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
- Achievements of the pension reform act 2004 – – 61
- Challenges in the implementation of the Pension Reform Act 2004 – 63
- 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
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
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
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
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
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
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
theimplementation 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.
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 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 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:
- The informal sector which incidentally
makes up for more than half of the labour force
- Catering for people who will be poor
throughout their lives, and
- 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 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).
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).
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 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).
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 sector employees in Nigeria. The main objectives of
