment of entitlements. Some were made to sign for the gratuity prepared in
figure and letter on a pay slip. This pay slip was immediately re-audited on the same table
with a lot of alterations on the pay slip. Whenever the severed staff is not ready to give out
huge amount of their gratuity, they must be ready to dance to dirty music (Jegede, 2013). One
basic thing here is that “he who lives in a glass house does not throw stones”. PENCOM has
67
inescapable reasons for shying away from its responsibility of supervising and controlling
Pension Offices (six departments) because it is given all the statutory requirements for its
role. In Nigeria, most public office holders are corrupt; therefore there hardly can any have
the moral courage to institute sanctions against the other.
(g) Operations of licensed operators: Contributors to the scheme wonder how the
PENCOM could determine people’s life expectancies. Some complain of not having anything
in their RSA, some are not getting regular statement of account while those who appear to be
getting regular statements complain that the amount is usually short of various sums (Abioje,
2012). The PENCOM imposes sanctions on operators who fail to render returns promptly,
inability to send RSA statements to contributors and in serious cases of weak corporate
governance, it usually removes Directors and takes over the management of the affected
operators in order to safe-guard the pension assets. The contributory Pension Reform in
Nigeria is laudable. But the best policy is not very useful if you do not have good
implementation (El-Rufai, 2013). A bad system begets a bad citizen and vice versa (Dike,
2006). No wander some international Institutions like World Bank, International Monetary
Fund (IMF) and International Labour Organization (ILO), advised that Nigeria was not
sufficiently developed technically and morally for the contributory pension.
(h) Transfer of risks to employees: The employee decides who manages his/her pension
contributions and therefore assumes full responsibilities for the risks involved. Most of the
employees are not well educated let alone being knowledgeable in risk management and so at
the mercy of the pension administrators and custodians.
(i) Lack of confidence in the scheme: There is lack of confidence on the part of the
employees arising from failures of previous similar government policies. Besides, there is
fear of continuity and sustainability by successive government since new governments in the
68
country have been known to jettison previous programmes midway (Fapohunda, 2013).
Another is the challenge of embezzlement and mismanagement of the contributions.
(j) Limited investment instrument: Unstable global financial system coupled with
corruption and system collapse affect the performance of PFAs. Businesses are dying as a
result of collapsed infrastructures making it difficult for PFAs to invest these monies. They
may subsequently run into over head costs arising from administrative and other costs, which
may eventually collapse the scheme. Under the present capitalist economy, recession and
financial disaster are inevitable. More so, bank scandals and rising fiscal deficits do not breed
confidence in the system or the government’s ability to deliver meaningful benefits in old
age. Internally several big banks have been declaring huge losses due to financial
speculations and they are seeking state assistance (Fapohunda, 2013).
(k) Complex nature of the CPS system: Admittedly, the CPS seems more complex to
administer because its administration involves monthly computations throughout the life of
employee. There are now higher administrative costs. On the whole, it costs more to
administer than the old system. Also there is no cash flow advantage to the employer because
contributions cannot be deferred by him. The system is less flexible for employers who do
not control funds contributed and cannot use it to their advantage whenever there is a need to
do so (ibid.).
(l Exclusion of the poor and workers in the informal sector: The new scheme continues to
exclude the poor and workers in the informal sector. There is a difficulty in implementing the
new scheme in the informal sector arising from the absence of a coherent structure and the
unwieldy composition of the sector. Integrating the informal sector into the new scheme is
quite herculean and difficult. There is an all-encompassing need to address the effective and
efficient participation of the informal sector in the contributory pension scheme (ibid.).
69
(m Documentation and Archival system: Some Pension Offices have no proper archiving
system in place especially the Civil Service and Police Pension Offices. Retrieval of
pensioners’ files when needed has been an arduous task. Furthermore, most Pension Offices
do not have comprehensive biometric databases of their pensioners.
(n) Inadequate ICT Infrastructure: Most Pension Offices are not adequately automated.
There are insufficient Personal Computers (PCs) with adequate hardware and network
configurations. They do not have the capacity to capture and maintain a robust pensioner
database with biometrics (that is, photos and finger prints) or detect multiple/duplicate
pensioners’ records and generate reports as none of the other Pension Offices had a reliable
off-site backup arrangement and disaster recovery plan.
(o) The Pensioner Verification Exercises: There is absence of policy framework on
procedure and processes for the verification exercises which leaves the design to the
discretion of the Pension Offices. This was further compounded by the frequent changes in
the leadership of the offices with attendant loss of institutional memory. It had also led to the
use of different IT technologies and platforms in the enrolment and data- base management.
(p) Payment of Benefits to Pensioners: Funds are released to the Pension Offices for
payments of pension benefits by the government without the recourse to PENCOM. This has
resulted in the lack of external independent review that could serve to authenticate the
accuracy of pensioners’ entitlements determined by such budgetary estimates, thus not
guaranteeing the elimination of incidences of under payments or overstatement of
government liabilities.
iii. Benefits of Pension Reform Act 2004 (Contributory Pension Scheme) to Pensioners
Some of the benefits of the Act to the pensioners are:
70
a) Prompt and Regular Payment of Benefits: It facilitates prompt and regular payment of
benefits since funding is made monthly and credited to individual RSAs immediately
(Fapohunda, 2013). Pension is readily available on retirement.
b) It also ensures availability of fund for investment, particularly to the capital market.
Contributions are put to long term investments in the economy. The share of the proceeds
from the return on investments is credited to RSA to beef it up.
c) It involves workers’ participation since an employee contributes to his/her retirement fund
and is also at liberty to decide who manages it (PFA) and the choice of investment
opportunities or products on the guidance of professional fund managers) for his pension
fund (Imhanlahimi and Idolor, 2011).
d) Central Regulator: A central regulator now oversees all pension matters nationwide. But
in reality PENCOM is unable to exert supervisory control over the Pension Offices as they
have little regard for the Commission’s supervisory role over them, in a clear violation of
sections 30 to 38 of the PRA 2004 (Ahmad, 2012).
e) Private sector participation in the management of the scheme: Private sector now
participates in the management of the scheme which has introduced profit making into
pension administration and serves as a check against the inflationary effects on the
contributions.
f) Portability of Retirement Savings Account: The portability of the RSA makes it easy to
change jobs. The employee only needs to provide the new employer with details of his
Retirement Savings Account. Contributory Pension Scheme is a workable and sustainable
solution to inter-sectorial movement applicable anywhere because of its straightforwardness
and simplicity (Fagbulu, 1979) in (ibid.)
71
g) It reduces government spending and commitment to payment of retirement benefits as
employees now share in it and there is less administrative cost to government because it is
now borne by PFAs and PFCs.
h) Availability of information: It avails the contributors or pensioner a lot of information,
ranging from monthly balances and contributions, lump sum available upon retirement, to
monthly pension.
i) Competition: There is competition in the pension industry which fosters innovation, more
transparency and accountability. The operators, regulators, subscribers and beneficiaries are
too deeply intertwined and the system is too tightly regulated for funds to be misappropriated
on such a grand scale (Sogunle, 2012). The opportunity to change a perceived poor
performing PFA which is inherent in the CPS, is an additional impetus for the PFA, who is
thus encouraged to be more competitive and relevant, and hence ensures its effectiveness and
efficiency in the interest of the worker/depositor/pensioners and their dependants
(Imhanlahimi and Idolor, 2011).
j) Investment options: Various types of investment options that suit the needs of individual
RSA holder are available.
k) Reduced pressure on government: Contributory pension scheme enables the government
to weather the storm of embarrassment that it used to be subjected to because of its inability
to pay the DBPS. This is in spite of the fact that the percentage of retired public servants in
Nigeria, is quite lower than what obtains in many countries of the world (Imhanlahimi and
Idolor, 2011).
l) Elimination of ghost pensioners’ syndrome. The incidence of ghost retirees is removed.
Therefore it is expected that government will protect its entire savings against leakages on
account of payments to ghost retirees to the common good of the society.
72
m) Employment generation: The contributory pension scheme has enabled employment
generation in the form of regulators, operators, contractors, participants, advisers etc. The
ripple effect of this could be a general boost in the economy or what Leigh (2009) called the
potential to generate positive economic externalities as the financial assets have since been
put at over N1 trillion (Imhanlahimi and Idolor, 2011).
g) Better living condition: Increased employment also has the potential of enabling more
people in the society to live more decent lives. Pension Reform Act 2004 would help to
facilitate the growth of several sectors of the nation’s economy (Mbanugo Udenze in Ezem,
2006) quoted in (ibid.).
h) Privatization of pension industry: Government, they say, is a bad manager of business.
Many State Owned Enterprises (SOEs) have collapsed as a result of massive corruption,
excessive bureaucratic procedures, government arbitrary policies, etc (Otobo, 2002; Edigi,
1996; Gbeja, 1992) in (ibid). The CPS is driven by the private sector PFAs and PFCs, under
the regulatory guidelines provided by the PENCOM. These operators are registered by
PENCOM. All their remunerations are met from the pension fund/asset management.
(i) Improved employer-employee relationship over payment of retirement benefits: It
has put to rest the hollow pension language which usually gave rise to series of litigations
between most employees and their employers when they wanted to retire. The CPS has
guaranteed that pension operators have money for payment of pension benefits and therefore
no hoax in the matter. In CPS the worker has made his contributions, he does not need any
letter of retirement, to grant him permission to receive his pension after necessary clearance
formalities with his employers. He only needs a letter of clearance and information to his
PFA.
j) Contributors’ right to question PFAs: The investment earnings which are generally
subject to macro-economic framework of the country would also be subject to investment
73
portfolio, honesty, accountability and probity of the PFAs. The contributor or pensioner has
impact on the PFA to the extent that he can question the PFA for clarifications, petition the
PENCOM, the government’s chief or direct regulator of the CPS, report to the law
enforcement agents over alleged irregularities, and change from a perceived poor performing
PFA to a better one.
2.13. GAP IN LITERATURE
From the literature reviewed, it has been discovered that a number of studies
(Fapohunda, 2013; Odia and Okoye, 2012; Imhanlahimi, 2011; Babatunde, 2010; Dostal,
2010) have actually been done on the impact of the implementation of contributory pension
scheme on workers’ consumption, income and savings, workers and productivity, etc, but not
much have been conducted on the impact of the contributory pension scheme on pensioners’
welfare with particular reference to Nnamdi Azikiwe University, Awka. This study intends to
fill this gap.
74
Beneficiaries
Regulators Challenges
2004 Pension Reform Act
Figure 2.1
Schematic Representation of Pension Reform Act 2004
Source: Sketched by the Researcher
Macro-economic Policy (NEEDS)
Public
• Pensioners
Public
service
Military
Private
Subscribers
• PFAs
• PFCs
• CPFAs
• PTADs
• PENCOM (at the apex)
• Stakeholders (Trade unions)
Ecological factors
• Formalism
• Prebendalism
• Ethnicity etc.
Other factors
• Limited investment
instruments.
• Inadequate ICT
infrastructure.
• Complexity of the scheme
etc.
Implementation
• Ensure that every private and public worker receives his
retirement benefits as and when due.
• Assist workers to save to cater for their livelihood during old
age.
• Establish a uniform pension scheme for both private and
public sectors.
• Stem the growth of outstanding pension liabilities etc.
Pension system
Objectives
Regulators
Operators
Beneficiaries
Challenges • NAICOM
• EFCC
• Courts
• NSITF
• Assurors of Life
• Rating Agencies
etc
75
The pension reform policy was a part of the main macroeconomic policy objectives
pursued by the Obasanjo administration to address the Millennium Development Goals
(MDGs) which is anchored on National Economic Empowerment and Development
Strategies (NEEDS). The broad objective of the policy is to reform the pension
system/industry to provide adequate source of retirement income for workers in the country.
This led to the enactment of Pension Reform Act 2004. The main objective among others is
ensuring that every person that worked in either the public or private sector in Nigeria
receives his/her retirement benefits as and when due. To achieve these objectives, the
government established the institutional framework for the implementation of the (Act) –
Contributory Pension Scheme. However, the efficient performance of the operators is being
impeded by ecological factors such as formalism, prebendalism, ethnicity, and other factors.
The institutional framework includes:
i. Regulators: PENCOM is the apex regulatory and supervisory body. Others
are: NAICOM; EFCC; Courts and other stakeholders (trade unions).
ii. Operators: These are PFAs; PFCs; CPFAs; NSITF; PTAD; Assurors of life
and Rating Agencies who take care of pension funds.
iii. Subscribers: These are employers and employees of both private and public
sectors that make monthly contributions of 7.5% to pension’s funds with the
exception of the employees of the military who make monthly contributions of
2.5%.
The employees transform into pensioners at retirement who become the beneficiaries
of the macroeconomic policy. The ultimate goal of the Pension Reform Act 2004 is to impact
positively on the welfare of the beneficiaries (pensioners).
76
2.14. THEORETICAL FRAMEWORK
The frameworks of analysis adopted for this study are Productivity Theories of
Pension propounded by (Dorsey, Cornwell and Macpherson, 1998) and Ecological Theory
anchored on The Theory of Prismatic Society, by Fred W. Riggs in (Onah, 2008; Ezeani,
2005; Okoli, 2004; Kasfir, 1969).
(i) Productivity theories of pension are of two sides: The demand and supply sides. Both
sides of the theory however, agreed that pension schemes are established as incentives and
motivation to encourage workers to increase their productivity or performance. The demand
side of the theory posits that employers make payments to employees’ pension funds because
workers are keen or prefer pension savings to cash payments to their emoluments. This is
because of the benefits attached. These include reduction in income tax of the employee, the
retirement benefits, such as social security from the employer’s contributions, interest
earnings and dividend earnings on pension fund investment or assets that are not taxed.
Others include the prospect of future enhanced and acceptable pension benefits, from awards
or (increases as may be offered by the government from time to time. Yet another benefit is
an insurance cover of sorts against risks that pension provides.
The demand side also states that employees, especially the high income earners,
prefer pension to cash payments because of a possible annuity (fixed amount of money paid
at regular intervals) for as long as the pensioner lives. There is the shifting of risk of poor
asset or investment performance to the employer in Defined Benefit Pension Scheme
(DBPS), which is not exactly so in the CPS where there is a PFA. In the CPS, it is the asset
earnings that are distributed to contributors or pensioners. Thus, risk shifting is easier to
operate in a DBPS where there is a promised or defined benefit than in CPS where the value
of the benefit is a function of the value of the asset or pension fund performance. Finally, on
the demand side, there is the potential of improved performance or output of the employee
77
merely by the institution of a pension fund or scheme. The implication of this is that the
pension scheme must be well articulated; involve the workers in the decision processes, well
funded and sustainable, such that it can motivate the workers or employees.
The supply side of this theory posits that employees’ gain from pension tends to raise
the level of workforce productivity and reduce labour costs. This is because the employers’
investments in the training of the workforce, improved condition of service, provision of
adequate resources etc, are greatly offset by the workforce’s improved output or productivity.
There is also the perspective that the supply side to the theory serves as an incentive for
personnel to remain in the organization for a long time. This means that there is a reduced
personnel turnover as DBPS penalizes organization quits. In all this, the organization tends to
gain, however, because of large workforce’s high productivity and attachment to the
organization. This benefit is inherent more in DBPS than CPS.
Figure 2.2: A Unified Pension Model
Source: Dorsey, S.; Cornwell, C. and Macpherson, D. (1998)
The above model is based on a structural model of pension coverage, labor force
outcomes, and productivity. It recognizes that pension coverage is endogenous and can test
Productivity Supply Side Outcomes
• Training
• Efforts
• Selection effects
Pension Decision
Demand Side Factor
• Taxes
• Insurance
• Union
• Capital
• Labour quality
78
the importance of productivity factors against demand-side theories of why firms sponsor
pensions. It simultaneously estimates the channels through which pension incentives raise
productivity, as suggested by long-term employment models: e.g., by encouraging employee
training. It links improved labor force outcomes to productivity gains. In other words,
employers offer pension benefits to attract, retain for high productivity and reward
employees. While employees, on the other hand, rely on retirement benefits (pensions) as a
form of financial security in their less productive years.
The relevance of these theories to this study are first, the theories show application in
varying degrees of the values and challenges of both the DBPS and CPS, but more positively
in the CPS. There is the issue of acceptance of a particular pension scheme to the workforce
for the sustainability of the scheme. The third point is the positive effect of a good pension
plan which can enhance the average wealth of a pensioner, especially when the assets can be
invested to generate large income for redistribution to participants. The theories also show
that a good pension scheme can motivate the workforce or staff, to put in their best in the
workplace as they look forward to a rewarding retirement period. Such enhanced work output
or productivity will, of course, benefit the organization, the workforce, the pensioner and the
larger society by implication.
These theories are relevant to this study because they informed the pension reforms in
Nigeria (Defined Benefit Pension Scheme and the Pension Reform Act 2004 (Contributory
Pension Scheme). The Pension Act of 1979 adopted the Defined Benefit Scheme (Pay- As -
You -Go): though they have failed to deliver on its policy outcomes targeted at pensioners’
welfare due to defective institutional values, lack of transparency and accountability and poor
monitoring and regulatory frameworks in the pension administration. According to
El-Rufai (2013):
79
There was one fundamental flaw with all these schemes – they mandated in the
laws pension entitlements, called “defined benefits’ in pension’s parlance,
without setting aside any cash to pay for the future liabilities. The assumption
of successive governments in Nigeria (and indeed in many countries) is that
there will always be tax (and oil) revenues to pay for future pension
entitlements. This held true until the mid-1980s when profligate spending
accompanied by collapsing oil prices and resultant debt burdens brought our
economy to its knees. Pension payments became erratic and current arrears
built up, and unfunded future liabilities escalated.
The Pension Reform Act 2004 (which is on-going) on the other hand, adopted
contributory pension scheme to address the Achilles' heel of the former. The new
contributory scheme is fully funded by employers and employees and the risk of the
performance of the investment portfolio rests squarely on the employees. Available records
show that barely seven years into the implementation of the contributory scheme, the
contributors (workers) and beneficiaries (pensioners) are becoming dissatisfied with the
performance of the New Scheme. The scheme has a lot of challenges to contend with which
put its objective of putting smiles on the faces of pensioners in doubt.
(ii) Ecological Theory: The second theory relevant to this study is ecological theory. Onah
(2008) stated that like living organisms, formal organizations and indeed other bureaucracies
are conditioned by their environments and the conditioning is naturally mutual. Ecological
approach involves a systematic effort to relate public administration to its environment. This
approach is traceable to Gaus (1947) quoted in Onah (2008), who drew from the work of
sociologists who were concerned with the interdependence of human life and its surrounding
environment and from botanists and zoologists who were interested in expanding how plants
and animals adapt to their environments. Gaus, in his work, identifies the primary ecological
80
factors which impinged on American public administration namely: people, places, physical,
technology and social, wishes, ideas and personality. Ecological theories advance that
administrative institutions in the developing states are weak because of the peculiar problems
that impinge on them. They argue that these constraints prevent administrative institutions of
the developing states from taking the form of the “model” or “ideal” administrative
institutions found in the developed states. In practical terms, they contend that this failure
stems from the colouring of the values and structures by the alien modern ones and vice versa
(Okoli, 2004).
Riggs, one of the exponents of ecological theories, in his “Administration in
Developing Countries (1964)” quoted in Onah (2008), conceptualizes the prismatic model of
the administrative system which deals with a range of social phenomena and behaviour which
influences the political and administrative aspects of life in developing countries. According
to Riggs (1980) quoted in Ezeani (2005), by ecology of administration “we may refer to ways
in which the environment conditions the politico-administrative process. The environments of
anything sets parameters for whatever it environs, and parameters must be viewed as both
constraints that limit what can be done and concurrently, as resources that may be used by
decision makers. Riggs prismatic theory helps immensely in understanding bureaucratic
behaviuor in Africa. It is in this light that experts feel that the Riggs theories are directly
applicable to African administration. Thus, C.A.C. Wallis in Kasfir (1969) states flatly: “It
can be said at once that although Riggs has taken most of his examples from South East Asia
and none from Africa, he has nevertheless accurately described the ecology of administration
in African countries. Once one has got used to the terminology one finds oneself on familiar
ground. In his study of politics in Acholi District, Uganda, Colin Leys asserts that it
“certainly exhibits the features of Riggs ‘Sala’ model…” (Kasfir,1969).
81
Figure 2.3: A Diagrammatic Representation of Riggs Prismatic Theory
Source: Adapted from Okoli (2004); Okoli (2012) - Unpublished Lectures.
The above diagram is a representation of Riggs’ prismatic approach to administrative
weakness in developing states. According to him, the bureaucratic system in these states is
seen as a reflection of light in a glass. When rays of light fall on a plain glass it will be
reflected but when the rays fall on a prism (6-sided glass) it will be refracted.
In like manner, when modernity represented in Weber’s bureaucratic model is
introduced into the traditional institutions, it is trapped by the tradition and culture
(interpenetration of tradition and modernity). Modern values are refracted like rays of light in
a prism depending on the degree of the interpenetration. Only a portion of the modern values
will go out producing a hybrid described as “Sala” bureaucracy (Sala is his term for
administrative institutions of the developing society) which is characterized by a range of
social phenomena and behaviour (pathology) such as: bazaar canteen, strategic spending,
polynormatism, formalism, polycommunalism etc.
• Price indeterminacy
• Bazaar canteen
• Strategic spending
• Polycommunalism
• Double talk
• Blocked through puts
• Bifocalism
• Formalism
• Prebendalism etc
Hybrid (Prismatic
Sala) bureaucracy)
Tradition (trapped or
interpenetration of
tradition and
modernity)
Refracted
Modern values
Reflected
82
This theory is relevant to this study. It explains the reason why the pension reforms in
Nigeria have not delivered on its goals towards the Nigerian workers and pensioners’ welfare.
Pension policies/reforms just like every other economic reform embarked upon by
government of Nigeria have not really produced the desired results. Nigeria has continued to
operate in the western administrative framework without considering the inconsistency of
these frameworks with local customs, values and norms. The incongruity between the
exogenous administrative norms (western-style public service) and the indigenous
(traditional) social culture reflects in a gap between official rules and the actual bureaucratic
practices which have been commonly described as “formalism”. In other words, there is often
a disparity between the formal administrative rules and codes of conduct and the actual
behaviour of bureaucrats influenced by the societal norms and expectations (Haque 1997).
Another is a pathology called colonial mentality (which is a carryover from the
colonial era that government work (Olu oyibo) is not personal or community work) has a lot
of influence on the attitude of the Nigerian workers towards public service. An average
Nigerian worker is highly dedicated, full of initiative and resourceful when it comes to his
own private business. When it is government work, he sees it as “no man’s work” (Ogunna,
1999). No wonder Obasanjo in (2003) lamented that, “our public offices have too long been
showcases for combined evils of inefficiency and corruption whilst being impediments for
effective implementation of government policies (Esu and Inyang, 2009). Also, Agagu (2008)
asserts that:
The public service which was seen as the custodian of rules and regulations
and the engine of the development had lost its prestige and confidence. The
aftermath of this is the invention of series of reforms which, have led to
privatization, downsizing and right-sizing of the public service and even
minimizing the role of the public sector in the national life.
83
In like manner pension officers exhibit negative traits. This explains why they
“scramble” for pension funds entrusted in their care leading to crisis in old pension
administration. The New Pension Reform Act 2004 is not free from the same unethical and
sharp practices and regulatory weaknesses either, as PENCOM, pensioners, contributors and
other stakeholders are already not being at ease with the implementation of the Scheme so
far.
The New Scheme has all the necessary institutional framework and corporate
governance put in place but the implementation process falls short of expectation because the
officials say one thing and do the opposite (double talk). Therefore, clear regulations are
necessary but not a sufficient condition for the success of the New Pension Scheme. An
appropriate implementation and enforcement culture are also required. However, Nigeria is
known for its low scoring on measures of sound administration. Even by 2005 there were
only five countries placed lower than Nigeria out of 158 rated by Transparency International
(http://www.transparency.org). Equally, it was scarcely above, the 6th percentile on the World
Bank Institute’s rating of countries with respect to ‘control of corruption’ and ‘rule of law’
and only in the 16th percentile with respect to ‘regulatory quality’
(http://www.worldbank.org/wbi/governance). Moreover, many Nigerian commentators share
the pessimistic views of external assessors (Oshionebe, 2004). The foregoing assertions put a
big question mark on the success story of the much orchestrated CPS in Nigeria.
2.15. HYPOTHESES
Ho1 The problems of old pension scheme have not significantly affected the pensioners’
welfare in Nnamdi Azikiwe University, Awka.
Ho2: The implementation of Pension Reform Act 2004 has not significantly enhanced the
pensioners’ welfare in Nnamdi Azikiwe University, Awka.
84
Ho3 The institutional framework for the implementation of Pension Reform Act 2004 is
not significantly effective and efficient in delivering pensioners’ welfare in Azikiwe
University, Awka.
2.16. OPERATIONALIZATION OF THE KEY CONCEPTS IN THE HYPOTHESES
1. Pension Reform Act 2004: Pension Reform Act 2004 is the Act that introduced
Defined Contributory Pension Scheme for the employees in the private and public
sectors and Federal Capital Territory, Abuja.
2. Institutional framework for the implementation of the Pension Reform Act 2004:
This includes:
(i) National Pension Commission (PENCOM): This regulates, supervises and
ensures the effective administration of pension matters.
(ii) Pension Fund Administrators (PFAs): They open Retirement Saving Accounts
(RSAs) for employees, manage the pension funds according to PENCOM’s
guidelines.
(iii) Closed Pension Fund Administrators (CPFAs): They manage the pension
funds of organizations that run approved existing pension scheme?
(iv) Six Pension Departments: They take care of pensions of the existing pensioners
before the Act and those exempted from the New Scheme.
(vi) Nigeria Social Insurance Trust Fund (NSITF): It takes custody of its
contributors’ money for 5 years after which it hands over the total assets held to a
custodian.
(vii) Rating or Credit Agencies: These are agencies responsible for rating the
instruments that pension funds are invested in.
85
Other institutional framework are: Economic and Financial Crime Commission
(EFCC); stakeholders; employers and employees.
3. Old Pension Scheme: This is unfunded, defined benefit, pay-as-you-go (PAYG)
pension scheme derived from Pension Act 1990.
4. Problems of Old Pension Scheme: The problems of old pension scheme include:
• Accumulation of huge pension liabilities
• The administration was weak, inefficient, less transparent, cumbersome,
bureaucratic, highly liable to corrupt practices
• Lack of reliable record of pensioners
• Huge amount of resources were lost in yearly verification exercises which did not
result to timely, efficient and prompt payment of pensions.
• Ghost pensioners were paid monthly pensions through bank transfer while names
of genuine pensioners were expunged from payroll
• Pensioners dyed at the verification queue in the process of accessing their benefits
5 New Pension Scheme: This is funded Defined Contributory Pension Scheme derived
the Pension Reform Act 2004.
6. Effectiveness: This refers to the extent to which the institutional framework for the
implementation of Pension Reform Act 2004 realizes the federal government’s goal
of paying the pensioners their money as and when due.
7. Efficiency: This refers to the degree of the cost of assessing the monthly or quarterly
pensions by the pensioners in terms of time physical stress and money.
8. Pensioners’ welfare: Pensioners’ welfare entails paying pensioners adequate pension
monthly or quarterly as and when due to meet their basic needs and enhanced living
standard throughout their life span by their former employers.
86
9. Pensioners’ welfare delivery: Pensioners’ welfare delivery entails ensuring that
pensioners get all the pension promises as stated in the Pension Reform Act 2004.
10. Implementation processes: This refers to compliance with the Pension Reform Act
2004, at minimum, include ensuring that all employees open Retirement Savings
Accounts (RSA) with Pension Fund Administrator of their choice; remitting both
employer and employee pension contributions to the appropriate Pension Fund
Custodian not later than seven days from the date of payment of salaries; transferring
all pension funds and assets prior to the commencement of the Pension Reform Act to
licensed pension operators and paying retirement benefits to pensioners as and when
due.
Note: ‘retirees’ and ‘pensioners’ are used interchangeably in this work. Also, ‘Pension
Reform Act 2004’, ‘the Act’, ‘contributory pension scheme or defined contributory scheme’,
and ‘the new scheme’, are the same in this work.
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CHAPTER THREE
STUDY AREA AND RESEARCH PROCEDURE
3.0. Introduction
This chapter presents the method the researcher adopted in this study which included:
study area, research design, population sample size and sampling procedure, sources and
method of data collection, reliability and validity of instruments and method of data
presentation and analysis.
3.1. Study Area
Nnamdi Azikiwe University, Awka
The study area for this study is Nnamdi Azikiwe University, Awka, Anambra State.
Nnamdi Azikiwe University, Awka came into being as an off-shoot of the defunct Anambra
State University of Technology (ASUTECH); which was established through Law No. 7 of
30th July, 1980 by the government of the old Anambra State. It operated as a multi-campus
University, with campuses in Abakaliki, Enugu, Awka and Nnewi. In 1991, following the
split of the old Anambra State into Anambra and Enugu States, the Awka and Nnewi
campuses of the former ASUTECH were constituted into Nnamdi Azikiwe University by the
Anambra State Edict of November 26, 1991. In 1992, the Federal Government of Nigeria, via
the Decree No. 34 of July 15, 1992, took over the University from Anambra State. Nnamdi
Azikiwe University, Awka, thus became a Federal University.
The University is founded on the philosophy that ‘knowledge should be propagated
and disseminated to individuals without let or hindrance’. It is providing undergraduate and
postgraduate education to an estimated student population of 36,000 at its over 100 acre main
campus located at Amansea; situated thirty-five kilometers to the south east of Awka and the
second campus is at Nnewi. It has a total staff strength of 10,673 broken down into 8,128
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teaching staff; 1,000 technologists and 1,535 non-teaching staff. It ranks among the top 10
Universities in Nigeria in research output.
The current Vice Chancellor is Prof. Boniface Egboka who took over from Prof.
Ilochi Okafor (SAN), (www.unizik.edu.ng; Unizik, (2011).
3.2. Research Design
A research design is a plan or blueprint which specifies how data relating to a given
problem should be collected and analyzed (Nworgu, 2006). The research design adopted for
this study is survey research design. A survey research design allows for the use of
questionnaire and representative sample. A survey research design was found appropriate to
be used in this study to establish the impact of Pension Reform Act 2004 on the pensioners’
welfare in Unizik.
3.3. Population sample size and Sampling Procedure
i. Population of the study
Table 3.1: Population Distribution of Pensioners of Old and New Pension Schemes and
Serving Workers in Unizik
S/No.
PRA’2004 Pensioners Old Pension Scheme
Serving Workers
Year No. of Pensioners
No. of Pensioners
Category of Staff No of Staff
1 2008 30 - Teaching 8,128
2 2009 28 - Technologists 1,010
3 2010 59 - Non-teaching 1,535
4 2011 33 -
5 2012 41 -
6 2013 35 -
Total 226 278 Total 10,673
TOTAL POPULATION DISTRIBUTION FOR THE STUDY = 11,177
Source: Field Work: Personnel Department Unizik; Unizik (2011).
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A population is made up of all conceivable elements, subjects or observations relating
to a particular phenomenon of interest to the researcher (Asika, 2012). The population of the
study constitutes all the men and women pensioners under the old and new pension schemes
and serving/active workers in Unizik. The total population for the study is 11,177.
ii. Sample Size
Table 3.2: Sample Frame for Pensioners of Old and New Pension Schemes and Serving
Workers in Unizik
S/No. PRA’2004 Pensioners Old Scheme
Pensioners
Serving Workers
Year No. of
Pensioners
No. Sampled No. of
Pensioners
No.
Sampled
Category
of Staff
No. of
Staff
No.
Sampled
1 2008 30 1.2 278 11 Teaching 8,128 325
2 2009 28 1.12 - - Technolo-
gists
1,010 40.4
3 2010 59 2.36 - - Non-
teaching
1,535 61.4
4 2011 33 1.32 - -
5 2012 41 1.64 - -
6 2013 35 1.4 - -
Total 226 9 278 11 Total 10,673 427
THE TOTAL SAMPLE SIZE FOR THE STUDY = 447
Source: Field Work: Generated from the population distribution by the Researcher
The sample size for this study is about 447 respondents. This was determined using
Curry (1984)’s ‘rule of thumb’. A sample is a smaller group of elements drawn through a
definite procedure from a specific population (Nworgu, 2006).
iii. Sampling Technique
A sampling technique is a plan specifying how elements will be drawn from the
population (Oche, 2011). A proportionate stratified random sampling was used to select the
sample size for each of the three categories of respondents, namely, pensioners under the old
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pension scheme; pensioners under the new scheme and serving workers. This made for
proportionate representation of each category of respondents. Then, a simple random
sampling was used to select sample/respondents from each of the three categories. The
principle of simple random sampling is that every subject has equal chance of being selected.
The researcher decided to include pensioners under the old scheme because they are
better positioned to respond to question items on the problems of the old pension scheme.
Again the researcher envisaged there would be difficulties in getting a good number of
pensioners under the new scheme to complete the questionnaire because in the present
dispensation they deal directly with their PFAs. Serving workers were also used because they
are both the implementers and contributors to the scheme. They are like birds of the two
worlds. They are well positioned to furnish accurate data on the subject matter of the
research. It is important to state that the researcher strategically excluded the pension
regulators and operators (PENCOM, PFAs, PFCs, etc) from the sample because typically
nobody can ever make an objective assessment of himself.
3.5. Sources and Methods of Data Collection
i. Sources of Data Collection
The sources for data collection in this study were primary and secondary sources. The
major primary source was a questionnaire. A questionnaire is an instrument for gathering data
beyond the physical reach of the researcher. It consists of a set of questions designed to
gather information for analysis (Asika, 2012). Relevant data from secondary sources such as:
books, journals, encyclopedia, internet and print media etc, were also used to supplement the
data in the questionnaire.
The researcher also utilized observation and informal discussions based on question
items on the instrument. Through this approach she made an on-the-spot assessment of the
subject matter in the course of her field work in the study area.
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ii. Methods of Data Collection
The instrument used was a Structured Questionnaire developed by the researcher
based on what is to be measured (see appendix ‘A’). The instrument was titled ‘Pension
Scheme and Pensioners’ Welfare Questionnaire’ (PSAPWQ). It was a 43-item questionnaire
constructed by the researcher and aimed at eliciting information from the respondents on the
‘impact of the new contributory pension scheme on the pensioners’ welfare. The
questionnaire consisted of four sections (A - D).
Section A contained items seeking information on the demographic characteristics of
respondents such as age, sex, level of education, marital status, etc. Sections B - D contained
items seeking information to measure the independent and dependent variables of the study.
Items of sections B - D were designed on 4-points Rating Scale Type to measure item
interest scale which are rated as follows: ‘SA’ for Strongly Agree; ‘A’ for Agree; ‘D’ for
Disagree; ‘SD’ for Strongly Disagree and assigned numbers 4, 3, 2, and 1 respectively. The
respondents were required to indicate the degree of their agreement or disagreement with
each of the statements with a tick (√) as instructed.
The data from all the sources were then collected, categorized, tabulated and
analyzed.
3.6. Reliability and Validity of Instruments
i. Reliability of Instruments
In order to establish the reliability of the instrument, the internal consistency method
was used. In this regard, the researcher administered the instrument to respondents outside
the study area but with similar characteristics. The overall reliability coefficient using
Cronbach Alpha was 0.81 (see appendix ‘C’).
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ii. Validity of Instruments
The researcher adopted the content and face validity method together with the use of
external criterion to ascertain the authenticity of the findings of a particular item in the
instrument. The content or face validity of instrument entails the need to ensure that the
questions in an instrument are logically and relevantly measured. The external criterion
approach on the other hand entails comparing the result of the instrument with the existing
knowledge about the issue under investigation or even comparing the result of such findings
with available record on the issue. The researcher achieved these by comparing the findings
from documentary review with those of the questionnaire and informal discussion techniques.
Also the instrument was presented to the Project Supervisor and other experts in the
Department for validation. After the validation of the instrument, it was trial tested on a
similar sample using twenty (20) respondents in order to establish the internal consistency of
the instrument.
3.7. Method of Data Presentation and Analysis
The researcher used quantitative approach in data presentation and analysis. This was
accomplished using Statistical Package for Social Sciences (SPSS) package. Frequency
distribution tables were used to present the data for the Research Questions. The responses
constituted the data for the study. Percentage ratio was used to analyze the data; while
chi-square statistic was used to test the hypothesis.
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CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND FINDINGS
4.0. Introduction
This chapter deals with data presentation, analysis and findings. The researcher was
able to retrieve the 447 copies of the questionnaire administered. The research questions were
presented in frequency tables and analyzed while the hypotheses were presented and analyzed
using chi-square test statistic. The findings arrived at were also discussed.
4.1. Presentation and Data Analysis
Research Question One: Did the problems of the Old Pension Scheme negatively affect the
pensioners’ welfare in Nnamdi Azikiwe University, Awka?
Table 4.1: The impact of Old Pension Scheme on pensioners’ welfare.
Response options Frequency Percentages
%
Cumulative
Frequency
Strongly Agree 130 29.1 130
Agree 303 67.8 433
Disagree 14 3.1 447
Strongly Disagree -- -- 447
The result in the table 4.1 above shows that 130 (29.1%) respondents strongly agreed
that the problems of the old pension scheme negatively affected the pensioners welfare, 303
(67.8%) agreed, 14 (3.1%) disagreed while none responded to strongly disagree. This shows
that the problems of the old pension scheme negatively affected the pensioners’ welfare. On
the whole, 433 (96.9%) of the pensioners under the old and new pension schemes and active
workers sampled under this research question agreed that the problems of old pension scheme
negatively affected the pensioners’ welfare and only 14 respondents disagreed.
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Research Question Two: Has the implementation of the Pension Reform Act 2004
significantly enhanced the pensioners’ welfare in Nnamdi Azikiwe University, Awka?
Table 4.2: Implementation of the Pension Reform Act 2004 and enhancement of pensioners’
welfare.
Response options Frequency Percentages
%
Cumulative
Frequency
Strongly Agree 17 4.0 17
Agree 15 3.4 32
Disagree 301 69.0 333
Strongly Disagree 103 23.6 436
The result in the table 4.2 above shows that 17 (4.0%) respondents strongly agreed
that the implementation of the Pension Reform Act 2004 has significantly enhanced the
pensioners’ welfare in Nnamdi Azikiwe University, Awka, 15 (3.4%) agreed, 301 (69.0%)
disagreed, while 103 (23.6%) strongly disagreed that the implementation of the Pension
Reform Act 2004 has significantly enhanced the pensioners’ welfare in Nnamdi Azikiwe
University, Awka. Since 404 (92.7%) out of 436 pensioners under the new pension scheme
and active workers sampled under this research question disagreed, it means that the
implementation of Pension Reform Act 2004 has not significantly enhanced the pensioners’
welfare.
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Research Question Three: Is the institutional framework for the implementation of the Pension Reform Act 2004 significantly effective and efficient in delivering pensioners’ welfare in Nnamdi Azikiwe University, Awka? Table 4.3: The effectiveness and efficiency of the institutional framework for the Pension
Reform Act 2004 in delivering pensioners’ welfare.
Response options Frequency Percentages
%
Cumulative
Frequency
Strongly Agree 26 5.9 26
Agree 30 6.9 56
Disagree 305 70.0 361
Strongly Disagree 75 17.2 436
The result in the table 4.3 above shows that 26 (5.9%) respondents strongly agreed
that the institutional framework for the implementation of the Pension Reform Act 2004 is
significantly effective and efficient in delivering pensioners’ welfare, 30 (6.9%) agreed, 305
(70.0%) disagreed while 75 (17.2%) respondents strongly disagreed that the institutional
framework for the implementation of the Pension Reform Act 2004 is significantly effective
and efficient in delivering pensioners’ welfare. Since 380 (87.2%) out of 436 pensioners
under the new pension scheme and active workers sampled under this research question
disagreed, it means that the institutional framework for the implementation of the Pension
Reform Act 2004 is not significantly effective and efficient in delivering pensioners’ welfare
in Nnamdi Azikiwe University, Awka.
Hypothesis One: The problem of old pension scheme has not significantly affected the pensioners’ welfare in Unizik.
Table 4.4: Chi-Square analysis of hypothesis one
x2 Calculated df Level of significance Asymp. Sig. Remark
283.91 3 0.05 0.00 Sig.
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The result in the table 4.4 above shows the chi-square analysis of the problem of old
pension scheme on pensioners’ welfare in Unizik. The calculated chi-square was 238.91 with
3 as degree of freedom and exact probability value of 0.00. Since the exact probability value
of 0.00 is less than the significance level of 0.05, the null hypothesis is rejected and inference
drawn that the problems of old pension scheme has significantly affected the pensioners’
welfare in Unizik.
Hypothesis two: The implementation of Pension Reform Act 2004 has not significantly
enhanced the pensioners’ welfare in Nnamdi Azikiwe University, Awka..
Table 4.5: Chi-Square analysis of hypothesis two
x2 Calculated Df Level of significance Asymp. Sig. Remark
2.25 3 0.05 0.76 N S
NS = Not Significant
The result in the table 45 above shows the chi-square analysis of the implementation
of Pension Reform Act 2004 and the enhancement of pensioners’ welfare in Nnamdi Azikiwe
University, Awka. Result shows that the calculated chi-square was 2.25 with degree of
freedom of 3 and exact probability value of 0.76. Since the significance level of 0.05 is less
than the probability value of 0.76, the null hypothesis is accepted and inference drawn that
the implementation of Pension Reform Act 2004 has not significantly enhanced the
pensioners’ welfare in Nnamdi Azikiwe University, Awka.
Hypothesis Three: The institutional framework for the implementation of Pension Reform
Act 2004 is not significantly effective and efficient in delivering pensioners’ welfare in
Unizik.
Table 4.6: Chi-Square analysis of hypothesis three
x2 Calculated Df Level of significance Asymp. Sig. Remark
3.51 3 0.05 1.26 N S.
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NS = Not Significant
The result in the table 4.6 shows the chi-square analysis of the effectiveness and
efficiency of the institutional framework for the implementation of Pension Reform Act 2004
in delivering pensioners’ welfare in Unizik. Result shows that the calculated chi-square was
3.51 with degree of freedom of 3 and probability value of 1.26. Since the significance level of
0.05 is less than the probability value of 0.76, the null hypothesis is accepted and inference
drawn that the institutional framework for the implementation of Pension Reform Act 2004 is
not significantly effective and efficient in delivering pensioners’ welfare in Unizik.
4.2. Findings
The following findings were arrived at from the foregoing analysis by the researcher:
1. 96.9% of the respondents agreed that the problems of the Old Pension Scheme
negatively affected the pensioners’ welfare in Nnamdi Azikiwe University, Awka.
2. 92.7% of the respondents agreed that the implementation of the Pension Reform
Act 2004 has not significantly enhanced the pensioners’ welfare in Nnamdi
Azikiwe University, Awka.
3. 87.2% of the respondents agreed that the institutional framework for the
implementation of the Pension Reform Act 2004 is not significantly effective
and efficient in delivering pensioners’ welfare in Nnamdi Azikiwe University.
Based on these findings arrived at using the unbiased sample from Unizik, it could
be inferred that pension industry in Nigeria is still bedeviled by ‘Nigerian factor’ – ecological
problems; though the new scheme is laudable on its own merit.
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CHAPTER FIVE
DISCUSSION OF FINDINGS
5.0. INTRODUCTION
The findings arrived at in chapter four will be discussed in this chapter. The outcome
of the responses and ensuing findings will be supported by empirical studies, documentary
records from the relevant literature reviewed and observation.
5.1. The findings of hypothesis one agree with the outcome in table 4.1. A total of 96.9%
as against 3.1% agreed that the problems of the old pension scheme negatively affected the
pensioners’ welfare in Unizik. While the chi-square analysis in table 4.4 showed a probability
value of 0.00 which is less than 0.05 level of significance, thereby inferring that pensioners
were not favoured by the old pension scheme. Pensioners’ welfare entails paying pensioners
monthly or quarterly as and when due to meet their basic needs as well as enhanced living
standard throughout their life span by their former employers.
The research findings proved the contrary (that is, the old pension scheme
administration did not favour the pensioners). This confirms the World Bank’s report (2005),
which asserted that most pension schemes in the world do not deliver on their social
objectives hence its emphasis on the need for change. In collaboration, Asuquo; Akpan and
Tapang (2012) found in their work that pension schemes create distortions, impose
marginalization, old age poverty, post retirement sufferings and ultimately lead to untimely
death. Above all, they distort market economies and are financially unsustainable because
they are expensive to run and the process fraudulent even by those mandated to administer
the pensions. The work of Gbite (2006) in Fapohunda (2013) also attests to the fact that
corruption and embezzlement in the country affected the pension scheme and funds meant for
it. The administration was largely weak, inefficient and lack transparency in their activities.
In his own work, Balogun (2006) observed that restrictive and sharp practices in the
99
investment and management of pension funds exacerbated the problems of pension liabilities
to the extent that pensioners were dying on verification queues and most of the over 300
parastatal schemes were bankrupt before the new scheme came on board.
The myriad of problems prevalent in the old pension scheme necessitated the
enactment of the new contributory pension scheme (Ahmad, 2006). The introduction of the
contributory pension scheme was also in response to the World Bank’s advocacy for a move
away from or paradigm shift from pay-as-you-go financing which has dominated pension
provision in both rich and poor countries.
A deliberate in-depth treatment of the problems of old pension scheme in this work is
to acquaint the reader with the antecedents of new contributory pension scheme and to help
all the stakeholders to be more focused. Knowledge, they say, is power. It is expected that a
full knowledge of the problems of the old pension scheme will equip the stakeholders in
pension administration adequately to plan and work for the success of the new pension
scheme.
5.2. The findings of the hypothesis two agree with the outcome in table 4.2. A total of
92.7% as against 7.3% were of the opinion that the implementation of Pension Reform Act
2004 has not significantly enhanced pensioners’ welfare. While the chi-square analysis in
table 4.5 showed that 0.05 level of significance is less than the probability value of 0.76
hence the conclusion that the implementation of Pension Reform Act 2004 has not
significantly enhanced pensioners’ welfare. Akeni (2009), in Odia and Okoye (2012) in his
work submitted that although there was agreement that the new scheme was applauded as far
better than the old, he discovered that the new scheme may not address the difficulties
currently encountered in the pension industry in Nigeria nor impact positively on the standard
of living of retirees and pensioners unless there were proper coordination and supervision of
Pension Fund Administrators and Pension Fund Custodians by PENCOM. According to
100
Ahmad (2012), PENCOM is unable to exert the supervisory role over the ministries in
violation of sections 30 to 28 of the PRA 2004; and also the federal government has not been
faithful in paying the 5% monthly wage bill into the account with the Central Bank of Nigeria
from which the accrued pension rights of the federal government retirees who had worked for
the federal government prior to June, 2004 are paid and there has not been sufficient fund to
settle the pension liabilities of those affected.
One of the problems of the contributory pension scheme is that it was not designed to
incorporate increases in pension as inflationary adjustments are reflected in the investment
yield of accumulated pension assets, while monthly contributions do increase whenever
salaries are reviewed. To this extent, inflationary trend characteristics of Nigerian economy
tend to eat deep into the accumulated fund in the individual retirement savings account. This
is one of the charges leveled against the new scheme by ASUU. Most of the employees are
not well educated let alone being knowledgeable in risk management and so at the mercy of
their Pension Fund Administrators and Pension Fund Custodians. In fact, informed opinions
hold that contributory pension scheme is delivering poverty pensions rather than old age
security to most contributors. It is based on the accrual amount on the pensioners’ retirement
savings account which some pensioners outlive. For the contributory scheme to make some
impact on the pensioners a lot of serious, conscious and honest review, supervisory and
regulatory efforts need to be injected into the system.
5.3. The findings of hypothesis three agree with the outcome in table 4.3. A total of 87.2%
as against 12.8% were of the opinion that the institutional framework for the implementation
of the Pension Reform Act 2004 is not significantly effective and efficient in delivering
pensioners’ welfare in Unizik. While the chi-square analysis in table 4.6 showed that 0.05
level of significance is less than the probability values of 1.26, hence the conclusion that the
institutional framework is not significantly effective and efficient. Dike (2006) rightly stated
101
that in Nigeria policies are implemented in just cut and paste models obtainable in the more
advanced nations rather than being tailored to the needs of the beneficiaries. The World Bank
(2005) advised that financial sector in Nigeria was insufficiently developed to establish a
multi-pillar pension system and that evidence abounds to prove that Nigeria cannot
successfully fund funded pension scheme. ILO (2006) in its own part rightly observed that as
far as Nigerian government is concerned taking steps to reform pensions was seen as a way of
improving the country’s credibility. Against this backdrop, one will not be surprised that the
success of the implementation of the new scheme is being impeded by the societal norms and
values.
According to Imhanlahimi and Idolor (2011) PENCOM provided a template for use
by all the PFAs to calculate the distribution of the retirees fund …But the snag, according to
some persons (including professors in Business Administration and Accounting Department
in Nigerian Universities) who have obtained the template, is that it is so complicated that it
defies understanding. How the retiree’s lump sum or total pension fund is calculated or
obtained is not explained. Neither the PFAs nor PENCOM, according to them, is prepared to
explain the complicated or complex template to retirees or contributors. The conclusion that
can be drawn is that the operators are not very must desiring to satisfy their clientele but all
their scheming is to maximize profit at all costs.
5.4. The findings of this study have far reaching implications on pensioners, workers,
productivity, employers, the society and the economy. Armstrong (2010) opines that
pension helps employees to readjust themselves properly into the society after leaving
employment. It constitutes an important tool in the hands of management for boosting
employee morale which may lead to efficiency and increased productivity of employees in
particular and the organization as a whole. Besides, pension is a device which employers use
to meet their social responsibility and thereby attract good will. This view is in consonance
102
with the productivity theories of pension (Dorsey, Cornwell and Macpherson, 1998). It has
been established that there is low level of acceptance of the new scheme by workers because
they did not participate fully in the decision process that led to the enactment of the scheme.
Therefore, there is low morale which engenders ineffectiveness and inefficiency in the
operation of scheme and low productivity. The pensioners cannot easily access their benefits
while some die while waiting to collect their benefits. When there is low productivity in the
society the citizens will not be able to meet their basic needs. The investment made be the
employers will have low return on investment. In fact, this has a multiplier effect on the
society and the economy. The aged in the society is wallowing in penury.
If the pensioners cannot take care of their basic needs of life, their dependants also
suffer lack which has far reaching implications on the social and economic life of the nation.
The devastating effect is inestimable. A time has come when the government should look
across the fence to see what can be learnt from other advanced countries of the world that
are doing well in pension industry and sincerely adopt and adapt it for the betterment of the
entire society.
The human resource practitioners and other stakeholders in pension policies and
administration should go back to the drawing board to seek ways and means of moving the
pension industry forward. A stitch in time saves nine.
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CHAPTER SIX
SUMMARY, RECOMMENDATION AND CONCLUSIONS
6.0. INTRODUCTION
This deals with the summary, recommendation and conclusions of the work.
6.1. SUMMARY
To enhance readability and comprehension, the work is organized in six chapters:
Chapter one deals with the introduction, which is treated under the sub-headings:
i. Background of the study
ii. Statement of the problem
iii. Research questions
iv. Objectives of the study:
1) determine whether the problems of the old pension scheme affected the welfare of
pensioners in Nnamdi Azikiwe University, Awka.
2) ascertain whether the implementation of the Pension Reform Act 2004 has
enhanced the pensioners’ welfare more than the previous scheme.
3) find out if the institutional framework for the implementation of the Pension
Reform Act 2004 is effective and efficient in delivering pensioners’ welfare in
Nnamdi Azikiwe University, Awka.
4) suggest possible measures for effective implementation of the Pension
Reform Act 2004
v. Significance of the study
vi. Scope and limitations of the study.
Chapter two deals with literature review which is treated under the following sub-
headings:
i. Concept of pension
104
ii. Conceptual framework of pension reforms
iii. Selected countries and their pension scheme arrangement
iv. Historical background of pension scheme in Nigeria
v. The old pension scheme administration
vi. The effect of old pension scheme administration on the active workers’ and pensioners’
welfare
vii. The problems of old pension scheme administration
viii. Enactment of the pension reform Act 2004
viii. Highlights of the Pension Reform Act 2004
ix. The impact of the implementation of the Pension Reform Act 2004 on pensioner’s
welfare
a. Achievements of Pension Reform Act 2004
b. Challenges in the implementation of the Pension Reform
c. Benefits of Pension Reform Act 2004
2. Gap in Literature
3. Theoretical Framework
4. Hypotheses:
Ho1 The problems of old pension scheme have not significantly affected the pensioners’
welfare in Nnamdi Azikiwe University, Awka.
Ho2 The implementation of Pension Reform Act 2004 has not significantly enhanced the
pensioners’ welfare in Nnamdi Azikiwe University, Awka.
Ho3 The institutional framework for the implementation of Pension Reform Act 2004 is
not significantly effective and efficient in delivering pensioners’ welfare in Nnamdi
Azikiwe University, Awka.
5. Operationalization of key concepts in the hypotheses
105
Chapter three deals with study area and research procedure: It is treated under the
following sub-topics: study area, research design, population sample size and sampling
procedure, sources and method of data collection, reliability and validity of instruments and
method of data presentation and analysis.
Chapter four deals with data presentation, analysis and findings: Based on the
analysis, the following findings were made:
1. Majority of the respondents agreed that the problems of the Old Pension Scheme
negatively affected the pensioners’ welfare in Nnamdi Azikiwe University, Awka.
2. The respondents agreed that the implementation of the Pension Reform Act 2004 has
not significantly enhanced the pensioners’ welfare in Nnamdi Azikiwe University,
Awka.
3. The respondents agreed that the institutional framework for the implementation of the
Pension Reform Act 2004 is not significantly effective and efficient in delivering
pensioners’ welfare in Nnamdi Azikiwe University, Awka.
Chapter five deals with discussion of findings: The following were the major
highlights of the discussion of findings:
The problems of the old pension scheme negatively affected the pensioner’s welfare
in Unizik which makes them languish in penury. The Pension Reform Act 2004 has not
significantly enhanced the pensioner’s welfare because it is structurally defective and it also
suffers from administrative weaknesses. The institutional framework for implementation of
the Act is not effective and efficient in meeting the pensioners’ needs because of non-
transparency.
Chapter six deals with summary, recommendation and conclusions: The summary
gives a brief account of the entire work. The conclusions finally drawn are that pension
industry in Nigeria is still bedeviled by ‘Nigerian factor’ - ecological problems based on the
106
findings arrived at from the unbiased sample from Unizik; though the new scheme is
laudable. Based on the discussion of findings the following major recommendations were
made: Public enlightenment mechanism for the beneficiaries and the public about the
operations of the new pension scheme should be instituted, Pension Fund Administrators
should ensure that they have a credible and competent workforce that will guarantee the
issuance of accurate statement of account regularly. Any employer who fails to account
accurately for his employees’ contributions or PFA/PFC found defrauding the contributors
should be adequately sanctioned as provided for by law to serve as deterrent for others. There
is urgent need for regular training and development for human resource managers and others,
etc.
6.2. CONCLUSION
The problems of the old pension scheme have negatively affected the
pensioners’ welfare in Nnamdi Azikiwe University, Awka. This makes retirement to be
associated with poverty and consequently serving workers resorted to looting pension and
public funds to save for the ‘rainy day’ which further exacerbated the pensioners’ welfare.
The new contributory pension scheme has not significantly enhanced the pensioners’ welfare.
It has some structural deficiencies and administrative malfunctions which are fundamental.
The institutional framework for the implementation of the Act has not been significantly
effective and efficient in the herculean task of putting smiles on the faces of the pensioners.
One will not be surprised because they are also Nigerians. A country cannot rise
above its citizens. Pension industry in Nigeria cannot perform magic. A bad system begets a
bad citizen and vice versa (Dike, 2006). Ideally, the contributory pension scheme should have
been a great leap in the pension industry but contrary to expectations, as the research findings
show, the Pension Reform Act 2004 is not meeting its ultimate goal which is to impact
positively on the pensioners’ welfare. Although there are some documentary evidence that
107
PENCOM and the operators of the new pension scheme have made some remarkable
achievements towards the realization this goal but a lot is still has to be done in this direction.
The reform has not made much impact as a result of ecological factors that impede on
it. This is in line with prismatic theory of administration in developing countries expounded
by Riggs. The productivity theory of pension is also not producing the desired results.
6.3. RECOMMENDATION
The research findings show that the problems of old pension scheme negatively
affected the pensioners’ welfare in Nigeria which reduced them to ‘beggars’, ‘spent shells’ and
were dying in verification queues; and this made the serving workers to resort to ‘organizing
their individual pension plan’ while in service by looting pension funds, embezzlement and
other corrupt practices. Although the new contributory pension was enacted by the federal
government to address the problems of old pension scheme, the implementation has not
significantly improved on the problems of the former.
The researcher, therefore, suggests the following possible measures for effective and
efficient implementation of the new Pension Reform Act 2004:
i. The government, through the instrumentality of PENCOM, Pension Fund
Administrators and other stakeholders should as a matter of necessity institute a
public enlightenment mechanism for the beneficiaries and the public about the
operations of the new pension scheme. This will help to build up their confidence in
the scheme.
ii. Pension Fund Administrators should ensure that they have a credible and competent
workforce that will guarantee the issuance of accurate statement of account regularly.
This will curb the embarrassment the contributors suffer by the irregularities in the
issuance of the statement of account. Also, all enforceable laws should be applied by
108
PENCOM to ensure that PFAs comply with the fund accounting guidelines by
PENCOM.
iii. An organization has a moral obligation to provide a reasonable degree of social
security for its workers especially those who have served for a long period.
Employers, therefore, have to exhibit a sense of commitment in this regard and
demonstrate that they have the interest of their employees at heart by making the
contributory scheme a huge success.
iv. Any employer who fails to account accurately for his employees contributions should
be adequately sanctioned as provided by law to serve as deterrent for others.
v. Pre-retirement enlightenment workshops should be organized on a regular basis for
workers who are about to retire. This will enable them appreciate the need for up-
dating their service records which some, otherwise, treat with levity. It will also
enable them to face the challenges of life after retirement.
vi. The researcher is of the opinion that only one form of pension scheme cannot solve
the problems of old age poverty in the present day Nigeria with volatile economic
condition. In line with the World Bank’s prescriptions, it is therefore suggested that
the current pension scheme should be reviewed to establish a stream of income that
people cannot outlive. This will prevent millions of Nigerians from slipping into
poverty when their working years are over.
vii. There is urgent need for regular training and development for human resource
managers and other cadres of personnel that constitute the institutional framework for
the implementation of Pension Reform Act 2004. This is to sharpen their competence
and expertise in policy designs, possible reforms targeted at institutionalizing
corporate best practices and good work ethics in the pension industry.
109
viii. A passionate appeal is therefore made to the government and public servants on the
need for international best practices for the success of the implementation of the Act.
There is a saying that ‘a trader is meant to change his line of business when it is
obvious to him that the current one is no longer profitable’. Nigerians, therefore,
should rise up and fight all the social phenomena and behaviour which influence the
political and administrative aspects of public/official life which make reforms and
good policies that are producing good results in other countries to die a natural death
at their implementation stage in Nigeria. Having exposed the extent to which negative
work ethics in the Nigerian public service has affected the pension industry; the
public servants are therefore expected to be truly committed to hard work, sacrifice,
discipline and patriotism for positive change.
ix. The researcher hereby recommends further research on possible amendments on the
gray areas in the Pension Reform Act 2004 and the impact of the reform on the
private sector’s employees and pensioners.
110
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117
APPENDIX A
School of Postgraduate Studies, Department of Public Admin. and Local Govt., University of Nigeria, Nsukka. 4th December, 2013.
Dear Respondents,
REQUEST LETTER FOR COMPLETION OF QUESTIONNAIRE
The researcher is a Masters of Science (M.Sc.) degree student of the above mentioned school
carrying out a research on the, “Impact of Pension Reform Act 2004 on the Pensioners’
welfare: A study of Nnamdi Azikiwe University, Awka”. You are kindly requested to
supply relevant information by answering the questions contained in the questionnaire. The
researcher wishes to assure you that your response will be treated in strict confidence and
used for academic purposes only.
Please accept my esteemed assurance of the highest regards.
Thank you.
Yours faithfully,
Nwafor, Mabel N.
118
PENSION SCHEME AND PENSIONERS’ WELFARE QUESTIONNAIRE
(PSAPWQ)
SECTION A:
Pensioners’/Workers’ Personal Data
1. Educational Qualification
i. P.HD/Equivalent [ ] ii. M.SC./M.A. [ ] iii. B.SC. /B.A. [ ]
iv. SSCE/GCE [ ] v. FSLC [ ]
2. Cadre: i. Junior [ ] ii. Senior [ ]
3. Sex: i. Male [ ] ii. Female [ ]
4. Age: i. 35 – 45 [ ] ii. 46 – 56 [ ] iii. 57 – 67 [ ]
iv. 68 – 78 [ ] v. 79 and above [ ]
5. Marital Status: i. Single [ ] ii. Married [ ] iii. Divorced [ ]
6. Status of the Respondent:
i. Pensioner under the old pension scheme [ ] ii. Pensioner under the
new contributory pension scheme [ ] iii. Still in active service [ ]
Note: SA (Strongly agree) – 4 points; A (Agree) – 3 points; D (Disagree) – 2
points; SD Strongly disagree) – 1point. Indicate the degree of agreement with each of
the statements with a tick (√) as instructed.
SECTION B: (Section B is to be completed by pensioners under the old pension
scheme).
S/N Item Statement SA A D SD
1 Delay or denial of retirement benefits caused a number of
retirees to die without accessing their entitlements.
2 Retirement in the old pension scheme became
synonymous with suffering as if aging were a curse
rather than blessing.
3 The administration was weak, inefficient, less
transparent, cumbersome, bureaucratic, and highly liable
to corrupt practices thereby making retirees become more
or less beggars.
4 Lack of reliable records of pensioners led to under-
119
funding and delay in payment of retirement benefits
which caused abject poverty among the retirees.
5 Huge amount of resources lost in yearly verification
exercises was seen as a ploy to embezzle pension funds
by pension officers; because it did not result to prompt
and efficient payment of pensioners but rather it
aggravated deprivation of pensioners.
6 High level of corruption and massive looting of pension
funds by the pensions’ officers caused some emotional
trauma to pensioners.
7 Pensioners often fainted/wounded at the verification
queue in the process of accessing their benefits.
8 Insincerity and lack of commitment on the part of
government and pensions’ officers resulted to pensioners
not having sufficient income to meet their basic needs of
life.
9 There was a general disaffection and lack of confidence
in the old pension scheme by the pensioners.
10 Some pensioners’ names were sometimes completely
expunged from the pensioners’ payroll; and replaced by
names of ghost pensioners leading to denial and
deprivation of retirement benefits.
SECTION C: (Sections C and D are to be completed by Pensioners under the new
contributory pension scheme and workers still in service)
11 The new pension scheme is a fully funded, privately
managed contributory pension scheme; therefore pension
funds are readily available for payment of retirement
benefits.
12 The 7.5% of total monthly emolument contributions
into the Retirement Savings Account guarantee right of
ownership to its holder which remains with him for life
even if he changes employer or PFA.
13 Payment of retirement benefits actually commences on
retirement as specified in the PENCOM’s guidelines.
14 Some pensioners see the new scheme as a way to starve
and make pensioners go penniless, hungry and die
untimely.
120
15 Pensioners under the new contributory scheme are better
off because they access their retirement benefits without
stress.
16 Contributory pension scheme is actually an improvement
on the old scheme because it provides funds sufficient to
pay pensioners for life.
17 The new pension scheme only enriches the Pension
Managers and makes pensioners live in starvation.
18 Retirement benefits in the old pension scheme are
calculated based on 80% of workers’ last earned salary
which pensioners receive for life.
19 Retirement benefits in the new contributory pension
scheme are based on the accrual amount on the
pensioners’ Retirement Savings Account which some
pensioners may outlive.
20 Contributory pension scheme enhances prompt payment
of benefits because it encourages whistle blowing
(pensioners reserve the right to disclose actual, potential
or suspected instances of misconduct).
21 A token is received monthly by pensioners out of the
huge gain the Pension Managers make from the pension
fund investment.
22 The new pension scheme does not have any prospects for
the pensioners in Unizik because the pension is based on
the amount the pensioner contributed during his working
life.
23 Many retirees under the new scheme are complaining
that what they get as monthly pension is far below what
their colleagues in defined benefit scheme get.
24 The introduction of new scheme has made the pensioners
unhappy, because some are not able to provide three
square meals a day for their families let alone paying
school fees for neither their children nor pay house rents.
25
The Pension Reform Act 2004 has reduced the problem
of retirees dying of hunger, diseases and frustration
because they are getting paid.
121
SECTION D
26 There is provision for the payment of gratuity and
disability pension benefits in the new pension scheme.
27 The operators of the new scheme do adhere to the
guidelines provided by PENCOM for the efficient and
effective operation of the new scheme.
28 Pensioners do complain bitterly about discrepancies in
the accrual balances in their RSAs issued by their PFAs.
29 Irregularities in the issuance of statement of accounts to
the pensioners by the PFAs are not common.
30 Pensioners are properly informed on the available
options for accessing their benefits on retirement by their
PFAs for selfish reasons.
31 There is no delay in payment of retirement benefits by
the PFAs which they sometimes attribute to verification
exercises by PENCOM.
32 Some pensioners especially the less literate ones find it
difficult to access their retirement benefits because of
inherent non-transparency of their PFAs in the discharge
of their obligations to pensioners:
33 There are no cases of unprocessed benefits applications
and un-credited contributions by some PFAs.
34 Operators do not delay payment of benefits and also
comply with the fund accounting guidelines by
PENCOM.
35 Oftentimes there are discrepancies between the
contribution schedules and the payment records
forwarded to the PFAs by some employers.
36 Pensioners are happy because their contributions are
remitted promptly, and returns on their investments are
encouraging.
37 The absence of appropriate laws to deal with defaulting
PFAs makes most workers see contribution to the new
pension scheme not worthwhile.
