Oparah, Frank Goodnews

1
ASSESSMENT OF THE CONTRIBUTORY PENSION SCHEME IN THE
NIGERIAN ARMED FORCES
OPARAH, FRANK GOODNEWS
PG/Ph.D/03/37851
A Ph.D THESIS SUBMITTED TO
DEPARTMENT OF MANAGEMENT
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR A Ph.D
DEGREE IN MANAGEMENT
SUPERVISOR: PROF. U.J.F. EWURUM
JULY, 2010
2
CERTIFICATION
I Oparah, Frank G, a postgraduate student in the Department of Management,
Faculty
of
Business
Administration,
with
Registration
Number
PG/Ph.D./03/37851 has satisfactorily completed the requirements of research
work for the degree of doctor of philosophy in management.
The work embodied in this thesis is original and has not been submitted in part
or in full for any other diploma or degree of this or any other university.
______________________________
OPARAH, FRANK GOODNEWS
PG/Ph.D./03/37851
3
APPROVAL PAGE
We, the undersigned, certify that this thesis is adequate in scope and quality for
the award of Doctor of Philosophy (Ph.D) in Management.
__________________
________
Prof. U.J.F. EWURUM
(Supervisor)
_____________
____________________
________
Prof. U.J.F. EWURUM
(Head of Department)
_____________
_______________________
EXTERNAL EXAMINER
_____________
SIGNATURE
SIGNATURE
DATE
SIGNATURE
DATE
________
DATE
4
DEDICATION
This work is dedicated to the Glory of Almighty God, the great provider and
finisher of all things.
5
ACKNOWLEDGEMENTS
Several people contributed directly or indirectly to the realization of this work,
while it may not be possible to mention every one of them, their inputs are very
much appreciated. I will forever remain indebted to Professor UJF Ewurum
(my supervisor and HOD) for his unrelenting criticism and suggestions that
positively impacted on the quality of this work and most importantly for
accepting to supervise me at that critical period. My family and I shall forever
remain grateful to you. My former supervisor Professor E.U.L. Imaga greatly
deserves my due recognition and appreciation for his constant counseling,
supervision and suggestions that greatly impacted on the quality of this work.
Thank you sir. God will reward you abundantly. Worthy of mention was the
then secretary to the Head of department Mrs. Chime who was always there
with her words of advice and encouragement. It shall be well with you madam.
You demonstrated a sisterly role throughout the programme.
My sincere gratitude goes to Air Vice Marshal Audu –Bida (rtd) former
Director General, National Emergency Management Authority (NEMA) who as
Senior Air Staff Officer (SASO), Training Command, Nigerian Air force
Kaduna was instrumental to my release by the Nigeria Air Force to further my
studies. I shall forever remain grateful to him. He greatly encouraged me in all
my academic pursuits. To my former commanders namely, Air Vice Marshal JO
Babalola, and Air commodore Mike Igoh, I say thank you very much for
allowing me some time off my duty schedules to attend to my academic pursuit.
Air commodore Peter Gbujie deserves a great chunk of my appreciation for his
guidance and advice in the course of this work. To him I say thank you sir.
Also, Air commodore Ego Osim who as my commanding officer then (wing
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commander) greatly endorsed my application for Non NAF Sponsorship release
and encouraged my academic pursuit. To him, I show my appreciations.
I am highly indebted to Professor S.O Unyimadu (UNIBEN), who developed an
interest in my work and volunteered his precious time to guide me on research
methodology He took his time and pains to read this work and made invaluable
contributions that elevated the quality of the work. Thank you sir, God will
reward you immensely. The rest of the academic staff of the Department of
Management also merits my due appreciations. Your efforts shall never be in
vain.
To the management and staff of National Pension Commission, Military
Pension Board, Military Units in the areas visited and all resource persons that
completed and returned the research questionnaire, I say thank you very much
as your invaluable contributions made the field survey easier and the thesis
successful. The former Minister of Defence, Ambassador Aguiyi Ironsi, Dr
Gabriel Onyekuru, Mr. Otome Gberevbie, Mr Kess Omoigbami and Major B A
Jinadu (rtd) have played invaluable and inestimable roles in my life. I remain
grateful for their assistance to me and my family. To my school friends Drs
Gideon Emerole, Nicholas Igwe and Okorie Ernest, I say thank you very much
for being there for me.
My humble and beloved family played critical roles towards the realization of
this noble dream. Their encouragement, understanding, support and peace in the
home front despite my being an “absentee” husband and father was the lubricant
I needed to fire on. I am very grateful to my beloved and darling wife, Oby and
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kids Osinachi, Mimi, Frank Jnr. Precious and other members of the Oparah
family. They will forever remain my treasure of inestimable value.
Lastly, but not the least, I must appreciate the efforts of my Youth Corper
Damilola, Sgts NA – Allah and Olowojofe who typed this thesis for their
contributions. To those that have being helpful, I say thank you and God bless
you abundantly.
OPARAH, FG
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TABLE OF CONTENTS
Page
Title Page
i
Certification
ii
Approval Page
iii
Dedication
iv
Acknowledgement
v
Table of Contents
viii
List of Tables
xiv
List of Figures
xvi
Abstract
xvii
CHAPTER ONE: INTRODUCTION
1.1
Background of the study
1
1.2
Profile of the Nigerian Armed Forces
8
1. 2.1 The Nigerian Army
10
1.2.2 The Nigerian Navy
12
1.2.3 The Nigerian Air Force
14
1.3
Statement of the Problem
15
1.4
Objectives of the study
19
1.5
Research Questions
19
9
1.6
Research Hypotheses
20
1.7
Significance of the study
21
1.8
Scope of the study
23
1.9
Area of the study
23
1.10 Limitations of the Study
24
1.11 Definition of Terms
26
References
29
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1
Introduction
33
2.2
Theoretical Framework
33
2.2.1 Conceptual Framework
33
2.2.1.1 The Concept of Pension Scheme
33
2.2.1.2 Gratuity or Business Expediency Concept
36
2.2.1.3 Human Depreciation Concept
36
2.2.1.4 Deferred Pay Concept
37
2.2.2 Theory of Time Management
38
2.2.3 Finance and Investment Theory
39
2.2.4 Theory of Management of Retirement Scheme
40
2.2.5 Publicity theory
41
2.2.6 Theory of Strategy Implementation
41
2.3
42
Pension Administration in Nigeria
2.3.1 Historical Development
42
2.3.2 Review of Pension
45
2.3.3 Pension Act No 102 of 1979
47
10
2.3.4 Computation of Benefits
48
2.3.5 The Private Sector
50
2.3.6 The Public Sector
58
2.3.7 Implication of Delayed Pension on National Security
65
2.3.8 The Need for Pension Reform
66
2.3.9 Key patterns of Pension Reform
68
2.3.10 The Political Economy of Pension Reform
69
2.4
71
Pension reform and Social Security
2.4.1 The Nigerian Case of Pension Reform
77
2.4.2 Funded pension in the Context of the Nigerian Economy
79
2.4.3 The Debate on Social Reform and the Nigerian Case
83
2.4.4 Review of the First Five Years of Pension Reform in Nigeria
87
2.5
91
Pension Reform in Nigeria
2.5.1 The Pension Reform Act 2004
95
2.6
97
A Critical Analysis of the Pension Reform Act 2004
2.6.1 The Contributory Nature of the Scheme
100
2.6.2 Stipulation of Retirement Age
102
2.6.3
Retirement Savings Account
103
2.6.4
Pension Fund Administrators
106
11
2.6.5
Pension Fund Custodians
111
2.6.6
Transfer of Entitlements from old Existing Schemes
to the New Schemes
114
2.6.7
Investments of Pension Funds and Assets
117
2.6.8
Retirement Benefits
120
2.6.9
Death of an Employee
122
2.6.10 Minimum Pension Guarantee
123
2.6.11 Fees, Charges and Expenses
125
2.6.12 Statutory Reserve Fund
127
2.6.13 Dispute Resolution
128
2.6.14 The National Pension Commission – Pencom
129
2.7
Some Criticisms of the Contributory Pension Scheme
131
2.8
The Current Operation of the Pension Scheme
134
2.9
Summary of the Review of the Related Literature
136
12
References
139
CHAPTER THREE RESEARCH METHODOLOGY
3.1
Research Design
152
3.2
Sources of Data Collection
152
3.3
Description of the Research Instrument
153
3.4
Population of the Study
153
3.5
The Sample and Sampling Technique
154
3.6
Instrumentation
156
3.7
Validity and Reliability of Data and Test Instrument
156
3.7.1 Reliability of Data
156
3.8
Data Analysis Technique(s)
157
3.8.1 The Chi-Square
158
3.8.2 Decision Rule
159
3.8.3 Degree of Freedom (d.f.)
159
13
3.8.4 Confidence Level / Level of Significance
160
3.8.5 Spearman’s Rank Correlation
160
3.9
Model Adaptation
162
References
165
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
AND MODEL SOLUTION
4.1
Introduction
167
4.2
Analysis of Data
167
4.3
Data Presentation
168
4.4
Reliability and Validity Analysis
174
4.4.1 Reliability Analysis
174
4.4.2 Validity Analysis
175
4.4.3 Percentage Analysis
176
4.4.4 Theoretical Analysis
188
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4.5
Testing of the Research Hypothesis
189
4.5.1 Testing of the First Hypothesis
190
4.5.2 Testing of the Second Hypothesis
192
4.5.3 Testing of the Third Hypothesis
194
4.5.4 Testing of the Fourth Hypothesis
196
4.5.5 Testing of the Fifth Hypothesis
198
4.6
The Model Solution
199
References
202
CHAPTER FIVE: DISCUSSION OF THE RESEARCH FINDINGS
5.1
Introduction
203
5.2
Discussion of the Findings to Highlight the Management
and Administrative Lapses and Challenges in the Pay As
You Go System
204
5.3
Discussion of Findings to Ascertain the Extent to which
the Members of the Armed Forces are Well Informed
about the Operation of the Contributory Pension Scheme
205
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5.4
Discussion of the Finding to Determine Whether the New
Pension Scheme Would Eliminate the Problem of Long
Delay in Payment Associated with the PAYG System
205
5.5
Discussion of Finding to Determine if the Contributory
Pension Scheme will Remove The Incidence of Lack of
Funds in the old Scheme.
206
5.6
Discussion of the Finding to Determine if the Pension
act Provides Checks and Balances That Would Guarantee
the Safety of Contributors Fund
207
5.7
Discussion of Finding from the Oral Interview
208
5.8
Discussion of Finding from the Systems Cybernetic Model
209
5.9
Discussion of Findings Related to the Theories
210
5.10 Management Implications
211
References
216
CHAPTER SIX: SUMMARY OF MAJOR FINDINGS, CONCLUSION
RECOMMENDATIONS, CONTRIBUTION TO
KNOWLEDGE AND SUGGESTIONS FOR FURTHER
RESEARCH
16
6.1
Introduction
217
6.2
Summary of Major Findings
217
6.3
Conclusion
219
6.4
Recommendations
221
6.5
Contribution to Knowledge
6.6
Suggestions for Further Research
231
References
233
Bibliography
235
Appendix: I
256
Appendix: II
257
Appendix: III
262
Appendix: IV
263
Appendix: V
264
Appendix: VI
266
16
17
Appendix: VII
268
LIST OF TABLES
2.1
Formula for Calculating Pension and Gratuity
50
2.2
Formula for Calculating Pension and Gratuity based on
percentage of final pay in respect of retirement after
31st March 1977
54
2.3
Incapacity Pension Payable after 31st March 1977
55
2.4
Formula for Calculating Pension and Gratuity Based on
Percentage of Final Salary in Respect of Retirement
since 1992
56
2.5
Benefits Payable by NSITF
61
2.6
Investment Portfolio of NSITF as at 31/12/03
64
3.1
Distribution of Questionnaire among the Military Units
155
4.1
Demographic Characteristics of the Respondents
168
4.2
The reliability analysis related to the five objectives
174
4.3
Analysis of the response rates of the questionnaires
administered
176
4.4
The
176
Percentage
Analysis
of
Some
Likert
scale
Statements
18
4.5
The Percentage Analysis of Some Likert scale Statement Using
Relative Frequency
181
4.6
Analysis
of
Some
Likert
Scale
Statement
Using
185
4.7
The Computational Details of the First Hypothesis
190
4.8
The Computational Details of the Second Hypothesis
192
4.9
The Computational Details of the Third Hypothesis
194
4.10 The Computational Details of the Fourth Hypothesis
196
4.11 The Computational Details of the Fifth Hypothesis
198
4.12 Analysis of the Dichotomous Responses for Generating
the Primary Data for the Model Solution.
199
Z
Tests
19
LIST OF FIGURES
3.1
The
Systems
Cybernetic
Model
162
4.1
Simple Bar Chart of the of Data on the Sex of the 370 Respondents
170
4.2
Simple Bar Chart of the Data on the Marital Status of
the 370 Responders
171
4.3
Age Class boundaries of the 370 Respondents
172
4.4
Highest Educational Qualifications of the 370 Respondents
173
4.5
174
Histogram of the Data on the Length of Service of the 370 Respondents
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ABSTRACT
The work examined and analysed the management of pension scheme in the
Nigerian Armed Forces since the introduction of the contributory pension
scheme in Nigeria. The research design was a combination of a survey, oral
interview and model modification. The population of the study was 6000 made
up of military personnel of the 6 military units based in Makurdi, Port Harcourt,
Calabar, Enugu, Abuja and Kaduna. From this, a sample size of 375 was drawn
using the stratified sampling technique of probability sampling. The sample size
was got by the use of Taro Yamane’s formular. The study utilized data from
both primary and secondary sources. Primary data were generated using
questionnaire, oral interview schedule and dichotomous oral interview schedule
as three instruments. Secondary data, on the other hand, were obtained from
official publications, journals, textbooks, documentations, paper clippings and
internet services. 375 copies of the questionnaire were administered to the
military personnel. The data was presented using tables, simple bar charts,
histograms and a pie chart. The reliability analysis was done using systematic
sampling. The content validity analysis was done using both systematic and
stratified sampling. The data was analysed using percentages, relative
frequencies, z-test and Spearman’s rank correlation coefficient. The five
hypotheses were tested using Spearman’s rank correlation coefficient, z-test of
population proportions and one factor chi-squared test. It was found that the
administrative and management lapses that characterized the Pay-As-You-GoScheme would be absent in the contributory pension scheme. The study also
confirmed that the long delay in payment, perennial lack of funds and
corruption that characterized the Pay-As-You-Go system will be eliminated in
the contributory pension scheme. It concluded that the work should be extended
to the public sector to make for better generalization of the Nigerian situation. It
was recommended that Government and the National Pension Commission
should ensure effective monitoring, supervision and enforcement of the
provisions of the Pension Reform Act 2004 that introduced the contributory
Pension Scheme to avoid the problems identified with the Pay As You Go
system.
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CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
The dream of every employee is to make a graceful exit from an active work life
into the peace and tranquility of old age. Owing to the demands of this vital
phase in the life of a worker, he looks forward to a financial parting reward in
lump sum or periodic payments that would enable him manage the stress of old
age without having to beg for his upkeep and that of his family members.
Brown (2004:8) declares that such financial lifeline is so desirable considering
that in retirement one has little or no opportunity to engage in very serious
economic activity that can guarantee immediate financial needs.
Artchley, (1998:8) asserts that in a broader sense, some people see retirement
particularly at old age as being synonymous with sickness and the weakening of
one’s physical strength. This is true especially in Nigeria where retirees hardly
get employed after attaining certain age and where social security benefits for
the aged and unemployed are hardly available on government list of priorities.
Bethel (2003:8) argues that it is perhaps an attempt to avert these embarrassing
moments in retirement that every worker sees his benefits often as a priceless
issue that needed to be protected and provided for while in active service. This
confirms Copper (2002:18) statement that contributing towards one’s retirement
must be regarded as a responsibility that every worker should dutifully
implement.
Prior to the Pension Reforms Act of 2004, pensions were mandatory in the
public sector but optional in the /private sector. On the one hand, ‘government
22
workers’ pension was devised under the Pension Act of 2004. Under this Act
the pension and gratuity granted to retirees were on the basis of final pay and
the sums were made as charges to the consolidated revenue fund of the
federation (Elegbana, 2004:11). It is important to note that the Federal Public
Service operated an unfunded non-contributory defined benefit Pay-As-You-Go
System (PAYG). In a PAYG System, government taxes active workers to pay
for the benefits of retired workers.
According to Bello (2002:5), retirement benefits therefore became a function of
the rate of growth of tax base. This in turn depends on the rate of growth of
labour force and the rate of growth of real wages per worker. Sabot (2006:18)
denounces this arrangement as he argues that the retirees may or may not
receive their benefits depending on whether or not their employer has sufficient
cash resources to make payment at that time.
Herman (2003:8) also questi---*ons this arrangement. According to him, even
though government guarantees gratuity and pension, it is bound to fail since it is
not funded by the setting aside of money from which commitments could be
served. He argues that in no distant time there was the likelihood of the pension
salary outrunning the salary of the active workers. The result of this
arrangement was the crisis of nonpayment/delayed payment of pension and
gratuity across the public sector – the main stream civil service, parastatals,
military, state governments, universities and local government etc (Ndalolo,
2004:18 – 22). Dike (2006:11) argues that the sheer size of the public sector
workforce in Nigeria has made it difficult for government to pay its workers
their salary let alone adequately meet its pension commitments.
23
Blake (2006:33) reports that most institutions in the private sector do not have
any pension or retirement benefits scheme for their employees. Though he
agreed that some institutions operated similar schemes to the PAYG system,
others operated funded contributory schemes. In the latter case, contributions to
a pension provident or other retirement benefit funds are made tax free with
deductions allowed in the attainment of income of an individual. However, such
arrangements must have been approved by the Joint Tax Board.
Omoragbon (2004:2) criticizes this development as it would then appear that
workers in the public sector enjoyed an advantage over their counterparts in the
private sector, to the extent that pension/retirement benefits were guaranteed to
one sector but not to the other. Under the old Pensions Act, the stipulated age
for retirement was 60 years or 35 years of continuous service, whichever came
first. An officer who has put in service up to 10 years but less than 15 years was
entitled to the payment of gratuity only but no pension was payable. However,
where he has served for more than 15 years, he would be entitled to both
gratuity and pension.
Osuagwu (2001:13) postulates that though the foregoing represents the
conditions for the payment of gratuity and pension under the Pension Act but
regrets that progressively and quite noticeably in recent years, the government
has struggled with little success to meet its pension obligations. According to
him, payments of retirement’s benefits have become erratic and irregular.
Retirees no longer receive payments of their entitlements as and when due. The
crisis generated by this development has necessitated the reform undertaken by
government, which culminated in the enactment of the Pension Reform Act
2004.
24
Jacquiline (1999:16) frowns at a situation where many retired government
functionaries usually wait several years for their entitlements before getting
them. According to her, the situation was the same for most retired public
officers. Soldiers have regretted a scenario where after fighting for their father
land, they were now fighting to collect their entitlements from the military
authorities. In one of such instances, the soldiers vowed never to leave the
Federal Capital Territory until their entitlements were paid. Ejim (2003:4)
concludes that the issue of pension administration in Nigeria has become one of
the thorniest issues in the country today as millions of retired Nigerian workers
live in abject poverty and neglect as a result of the failure of the country’s
pension system.
Alubo (2002:3) asserts that despite efforts being made by the Federal
Government to mop the pension backlog, Nigeria still owes about 2 trillion
naira to its workers. Citing the Nigerian railways as a typical example, he
disclosed that monthly pension bill then stood at N210 million with a monthly
wage bill of N210 million as against a part sum of income it was generating.
Ahmed (2003:16) in his report at the National Pension Commission put the
outstanding Federal Government’s pension liability at N2.56 trillion. The same
report showed that retired military and Para military were owed N2 trillion
while the accumulated pension arrears for the military stood at N56 billion.
Pension has been defined as a series of regular payments provided by
Government or a former employer for a person who has come to the end of
normal working life. Traditionally, according to Bashir (2003:16), the word
applied only to those in government employment but increasingly it is seen as
appropriate for everyone that engages in any employment whether public or
25
private sectors. Pension can also be conceptualized more broadly in terms of a
plan or systematic arrangement made by an employer for the provision of
ancillary benefits to his employee. Omoragbon (2004:11) defines pension as a
sum of money regularly paid to a person who no longer works because of age,
disablement etc or to his widow or dependent children by the state or his former
employer or from funds to which him or his former employer or both have
contributed. In the view of Hanclot and Martins (1985:13), the purpose of
occupational pension scheme is to provide employees regular and stable income
after their retirement from service. It is an arrangement an employer or group of
employers uses to provide pension (and sometimes other) benefits for their
employees when they leave or retire. They also provide benefits to the employee
dependants if the employee dies.
Mouly (1978:7) views the annual budgetary allocation for pension as one of the
most vulnerable items in budget implementation in the light of resource
constraints. He states that even where budgetary provisions were made,
inadequate and untimely release of funds results in delays and accumulation of
arrears. However, current arrears of pension payments are only the symptom of
a much deeper crisis. Furthermore, since the scheme is unfunded, there is no
opportunity for the accumulation of investible funds. Even where funds were
accumulated under some parastatals’ schemes, restrictive investment policies
and practices sometimes limited the capacity of such funds to grow. Political
instability and military involvement in governance in the past had engineered
massive premature retirements thus creating an unstable pensioner-to-active
work ratio (Jerome 2001:18).
26
He admits that poor administration, inadequate delivery structures for payment
and lack of a database of pensioners have resulted in delayed payments of
benefits and consequent near destitution of pensioners, adverse publicity in the
media and portrayal of society and government as uncaring to the plight of its
senior citizens. Babalola (2005:18) concludes that such inherent problems of the
pension scheme in the country have given rise to insecurity and appeared to
have encouraged corruption in the active work force.
Ibiang (2003:12) chooses to use the armed forces as another graphic example.
He states that there are more officers and men on the pension roll than those in
active service, many of them in their thirties and forties .The implication is that
they are at the mercy of budgetary constraints for at least thirty years.
According to him it is therefore not surprising that pension crisis in Nigeria has
manifested most dramatically and tragically in the Nigerian Armed Forces, the
Railway and the Teaching Service. This above explains in part why the existing
pension scheme collapsed.
Ibrahim (2003:18) recalls how military officers of all cadres who had
contributed immensely to national development are treated in most dishonorable
manner due to poor pension management. According to him, there have been
incidences of collapse while queuing up for the stipends, partial paralysis and
even deaths among the military men while struggling to collect their pensions.
Several pension verification exercises conducted by the military had recorded so
many deaths arising from long queues and delays.
Accordingly, President Olusegun Obasanjo’s administration initiated a reform
in order to address and eliminate the problems associated with the pension
27
schemes. There were essentially two choices for a pension reform. One
approach was to carry out minor reforms or adjustments to the existing public
schemes. The adjustments may include changes to eligibility criteria for
receiving pensions, the benefit structure or the administration of the scheme.
These are usually referred to as parametric reforms. Unfortunately, these
adjustments were not only insufficient to address the underlying problems of
military pension schemes but would have succeeded in deferring the fiscal
crisis.
It was against this backdrop that Nigerians welcomed the 2004 pension reform
that established a Contributory Pension System supervised by the National
Pension Commission (PENCOM). The setting up of PENCOM by the Obasanjo
administration has been described by many as one of the high points of its
achievement in the Nigerian economy and particularly for the nation’s
workforce. Before its final passage the Pension Reform Act benefited from the
collective wisdom of many Nigerians which assisted in building wide range
consensus on the elements of the reform. Implementation of the scheme was
phased starting with federal ministries and related agencies which commenced
in July 2004, while the private sector was allowed to commence the
implementation of the scheme in January 2005 to ensure adequate planning and
further sensitization. Ibikunle, (2005:13) declares that unlike the defined
benefits contribution that limited workers entitlement to a fixed amount of
money on retirement, the new defined contribution is a function of what the
employees and the employers have contributed over the years, including the
return from investment made with the fund managers.
28
1.2
PROFILE OF THE NIGERIAN ARMED FORCES
The traditional and central roles of the Armed Forces of any nation are, first and
foremost, the defense and protection of a nation’s territorial integrity (Armed
Forces Act 1993). This broad objective naturally fans out to encapsulate the
other roles which involve the furtherance of the national aspirations in the area
of working with government and the people to achieve all laudable national
objectives which would contribute to the wellbeing, stability, peace and
progress of the society. In this way, one of the key aspirations of every nation is
that it should achieve peace and stability within and without its borders to
enable its military to deploy its special skill and capabilities that have been
honed through years of disciplined formation and culture of excellence for
external conquests. (Aminu, 1986: 51) In that way, the military continues to be
involved in national defence.
Bolarin (2001:3) agrees that even though the military in every society is subject
to evolutionary development as it systematically assumes wider and more
expansive roles detected by contemporary realities, it still continues to be the
bedrock for the defense and furtherance of the lofty aspirations of the society. In
that process, it often becomes the most reliable partner and the automobile
which drives the national interest of every country. That is why in most
societies it is the last line of defense during any untoward event in the country,
as in the case of natural and man-made disasters.
Adesina (2004:18) points out that the historical circumstances that informed the
formation of the military of every nation determines the level of its social
involvement as well as how it perceives its roles vis-à-vis the members of the
same society. For instance, a national military formation that emerged from the
29
ashes of a war of independence like those of South Africa, Kenya, Algeria,
Zimbabwe, Israel, the United States of America, Cuba, to mention only a few,
invariably becomes very people oriented in its behavior and outlook because it
sees itself in close partnership with the other members of the society with whom
it had toiled together for the achievement of national survival.
In his contribution, Nwolise (2001:8) avers that elite military formations which
emerged out of less difficult circumstances like in the case of Nigeria, Ghana,
India and so on, there is often a disconnection between the military and the
other members of the society which the military often views with condensation
and spite. It was in that spirit that the members of the Nigeria Armed Forces had
often viewed the people as ‘idle civilians’ just as the civilians had felt that ‘the
mother of a soldier is childless’. According to him this type of mutual distrust
and suspicion has often led to the situation whereby the military had believed
that the civilians had no exclusive right or better stake to national governance,
leading to the several military interventions of the past.
Under the direction of leaders who have the inborn disposition to wean the
military of its previous and now unacceptable and non-fancied habits of political
adventurism, the Armed Forces have now found themselves in a vantage
position to catalyze the success of this attainable vision. More strikingly, it is
only the type of commitment, discipline, determination and other glowing
attributes that have made the Nigeria Military as one of the most important in
the world that could be brought to the achievement of that vision. In spite of the
distractions which the Nigerian Military experienced on account of its deep
involvement in politics, it has been able to hold its own prestige in the comity of
nations. (Imobighe, 1978:34).
30
1.2.1 The Nigerian Army
The armed forces of most countries serve as veritable tools through which
national power is projected. Usually, the armed forces are designed and
organized along environmental and functional chains for the defence of
territorial integrity and projection of national interests. The Nigerian Armed
Forces as established under Section 217 (1) of the 1999 Constitution of the
Federal Republic of Nigeria comprise the Nigerian Army (NA), Nigerian Navy
(NN), and the Nigerian Air Force (NAF). Of these 3, the Nigerian Army, which
is the oldest, largest and most operationally experienced, is saddled with the
responsibility of conducting ground battles in favor of Nigeria.(National
Defence Policy, Abuja 2006:22.23)
The NA has a rich history, spanning over a hundred years. The roles of the
Service have transformed from foot-soldiering at inception in the nineteenth
century, to the present day mechanized and motorized formations. The
transformations were at various times, in line with the threat perception of
Nigeria by Federal Government. Furthermore, the Service has undergone
several organizational changes to its force structure from pre-independence
period to the present. The 1996 Order of Battle (ORBAT) which is the force
structure in existence, is premised on a 5 combat divisions structure, which is
basically designed to enable the Service achieve its assigned roles, as a principal
component of the Nigerian Armed Forces. (Raymond, 1980:14)
The NA evolved from then early colonial Para-military units established to
strengthen Britain’s colonial rule and protect her economic interests in Nigeria.
The earliest of these units consisted of 18 indigenes of Northern Nigeria
selected by Lt Glover of the Royal Navy into what was called Glover Hausas’ in
1863. The force which was used to mount punitive expeditions and protect
31
British trade routes around Lagos became known as the Lagos Constabulary in
1965. Other similar units were the Royal Niger Company Constabulary Force in
Northern Nigeria and the Niger Coast Protectorate Force in the South.
(Onimode, 1983:156)
Towards the end of the Nineteenth Century, the British Government, for various
reasons, developed active interest in West African affairs. This was against her
previous stand of non-governmental participation or interference. In 1889, with
a mandate from the British Government, Lord Fredrick Lugard in 1900 formed
the incipient body of what became the West African Frontier Force (WAFF), at
Jebba, in Northern Nigeria. By 1901, the new unit had expanded by absorbing
Nigerian based elements of the Royal Niger Company which incorporated all
Para-military units in the other British West African dependencies; thus fully
meriting its designation as WAFF. (Aminu, 1986:3)
According to Damadami (1981), all units in the WAFF were standardized after
the integration, and organized into regiments in each of the British
dependencies. Each regiment was seen as a territorial force, with the
responsibility of ensuring the security of the territory to which it belonged.
There was however, provision for collective assignments amongst the
regiments. In the territory of Nigeria there were two regiments; these were the
Northern and Southern Regiments.
The Northern Regiments has two infantry battalions, one mounted battalion and
two artillery batteries. The Southern Regiment comprised two battalions – the
First and Second Battalions. With the amalgamation of the Northern and
32
Southern Protectorates of Nigeria in 1914, the two regiments were integrated to
form the Nigerian Regiment.
The Nigerian Regiment was renamed the Queens Own Nigerian Regiments
(QONR), following the state visit of Queen Elizabeth II to Nigeria in 1956.
Also, in the same year, the WAFF witnessed unprecedented regionalization and
each military force in the British colonies in West Africa became independent
of the other. As a result, the QONR became the Nigerian Military Force (NMF)
later in 1956. As a prelude to Nigeria’s independence, the British Army Council
relinquished control of the NMF to the Nigerian Government in June 1958. In
1960, when Nigerian became independent, the NMF became known as the
Royal Nigerian army (RNA). On attainment of the status of a republic in 1963
the RNA was re-designated as the NA. (Bade, 1983:70).The Organogram of the
Nigerian Army is at appendix iii.
1.2.2 The Nigerian Navy
One of the primary responsibilities of a nation and indeed her Government is the
protection of her national interests at home and abroad. According to a school of
thought on international relations, the tripod upon which national interests are
founded includes national Security, Economic well-being and International
Prestige. From this perspective, the overriding national interest of any nation
can be concretely interpreted as preservation of territorial integrity and national
values. Obviously, for littoral nations such as Nigeria, the protection of her
maritime front and related activities by a capable naval force is an imperative.
(Garment 1975:21) In supporting this assertion historically, General Hithles of
the United State Marine Corps said, “the pathway of man’s journey through the
33
ages is littered with the wreckage of nations which, in their hours of glory,
forgot their dependence on the sea”.
Deutsh, (1969) asserts that nations with maritime interest and which aspire to
exert their influence outside their own boundaries must be able to bring power
to bear at sea. According to the doctrine of Sea Power, ‘any nation which
derives benefits from the sea cannot turn its back on the sea’ It, therefore,
follows that any nation whose territory borders the sea, and whose economy is
supported largely from the sea, must logically need the sea for at least 4
purposes which are:
a. Passage of goods and people, that is sustenance of Commercial activities
b. Passage of military forces, for diplomatic purposes and in the event of
war, as a base for engaging enemy land, air and sea targets.
c. Exploration and Exploitation of Resources in or under the sea.
d. Preventing hostile Military access to its Territory.
Pumel, (1973:129) asserts that Nigerian’s location at the strategic corner of
Africa in the Gulf of Guinea, within the South Atlantic Ocean, makes her a
maritime nation. Her sea frontier extends from Long 0020 49’ E to Long 0080
30’E, with a coastline of 420 nautical miles. As a maritime nation, she needs the
sea for the purpose earlier enumerated. In addition, her dependence on the sea
and other maritime interests need to be secured against any threats be it external
or internal, political, economic or military. It was for this reason that some
Nigerian nationalist, prior to independence, perceived the need for a full-fledge
navy with the capabilities and relevant organizational structure to ward off any
attempt to undermine the nation’s security, territorial integrity and maritime
34
interests. Chief A Rosiji, a member of the erstwhile Nigerian Parliament, during
the 1955 debate on the need for a navy, stated that, ‘One of the functions of the
Navy will be Naval Defence of Nigeria within its territorial waters. The
Organogram of the Nigerian Navy is at appendix iv.
1.2.3 The Nigerian Air Force
The armed forces of a nation constitute an effective instrument of national
power. The Nigerian Air Force is one of the instruments by which the nation
can apply that power. The Nigerian Air Force has the primary responsibility of
defending the airspace of Nigeria and ensuring that other sister Services enjoy a
favorable air situation in their respective areas of operation, by use of its air
power. Air power is usually defined as. ‘The ability to project military force
through the air medium’. The attributes of high speed, long-range, surprise,
inherent flexibility and devastating firepower, distinguish air power from sea
and land power. A working definition is that given by Lord Trenchard who said
that “Air power is the ability to use the airspace for offensive, defensive and
supply services and deny its use to an enemy”. FGN, (2006) National Defence
Policy.
The size, structure and composition of an air force would depend on a careful
analysis of the threat to national security. Such threats could be enduring or
emerging, from either internal or external environments. Apart from political
and economic considerations, the effectiveness of an air force would depend
largely on the size of her skilled manpower, availability of technological
advanced platforms and equipment and her structure. (Adams, 1976:23)
Air power came into existence long before the First World War but assumed
pre-eminence during the Second World War. It has since been undergoing
35
phenomenal development, especially in advanced countries. However, the need
to establish an air force for Nigeria did not arise until the early 1960s. After
attaining independence, Nigeria vigorously involved herself in sub-regional and
other international commitments like the United Nations peacekeeping
operations. As part of her desire to fulfill these commitments, the idea of setting
up an air force was mooted. This idea was further favoured when seen against
the background of difficulties faced in previous operations without our own air
force. For instance, in campaigns such as those of Tanganyika (now Tanzania)
in 1959 and of the Congo in the early 60s, Nigerian troops had to be airlifted by
foreign air forces to and from the theatres of operations. (Chalto, 1976:21).
Recruitment into the Nigerian Air Force began in 1962. However, it was not
until 18 April 1964 that the Legislative Act on the establishment of the Nigerian
Air Force was passed into law. This makes the date the official birthday of the
NAF. The Act states as follows, ‘There shall be established and maintained in
and for the Federal Republic of Nigeria, an air force to be known as the
Nigerian Air Force’. The Act also states that the Nigerian Air Force shall be
charged with the defence of the Federal Republic of Nigeria by air. (National
Defence Policy 2004).Organogram of the Nigerian Air Force is at appendix v
1.3
STATEMENT OF THE PROBLEM
In 1951, pension benefits were introduced into the public sector taking effects
from 1946. It brought about a major attraction for employment in the military.
However, at independence in 1960 the Federal Government of Nigeria inherited
a non-contributory pension scheme. The pension Act 102 of 1979 was the main
legislation guiding the entire public service. In the military, to qualify for
pension the officer must have served for a minimum of 15 years and gratuity for
36
10 years. In 1992, it was reformed to a minimum of 10 years and 5 years for
pension and gratuity respectively. The non-contributory pension scheme was
successful until the advent of the military in 1993.
By the mid nineties payment of pension to retired military personnel became
difficult. The pension scheme became poorly funded or unfunded owing to
inadequate budget allocations. Budget releases which seldom came on scheme
were far short of due benefits. This situation resulted in unprecedented and
unsustainable outstanding pension deficits estimated at over N2 trillion before
the commencement of the pension Reform Act in 2004. At the same time the
proportion of pension to salaries increased. During the four year period between
1995 and 1999 the proportion increased from 16. 7% to 30%. (Balogun,
2006:21).
These problems really constituted a setback for the scheme as they include non
availability of records, uncoordinated administration, inadequate funding,
outright fraud, irregularities and conflicting laws, diversion of remitted or
allocated funds, presence of ineligible pensioners on the pension payroll and
inability to effectively implement budgets and make adequate provisions. It
became imperative to embark on reforms to restore the hope of the pensioners
and the entire Nigerian workers. The Federal Government of Nigeria in 2004
brought about a change in the management and administration of pension funds
in Nigeria with the enactment of the Pension Reform Act 2004 by the Obasanjo
administration. The Pension Reform Act 2004 introduced the new contributory
pension scheme in the public and private sectors. The act also brought about the
establishment of the National Pension Commission to regulate, supervise and
ensure effective administration of pension matters in Nigeria. The commission
37
was to achieve this role by ensuring that payment and remittance of
contributions were made and beneficiaries of retirement savings account were
paid as and when due. Above all, the commission was to ensure the safety of the
pension funds by issuing guidelines for licensing, approving and monitoring the
investment activities of pension fund administrators and custodians (Ahmad,
2006: 18)
The scheme was also to assist soldiers to save in order to cater for their
livelihood after retirement. The reform was also concerned with establishing a
system that would ensure that soldiers receive benefits generated by their own
savings and not dependent on government subsidies or future generations. The
reform was to stem the growth of outstanding pension liabilities thereby
releasing resources to support growth and development of the country. Fully
funded scheme would reduce the vulnerability of the pension system to
demographic trends and political interference which had adversely affected the
old schemes. Furthermore, the soldier had direct control over his/her retirement
savings and determines which pension fund administrator manages his accounts.
Contrary to the above submission, the military still have different views about
the contributory pension scheme. This has posed series of problems to both the
Federal Government and the Military. These problems are looked into as they
affect both the government and the military. On the part of the military, they do
not see the wisdom in deducting part of their salary as contributory pension. To
them, joining the military was enough sacrifice for the government to single
handedly fund the scheme. Also, there was this fear that pension fund
administrators may also crash like the failed banks of the early 1990s. They
questioned the rationale for Pension Fund Administrators to invest their money
38
without consulting them and wondered if the PFA would not shortcharge them
in declaring the investment returns arising from the pension contributions.
Lastly, they are worried that there were no machinery in place to try offenders
like the Failed Bank decrees since there was no known Failed Pension Decree.
On the side of the government, there exists apprehension on what to do with the
different categories of salary and pension arrears pending. Also, despite several
military pension verification exercises, there were no accurate data of soldiers
that have so far retired since the end of the civil war. More worrisome was the
fact that there were no reliable data about costs, commissions and performances
of pension fund administrators. This seriously hampered the development of
private and public pension funds in emerging markets. Government was worried
at the large sum of money being managed by private pension industries.
According to Government, it was extremely important to know how well they
have performed in providing high rate of returns, secure and reliable benefits
and constraining costs.
The implication of the above scenario poses a great threat to both the
government and the military. To the government, a poorly funded military
cannot safeguard the territorial integrity of the nation. A military that has very
low morale owing to deductions from their salary is a threat to democracy. In
addition, the success of the pension scheme in the military is hinged on their
thorough understanding of the workings of the scheme. On the side of the
military, to create an impression that serving in the military does not have a
reward on retirement would discourage those aspiring to join the military and
erode the much desired confidence in the system. It therefore became expedient
39
and even compelling to conduct a study on the Contributory Pension Scheme as
it affects the Nigerian Armed Forces.
1.4
OBJECTIVES OF THE STUDY
Given the statement of the problem above the research seeks:
i.
To determine how poor management and administrative lapses were
responsible for the failure of the PAYG system in the military.
ii.
To ascertain the extent to which the members of the armed forces are
informed about the operation of the contributory pension scheme.
iii.
To determine how the new pension scheme has eliminated the problem of
long delay in payment identified with the PAYG system.
iv.
To determine whether the contributory pension scheme has addressed the
incidence of lack of funds inherent in the old pension scheme.
v.
To determine how the Pension Reform Act provided checks and balances
that would guarantee safety of contributors’ funds.
1.5
RESEARCH QUESTIONS
In order to actualize the desired objectives of this research, some basic research
questions which reflect on the objectives of the study are fielded. The questions
in specific terms include:
a. Were poor management and administrative lapses responsible for the
failure of the PAYG system in the military?
b. Are members of the Armed Forces adequately informed about the
operations of the contributory pension scheme?
c. Has the new pension scheme eliminated the problem of long delay in
payment of pensions associated with the PAYG system?
40
d. Has the contributory pension scheme removed the incidence of lack of
funds inherent in the old pension scheme?
e. Has the Pension Reform Act provided checks and balances that would
guarantee the safety of contributor’s funds.
1.6
RESEARCH HYPOTHESES
Modern researchers agree that research whenever feasible should proceed from
hypotheses. According to them, hypothesis serve as a powerful beacon that light
the path for research work (MDI, 2002:5). Therefore using hypothesis as a
framework for this study becomes necessary. In this study, the following
hypotheses will serve as aids jointly in finding answers to the research questions
raised above and in fulfilling the objectives of the study.
Hypothesis One
H0: Poor management and administrative lapses were not responsible for the
failure of the PAYG system in the military.
H1: Poor management and administrative lapses were responsible for the failure
of the PAYG system in the military.
Hypothesis Two
H 0:
Members of the armed forces were not adequately informed about the
operation of the contributory pension scheme.
H 1:
Members of the armed forces were adequately informed about the
operation of the contributory pension scheme.
Hypothesis Three
41
H0: The new pension scheme has not eliminated the problem of long delay in
payment of pension associated with the Pay As You Go system.
H1: The new pension scheme has eliminated the problem of long delay in
payment of pension associated with the Pay As You Go system.
Hypothesis Four
H0: The contributory pension scheme has not removed the incidence of lack of
funds associated with the pay as you go system.
H1: The contributory pension scheme has removed the incidence of lack of
funds associated with the PAYG system.
Hypothesis Five
H0: The Pension Reform Act has not provided checks and balances that would
guarantee the safety of the contributors’ funds.
H1: The Pension Reforms Act has provided checks and balances that would
guarantee the safety of contributors’ funds.
1.7
SIGNIFICANCE OF THE STUDY
The problem of irregular and non payment of pension to military retirees has
been a thorny issue in Nigeria. The introduction of the contributory pension
scheme was to eliminate some of the problems experienced in the management
and administration of the old pension scheme. However, since the introduction
of the contributory pension scheme not much attention was paid to the impact of
this scheme to the Nigerian Armed Forces. Considering the traditional and
central roles of the armed forces in the defense and protection of our territorial
integrity, the significance of this study can therefore be viewed from the
following perspectives.
42
i.
When this study is completed, it would create awareness in the military
on the positive aspects of the contributory pension scheme as it would
have removed all doubts about the efficacy of the scheme.
ii.
It is significant because data that would be generated from the study will
serve as a foundation for future research on the contributory pension
scheme.
iii.
The study will assist in evaluating the effect of the contributory pension
scheme on the military retirees with a view to determining whether it is
achieving the desired purposes and contributing to policy reviews on
pension.
iv.
It would assist in the interval review of the administrative methods,
processes, procedures and mechanisms used for pension delivery with a
view to improving their efficiency and effectiveness.
v.
The Government will benefit from the study. It is believed that the level
to which any national armed forces is able to project overall national
interest in its activities is largely dependent on the level of its
socialization into the normative ethos of the particular society. If the
military perceives the scheme as very rewarding arising from this study,
the Government would have relieved herself of the distraction arising
from the fear of military adventurism into governance.
vi.
The study would also remove the long held views by the military that
asking them to contribute to the fund shows the total disregard by the
Government for their contributions to the nation.
vii.
In addition this research work will be of immense help and support to
members of the armed forces at all levels. Finally the society would
benefits as the hope of a well mapped out and reformed pension
management will motivate workers in their various organizations.
43
1.8 SCOPE OF THE STUDY
The study will focus on how to ascertain how poor management and
administrative lapses were responsible for the failure of the PAYG system in the
military. It will also focus on how to find out the extent to which the members
of the armed forces were informed about the operation of the new contributory
pension scheme. It will also focus on how the new pension scheme has
eliminated the problem of long delay in payment identified with the PAYG
system.
1.9 AREA OF THE STUDY
The choice of the six military units is done using random sampling at the rate of
one unit per state capital for 36 States capitals including Federal Capital
Territory. The states were now numbered 0 to 35 and the states corresponding
to the following numbers were taken as those in the sample: 9, 3, 1, 0 and 8. At
the end of the day, the units were in Kaduna, Port Harcourt, Makurdi, Abuja,
Calabar and Enugu.
The units were:
i.
ii.
iii.
2 Recce Brigade, Nigerian Army, Kaduna
2 Airborne Brigade Nigerian Army, Makurdi
305 Flying Training School, Enugu.
iv.
Nigerian Naval Ship, Pathfinder Port Harcourt.
v.
106 Nigerian Air Force, Camp Headquarters, Abuja.
vi.
Nigerian Naval Ship, Anansa Calabar.
The choice of the six military units is based on the fact that they represent the
Nigerian Armed Forces that are being studied. Moreover, their locations span
across where the Nigerian Soldiers are posted 90% of the time.
44
1.10 LIMITATIONS OF THE STUDY
This study like most studies suffered some limitations that included the
following:
i.
The research probed and strived to assess the attitude of the military
towards the introduction of the contributory pension scheme. This was
definitely an assessment that did not prove too successful as the new
pension scheme was just introduced into the military.
ii.
Conducting a study that revolved around the military in Nigeria was
hardly successful because of the dearth of information on their activities.
The researcher was therefore forced to make do with the little information
provided to him as most of the documents were top secret and highly
classified. This constraint hampered the study from using quantitative
parameters in assessing the performances of the pension administrators.
iii.
Contributory Pension Scheme being a programme for all Nigerian
workers in an area of study in pension administration, the dearth of direct
materials and literature on such a subject was evidently encountered.
iv.
The personal interview method of communication of the questionnaire
has the limitations that the interviewing situation may change from one
situation to another; the respondents may not be dedicated enough and
may wish to be motivated.
v.
The questionnaire method of primary data collection had the limitation
that its structured nature may compel the respondents to give answers that
they do not fully endorsed.
vi.
Furthermore, because of the extensive coverage sought for the work, the
researcher had to sometimes depend on people to help with the
distribution of the questionnaire. This also led to the obvious delays in
time dimension.
45
The study however, in spite of all the above limitations, stood the test of
relevance, validity and therefore answered reasonably well to contemporary
pension problems.
46
1.11 Definition of Terms
Active Service: According to the Nigerian Armed Forces Act (2004), Active
Service reflects the period of service of an officer during his stay in the military.
These include war operations and official duties.
Accrued Pension Rights: This is defined as pension and gratuity accrued prior
to the commencement of the pension Reform Act. These rights are guaranteed
in the new act and will be actually determined for each employee in the public
sector transiting to the new scheme (Pension Reform Act, 2004).
Annuity: This is a mathematical term used to express the spreading out of a
single regular sum payable over a period of time while considering the time
value of money.
Compliance Officers: A compliance officer is one responsible for ensuring
compliance with the provisions of the law regarding pension matters as well as
internal rules and regulations of the PFA (National Pension Commission 2004).
Corporate Governance: From the perspective of the pension industry, corporate
governance embodies the structure and processes put in place for overseeing,
managing and administering the pension schemes to ensure stability and other
obligations of the scheme are met (National Pension Commission, 2004).
Death on Active Service: The Armed Forces Act (2004) defines death on active
service as that which applies to any military personnel irrespective of rank who
died in action during operation. The term also applies to those who died while
performing their normal duties.
Defined Contributory Pension Scheme: This is a scheme which specifies the
basis on which contribution will be made and the level of benefit that will be
provided. Individual accounts are maintained for the participants, the account
being credited with their share of contribution and investment returns (Pension
Reform Act, 2004).
47
Distributable Income: This is defined as all income earned by the contributor
less reasonable charges and cost on investment transactions.
Exempt Individuals:
The Pension Reform Act 2004 defines this as existing
pensioners and workers that are exempted from the scheme as they have 3 years
or less to active left to active service.
Final Pay: Pension Act of 1979 defines final pay in respect of an employee
whose appointment is terminated as the amount payable to him for a month (or
if he was on a daily rate of pay for 31 days) multiplied by 12 months in respect
of the last substantive rank held by him immediately before the end of his
service.
Military Service: Military service is a period of unbroken service in the
Nigerian Armed Forces from the date of commissioning to the date of
retirement from service except for executive commission / special duty / Branch
commission officers whose military services commences from the date of
enlistment (Armed Forces Act, 2004).
Occupational Pension Scheme: This is an arrangement that an employer or a
group of employers use (s) to provide pension (and sometimes other) benefits
for their employees when they leave or retiree. (Occupational pension
regulatory
Authority,
(OPRA)
http://www.opra.co.uk
/publications/guides/trustee guide).
Pensionable Emolument: This is salary attached to the last substantive rank
held by a worker and does not include any allowance or fringe benefits received
while in service (Pension Reform Act 102 of 1979).
Pension Fund Administrators: According to Pension Reforms Act 2004, these
are administrators duly licensed to open retirement savings account for
employees, invest and manage the pension funds in fixed income securities,
used and other instruments as the commission may from time to time prescribe.
48
Pension Fund Custodians: As defined by the Pension Reform Act 2004, these
are responsible for ware housing of the pension funds assets.
Retirement Benefit Bond: According to the pension reform Act, retirement
benefit bond is a bond that will be issued to those who are currently in
employment of the public service of the federation and the federal capital
territory where the schemes were unfunded, who are not exempted from the new
scheme but have worked for a specified number of years, in recognition of their
accrued rights under the defunct pension scheme.
Retirement Benefits Bond Redemption Fund: This is a fund established and
maintained by the Central Bank of Nigeria where the federal government pays
an amount equal to 5% percent of the total monthly wage payable to employees
in the public service of the federation and federal capital city. The total amount
in this fund shall be used to redeem any retirement benefit bond issued and
payment into this fund shall cease after all retirement benefit bonds have been
redeemed. (National Pension Commission 2004).
Risk Rating Institutions: These are institutions that are responsible for rating
the instruments that pension funds will be invested in. (National Pension
Commission, 2004).
49
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Limited.
Elegbana, U. M. (2004) ''The Contributory Pension Scheme''. Lecture Module
for Pension Desk Officers. Abuja: Women Development Center.
51
Hanclot, M. S., & Martin, K. Y. (1985) Analyzing Pension Administration in the
UK. London: Macmillan Educational Limited.
Harman, S. Y. (2003) Retirement Planning and Management . Ibadan:
Cherken Printing Limited.
Ibiang, U. K. (2003) Pension Administration in Nigeria the Way Forward.
Lagos: Century Publishers Limited.
Ibikunle, A. I. (2005), “Old Myths and New Realities in Pension Management”
The Accounting Review. Pp 424 – 490.
Ibrahim, M. M. (2003) ''Pension and the Military''. A Lecture Delivered to
Participants at the National War College. Abuja.
Imobighe, T. A. (1978), Reflections on the Defence Posture. Geneva Afrique,
vol. 116 pp 28 – 34.
Jacquiline, M. M. (1999) Appraising and Rewarding Refinement. London:
Thompson Publishing Limited.
Jerome, S. Z. (2001) Pension Administration Role of Employers. Lagos: Raimi
Publishing Limited.
John, R. M. (1965), The Geography of Frontiers and Boundaries. Chicago:
Chicago Alpine Publishers.
Mouly, F. N. (1978) Budgetary Mechanims: the Art and Science of
Investigation. Boston: Allen and Boston.
Ndalolo, U. S. (2004) Pension and the Nigerian Worker. Kano: Nureni Printing
Limited.
Nwolise, B. C. (2001), “Dimensions of Civil-Military Relations: A Case Study
of the Nigerian Experience, and Strategising its Development”. Nigerian
Army Quarterly Journal vol. 1: pp 111.
Omorogbon, S. S. (2004) Organising Insurance Enterprise for Pension and
Related Service. KAN Paper Presentation. Abuja
52
Onimode, B. (1983), Imperialism and Underdevelopment in Nigeria. Lagos:
Macmillan Publishers.
Oshiomole, A. O. (2006) ''Why We Must Resist Them''. A paper Presented at
the Nigerian Labour Congress Rally. Abuja.
Osuagwu, S. A. (2001) “Fulfilling Pension Promises”. Lecture Module for
Pension Officers. Abuja: n.p.
Pumel, R. S. (1973), The Society of States – An Introduction to International
Policies. London: Cox and Wynman Limited.
Raymond, P. S. (1980), Threat Perception in Internal Crisis. The Nigerian
Army Experience. Ilorin. Richmond Printers Limited.
Runkell, P. J., & Mcgrath, J. E. (1972) ''Research on Human Behaviour''. A
Sytematic Guide to Methodology. New York: Holt Rinehart and Winston.
Sabot, Y. P. (2006) Pension Management and Retirees Problems. London:
Evans Publishers Limited.
53
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 INTRODUCTION
The focus of this study is to examine the newly introduced Contributory
Pension scheme in Nigeria and assess its impact on the Nigeria Armed Forces.
The new pension scheme was designed to help the individuals plan ahead for
themselves in the future. In this chapter therefore the following shall be looked
at and discussed. Theoretical framework, Concept of Pension Scheme and
Pension Administration in Nigeria. Other issues covered are, pension reform
act, social security, pension reform in Nigeria, Criticism of the Contributory
Pension Scheme and the summary of the related literature at the end of the
chapter.
2.2 THEORETICAL FRAMEWORK
2.2.1 Conceptual Framework
2.2.1.1 The Concept of Pension Scheme
The grant of old-age pensions by a government to its employers first appeared
in France has had early beginnings; in Great Britain in 1834 and were instituted
in unified Germany in 1873. The establishment of pensions spread to many
other European countries in the first decade of the 20th century. Pension has
been defined as a series of regular payment provided by government or a former
employer for a person who has come to the end of normal working life
(Oregbula, 2003:100).
Guerard (2004:18) states that pensions are a complex area involving savings and
investment issues, employment practices, taxation and capital market
institutions. Pension Act No 102 of 1979 defines it as payment of a sum of
54
money to ex-workers of a given establishment or organization on a regular and
periodic basis. Such workers must have voluntarily or otherwise retired from
their place of work. Pension schemes, therefore, are those arrangements that lay
out the details of what an employee is entitled to and the qualification for such
entitlement.
Armstrong (2001:18) points out that pension schemes are designed to provide
employees with security by currently building up funds which will guarantee
income to the employee or his dependants on retirement or death. He describes
an occupational pension scheme as an arrangement under which an employer
provides pension for employees, income for the families of members who die,
and deferred benefits to members who leave. Osuagwu (2002:10) defines a
pension scheme as the totality of plans, procedures and legal processes of
securing and setting aside funds to meet the social obligations of care which
employers owe their employees on retirement or in case of death. The Pension
Management Institute, London defined Pension Schemes as an arrangement
organized by an employer on behalf of a group of employees to provide
pensions and or other benefits for or in respect of one or more employees on
leaving service, or death or retirement. The purpose of occupational Pension
Scheme is to provide employees regular and stable income after their retirement
from service. (Aham, 2001:12).
Abdu-laha (2005:33) describes it as an arrangement an employer or a group of
employers use to provide pension and sometimes other benefits to the
employees dependant if the employee dies. These schemes are usually funded
by contributions from just the employer, or from both the employer and the
employee. Barcheuz (2005:8) asserts that a good pension scheme does not only
55
serve as an incentive to employees but helps to attract and retain experienced
staff.
The first pension legislation in Nigeria was enacted in 1951 by the British
Colonial Administration, referred to as the Pension Ordinance with
retrospective effect from 1st January 1946. The pension which was initially
designed for colonial officers who were moved from post to post in the vast
British Empire was to ensure their continuity of service wherever and whenever
they are deployed to serve the colonial administration (Culem, 2001:15). When
the law eventually became applicable to Nigerians, the application was at the
discretion of the Governor – General.
Babalande (2002:15) notes that Pension was therefore not a right for Nigerians
under the Ordinance. It was an attempt to redress this, that a new Pension Act
was enacted in 1979 and referred to as the Pensions Act No 102 of 1979. The
Act consolidated all enactments on Pension and incorporated pensions and
gratuity scales designed for public officers by the Udoji Public Service Review
Commission in 1974. It also became the basic pension law from which other
pension laws in the public service of Nigeria emerged. They include:
- Armed Forces Pension Act No 103 of 1979. The act consolidated all
enactments dealing with pension benefits and gratuity scales for the
Armed Forces.
- Pension Rights of Judges; Decree No 5 of 1985 Effective 1st January,
1985.
- Amendment Acts Nos. 51 of 1988; 29 of 1991; and 62 of 1991.
Pension Schemes were developed in various societies in accordance with their
norms and values. In the United Kingdom for example, pensions developed long
56
before any specific legislation was adopted. The European medieval guilds, a
collection of tradesmen, used to contribute funds to pay pension to their old
colleagues who could no longer work or those who sustained serious injury and
became incapable of continuing the trade. The three concepts showing its
evolution are the gratuity or business expediency, human depreciation and
deferred pay concepts.
2.2.1.2 Gratuity or Business Expediency Concept
Pension plans were originally viewed as gratuities or rewards to employees
from a benevolent employer for long and loyal service (Oderinde, 2003:16).
These early plans were largely discretionary and management made it clear that
employees had no contractual rights to benefits under the plan. Continuation of
the pension plan was dependent on competitive condition and management
policy. Management reserved the right to terminate benefit payments to
pensioners for misconduct on the part of the beneficiary or for any other reason
justifying such action in the opinion of the employer (Bolako 2006:11).
However, as the economy became more and more industrialized and pension
plans became more relevant, there was increasing interest in the view that
employers had a moral obligation to provide for the security of retired workers.
2.2.1.3 Human Depreciation Concept
Fred Lander (1999:23) describes the human depreciation concept as that meant
for private pensions. According to him, it was the point of view taken by the
United Mine Workers of America in their 1946 drive to establish a welfare
fund. They argued that the cost of caring for human equity in the coal industry
was inherently as valid as the cost of paying interest on indebtedness or any
other factor incident to the production of a ton of coal for consumers’ bins. The
57
agreement establishing the welfare fund recognized in principle that the industry
owed an obligation to those employees and the coal miners could no longer be
used up, crippled beyond repair and turned out to live or die subject to the
charity of the community or the minimum contributions of the state
.Kaufman(1999:12)confirms that this
analogy between human labour and
industrial machines was also made in the 1949 steel workers labour dispute in
support of its conclusion that management had a responsibility to provide for
the security of its workers .
Adebanjo (2001:1) disagrees with the human depreciation concept and criticize
it on the basis of human depreciation being a physiological process and human
beings, unlike machines, cannot have their parts replaced,
2.2.1.4 Deferred Pay Concept
In his contributions Greenwald (2001:18) describes the Deferred Pay Concept
as a view of private pensions that have achieved broader acceptance in recent
years. In this concept, a pension benefit is regarded as part of a wage package
which is deferred for payment to the employee or his beneficiary after
retirement or death. It provides employees with security by currently building
up rights which will be a guaranteed income for them in labour and
management negotiators in terms of total labour costs. Thus, if employees
negotiate pension benefits, the fund available for increase in cash wages are
reduced accordingly. The concept ignores the argument that the employer is
willing to accept a lower profit margin to provide a pension plan for employees
(Bandue, 2005: 15).
Hopkins et al (2001:46-52) reveal that one of the derivatives of the deferred pay
concept was the emergence of pension trusts. This concept allows employers to
58
set aside funds for the payment of pension from their operating income and
managed them under a pay-as-you-go system. According to them the additional
burden of managing the funds coupled with the lack of guarantee that the funds
would always be available led to the emergence of Pension Trust which collect
pension contributions from employers, invest the funds and pay the retirees as
and when due. This was applicable to both funded and unfunded schemes
entrusted to trustees.
As stated by Emiola (2005:2) the operations of the pension trusts have always
been carefully regulated by Governments in different countries to ensure the
safety of pension funds. The pension contributions of employers and employees,
where applicable are tax-free but the investment taxable. Adequacy and
timeliness of pension funds are the major determinants of a successful pension
scheme.
2.2.2 Theory of Time Management
Time is probably the most crucial to the understanding of human survival and
existence. Even when an individual passes on to eternal life, the question that is
uppermost in the minds of most people is, how long did he stay in this world
before he died.
For human beings, and especially those who work, the importance of time
cannot be over emphasized, thus long delay in paying retirement benefits lead to
poor time management. Poor time management leads to inefficiency,
ineffectiveness and low productivity. This means that the management of the
retirement schemes is not being done right and the right thing is not being done.
Moreover, as productivity is the ratio of output over input, long delays lead to
increase in input and this lowers productivity (Machenze, 2002:18).
59
Machenze (2002:35) also observed that time is a unique resource. It cannot be
accumulated like money or stock piled like raw materials. It is spent at the rate
of 60 seconds every minute. It is irretrievable and the most inexorable and inelastic element in the existence of man. It takes a lot of time to process the
retirement benefits and so long delays lead to such problems as stress, loss of
morale of the retired soldiers and the inability to use the benefits during the time
the delay lasts.
2.2.3 Financing and Investment Theory
The investment decision is the most important of the three discussions when it
comes to the creation of value. Capital investment is the allocation of capital to
investment proposals whose benefits are to be realized in the future. Because the
future benefits are not known with certainty, investment proposals necessarily
involve risk. Consequently, they could be evaluated in relation to their expected
return and risk, for these are the factors that affect the firms valuation in the
market place. Included also under the investment decision is the decision to
reallocate capital when an asset no longer economically justifies the capital
committed to it. The defined benefit Pay as You Go system was budget
dependent. The pension funds could therefore not be invested. Hence, there was
no return on investment since no fund was invested. The Pension Reform Acts
2004 outlined the assets on which the funds could be invested. The PFA are also
to inform contributors on the returns on their investment. The PFA’s are to
select new investments and also manage existing ones efficiently.
The financing decision is the second major decision of a firm. The financial
manager is concerned with determining the best financing mix or capital
structure. The problem of lack of funds that was inherent in the old scheme will
60
be absent as the funds are contributed by both the employee and the employer in
the new pension scheme.
2.2.4 Theory of Management of Retirement Scheme
Pensions provide income to individuals in their retirement and just over half of
full-time workers participate in some type of pension plan at work. Pensions can
be classified in three basic ways: contributory versus non contributory plans;
qualified versus defined benefit plans. The employee contributes to the
contributory pension plan while the employer makes all contributions to the non
contributory pension plan. Employers derive certain tax benefits from
contributing to qualified pension plans, such as tax deductions for contributions;
nonqualified pension plans get less favourable tax treatment for employees and
employers.
With defined benefit plans, the employee knows ahead of time the pension
benefits he or she will receive. The defined pension benefit itself is usually set
by a formula that ties the person’s retirement pension to an amount equal to a
percentage of the person’s preretirement pay (for instance, to an average of his
or her last 5 years of employment), multiplied by the number of years he or she
worked for the company.
Defined contribution plans specify what contribution the employee and
employer will make to the employee’s retirement or savings fund. Here, in other
words, the contribution is defined not the pension. With a defined benefit plan,
the employee knows what his or her retirement benefits will be upon retirement.
With a defined contribution plan, the person’s pension will depend on the
amounts contributed to the fund and on the retirement fund’s investment
61
earnings. Defined contributory plans are increasingly popular among employers
today because of their relative case of administration, favourable tax treatment,
and other factors. The present scheme in Nigeria is the contributory pension
scheme.
2.2.5 Publicity Theory
Like advertising, publicity is concerned with sharing ideas, meaning or
information with members of the public. From the pension point of view, it
involves giving information about the contributory pension scheme and its
operation to the military. But unlike advertising for which the medium through
which the information is communicated is paid, the company in respect of
which publicity is given does not pay for using the medium. A prominent
feature which distinguishes publicity from the other promotional tools is that it
may be solicited or unsolicited. A clear case of solicited publicity is one based
on a press release by the company. Publicity is usually intermittent, occurring
infrequently and far between. It is for this reason that marketers hardly rely
solely on publicity to do the entire selling job. The pension fund managers and
pension commission could increase the awareness of the operation of the
contributory pension scheme by sensitizing the public through various media
and public enlightenment programmes.
2.2.6 Theory of Strategy Implementation
A strategy or a strategic plan is of no effect if it is not implemented. Infact,
unless it is properly implemented, it is unlikely that the intended benefit or
objectives will be realized. It is therefore crucial that the strategist pays serious
attention to the various aspects of strategy implementation. Strategy should be
continuously revised, elaborated and fine-tuned as dictated by the emerging
62
realities of the environment and the dynamics of implementation. Strategy
implementation is a complex and dynamic process involving the communication
of the strategy, the deployment of the strategy plan to functional areas of the
business, leadership implementation and structural considerations.
2.3
PENSION ADMINISTRATION IN NIGERIA
2.3.1 Historical Development
The long history of pension schemes in the United Kingdom was not reflected
in the colonies of the former British Empire like Nigeria. The colonial pension
law was primarily designed for the UK officers who were moved from post to
post within the vast British Empire. The intention was to ensure that they
maintained continuity of service wherever and whenever they went to serve
(Uzoma, 1991:1).
The exact origin of pension in Nigeria is debatable. However, the privilege of
receiving gratuity and pension appears the manifestation of the victory of labour
in its fight with the employer over his exploitation. Nigeria’s first ever
legislative instrument on pension matters was the pension ordinance of 1951,
which had retrospective from 1st January, 1946. The national provident fund
(NPF) scheme established in 1961 was the first legislation enacted to address
pension matters of private organisations. It was followed 18 years later by the
pension Act No 102 as well as the armed forces pension Act No 103 of the same
year (Ibekwe, 2002:18)
The police and other government agencies’ pension scheme was enacted under
Pension Act No 75 of 1987, followed by the local government pension edict
which culminated in the establishment of the local government pension board of
63
1987. While in 1983, the National Social Insurance Trust Fund (NSITF) scheme
was established to replace the defunct NPF scheme with effect from 1st July,
1994 to cater for employees in the private sector of the economy against loss or
death. Williams (1989: 7) states that before the pension reform act 2004, most
public organisations operated a defined benefit (Pay-As-You-GO) scheme. Final
entitlements were based on length of service and terminal emoluments. The
Defined Benefit Scheme was funded by the Federal Government through
budgetary allocation, and administered by the pension department and the office
of the head of the service of the federation (Balogun, 2006:55).
According to Sule et al (2005), the pension scheme later became a great burden
on the government as it could no longer cope with the payment of pension and
gratuities to retiring members of the workforce. This was apparently due to the
fact that there was no plan put in place to forestall this problem. Therefore,
managing and administering pension funds have continued to pose a major
challenge to government in Nigeria (Okotoni and Akeredolu, 2005:13). Yet
pension which guarantees an employee certain comforts in his or her inactive
years is critical to the sustenance of the life of the individual and the society
(Nkanga, 2005:22).
Tokunboh (1988:24) reveals that before 1st January 1946, Nigerian permanent
staffs in the public sector were not earning pensions. They were paid gratuity as
terminal benefit. It was a once and for all lump sum payment to retired staff.
According to him, this was the practice in the Nigerian Railway Corporation
which commenced operation in 1898 as one of the earliest establishments of
government. This practice prevailed until the promulgation of the pension
ordinance in 1951 with retrospective effects from 1st January 1946.
64
Osuagwu (2006:6) faults the Ordinance as it had limited application to Nigerian
public workers. This was because pensions were granted at the pleasure of the
Governor General who was free to withdraw it, at the slightest opportunity or
flimsy excuses. The Ordinance was applicable in the Federal public service. The
four regional governments in Northern, Eastern, Western and Mid-western
regions operated separate but similar pension Acts based on the Ordinance Act
of 1951. All the laws had similar provisions with regards to the superannuation
of holders pensionable.
The Pension Legislation Act of 1951 fixed the age of retirement at 55 years.
Pension and gratuity were made non-contributory benefits for all public
employees. The maximum rate of pension was put at 2/3 of an employee’s
terminal emolument. Gratuity was calculated at the rate not exceeding 1/8 of a
monthly emolument for each complete month of public service. The qualifying
service for pension was 10 years. An officer with less number of years of
service was granted only gratuity on leaving the service (Hasting, 1966:26).
Bamgboye (2002:18) observes that in recent time, workers both in the private
and public organizations engaged in personal retirement plan which served as a
palliative in the event of delay in payment of entitlements from employers.
From his study, he disclosed
that credit co-operative societies are established
not only to cater for their present financial needs but also to make savings
towards retirement. This was the practice in most military units in Nigeria.
In his opinion, Mayo (2001:13) remarks that the funding of private pension
schemes appears more reliable than that of the government though workers in
65
the public sector enjoy more generous retirement benefits than their
counterparts in the private sector. He maintains that it was a fundamental flaw
that Decree 102 of 1979 did not address the pension needs of the private sector.
The first attempt at providing for private sector workers was through the setting
up of the National Provident Fund (NPF) by the Federal Government in 1961
primarily as a compulsory saving scheme for private sector workers and those in
non-pensionable employment. The fund only provided lump sum benefits to
members or their dependents on retirement or at death. The scheme was funded
by N4.00 monthly contribution by both employers and employees. The upper
limit of the total contribution to a provident fund scheme was 25% of total
emolument. The scheme has since been abrogated and converted into the
National Social Insurance Trust Fund (NSITF) via Decree No.73 of 1993
effective from 1st July 1994. Pension scheme in the private sector remains a
contributory one where an employee contributes, for example, 5% of his salary
to the pension fund while the employer contributes between 15% - 25% of the
staff salary.
2.3.2 Review of Pension
In the last twenty years a number of pension reviews have been carried out by
the Federal Government. A few of them are highlighted below:
i.
Review of the new pension scheme increase in retirement age for public
officers (Circular B.63207/VI/001 of 26th April 1978). The review only
affected judges. The compulsory ages of retirement for High Court
Judges and Court of Apple/Supreme Court of Justice to be 62 and 65
respectively and not 60 and 65 earlier stipulated.
ii.
Decree No. 5 of 1985 awards a Judge 100% of his total emolument after
serving for fifteen continuous years as a Judge of the High Court.
66
iii.
Review of Pension Benefits – Circular No. B6321/S.I/XT/8 of 22nd July
1992. This review addressed three main subjects.
a. The period of qualifying service for pension is reduced from 15 years
to 10 years.
b. The period of qualifying for gratuity is reduced from 15 to 10 years
and
c. The maximum rate of pension for 35 years service is increased from
70% to 80%.
iv.
Review of Pension Benefits – Circular No. B.6321/S.I/X/701 of 20th
January 1993. The Federal government approved that the pension at all
retirees on the payroll as at 31st May 1992 be increased by a flat rate of
45 % across the board.
v.
Upward Review of Pension Benefits effective from 1st October, 1994 –
Circular No. B.6321/S.I/X/710 of 20th December 1994.
vi.
In the case of academic members in the Universities, Decree 11 of 1993
stipulates that a person who retires as a Professor of 15 years in the
University or has been continuously in the service of a University in
Nigeria up to retiring age shall be entitled to 100% of his terminal annual
emolument as pension.
vii.
Harmonization of Pensions Ref No. 6321/S.I/X13/105 of 30th January
1997.
viii.
Review of the management of pension schemes of parastatals and other
organizations funded by the Federal government Ref No. PEN.
92138/S.28/195 of 30th January, 1997.
ix.
Review of Terminal Benefits for Heads of service and permanent
secretaries. Officers appointed from the civil service to the post of Head
of service are to earn 100% of total annual emolument as pension. Also
67
permanent secretaries who have put in a minimum of twenty years of
pension for life.
Further Review of Pension Rates. Additional increase of 30 % effective January
2000. Source. Salary and Wages commission January, 2000.
Hakeem (2003:18) regards these reviews as a welcome development especially
those that brought relief to retirees and pensioners who have invested the most
useful part of their lives into the government service .He insists that the review
will motivate serving officers to put in their best and give their loyalty to the
service .He reiterates that the upward reviews are positive developments for
Nigerian workers where there have been massive brain drains because of poor
remuneration and appalling conditions of service.
Disputing Hakeem’s comments on the review, Onabanjo (2004:34) condemns
the frequent reviews by the Federal Government without consulting the state
governments and other stake holders. According to Onabanjo, these reviews
constitute a major snag in the administration of pension in Nigeria .Okotoni
(2005:13-19) also decries the frequent reviews as it has caused implementation
problems such as inability of the state governments and other stake holders to
secure sufficient funds to meet current rates . Okotoni states further that the
inability of government to devise appropriate strategies for funding the reviews
has constituted problems for pension administration in the country. He
maintains that many public organizations found it very difficult to get funds to
pay their retirees and pensioners because of government’s refusal to release the
required funds.
68
2.3.3 Pension Act No 102 of 1979
Harvey (1998:14) remarks that the acceptance of the Report of the 1974 Udoji
public Service Review Commission led to an improved pension legislation,
which was introduced vide Decree No 102 of 1979. This decree later became
known as the Pensions Act No 102 of 1979 and incorporated as Cap 346 into
the laws of the Federation of Nigeria, 1990. The Act consolidated all
enactments dealing with Pensions, War Pensions, disability benefits and
gratuities for civilian employees of the public service of the federation. It was
this Pension Act that gave birth to the pension law in Nigeria from which other
pension laws in the public service emerged. The other laws, which cater for
specific professional groups but retain the main ingredients of the pension Act,
were.
a.
The Armed Forces Pensions Act No 103 of 1979.
b.
The Pension Rights of Judges Act No 5 of 1985 and the Amendment
Act No 51 of 1988, 29 of 1991 and 62 of 1991.
Akpabio (2004:6) discloses that under the pensions Act, the payment of pension
is based on continuous and unbroken service. He however states that any break
in service on account of further studies may be condoned and regarded as
continuous service. Any other break in service arising from leaving one Service
and subsequently being re-engaged in another public service may be merged
and later condoned before the two parts of the service can be regarded as
continuous public service for pension purposes.
Confirming Akpabio’s submission, Ajayi (2004:18) states that Section 15 of the
pension Act stipulates that where an officer in pensionable service transfers
69
from the public or voluntary Agency Teaching Service within the Federation or
vice versa, he shall, in respect of his service in each public service concerned,
be entitled to pension and gratuity. These will be apportioned among the various
public services concerned in such proportion as correspond with the duration of
his service in each of them. In all cases of apportionment, the existing practice
is for the last employer to pay the retirement benefits in the first instance and
later seek reimbursement from the previous employer. The Federal Government
has assumed responsibility for the payment of Pension to retired state civil
Servants who were in employment up to 31st March 1976. Some of the main
features of the Pension Act were:
i.
Retention of non-Contributory Gratuity and Pension Benefits in the
Public Service.
ii.
Increase in Qualifying Service for Pension from 10 to 15 years with effect
from 1st April 1977.
iii.
Increase in Retirement Age from 55 to 60 years.
iv.
Pegging of the Minimum Retirement age for Receipt of Pension at 45
years provided the employee completes minimum period of 15 years in
service.
v.
Increase in the calculation of gratuity from 100% to 140% of final
emolument if an officer serves for a period of ten to fourteen years and
from 100% to 300% if the officer serves for 15-35 years.
vi.
Computation of pension from a minimum of 30% of terminal salary after
15 years to a maximum of 70%
vii.
A pension or gratuity granted under the Act shall not be assignable or
transferable or liable to be withheld, attached, sequestrated or levied upon
for or in respect of any debt or claim whatsoever except for the purpose
70
of satisfying a debt due to the Federal Government or an order of any
court for the payment of periodical sums of money towards the
maintenance of the wife or former wife or minor child of the officer to
whom the pension or gratuity has been granted. The computation of
retirement benefits in the Act is shown in Tables 2.1 – 2.4.
2.3.4 Computation of Benefits
Computation of retiree’s benefits is based on the provision of the Pension Act
No 102 of 1979 amended from tine to time through circulars from the office of
Establishment and Management Services. The calculation of pension and
gratuity based on percentage of final total emolument in respect of retirement is
as presented in the tables below.
Table 2.1: Formula for Calculating Pension and Gratuity
Years
of Gratuity as % of Terminal Pension as % of terminal
Service
Salary Including All Approved salary including all Approved
Allowances
Allowances
5
100
6
108
7
116
8
124
9
132
10
100
30
11
108
32
12
116
34
13
124
36
14
132
38
15
140
40
16
148
42
17
156
44
18
164
46
19
172
48
20
180
50
21
188
52
22
196
54
23
204
56
71
24
25
26
27
28
29
30
31
32
33
34
35
Source: Nzeshi (2009).
212
220
228
236
244
252
260
268
276
284
292
300
58
60
62
64
66
68
70
72
74
76
78
80
Example 1
A Brigadier General who retires in Nov 2001 on Harmonized salary Structure 7
step 7 (at bar) with 35 years of service, the gratuity/pension was based on 300%
/ 100% respectively of final total emoluments. This is illustrated below.
Basic Salary
-
Rent (40% of Basic)
Transport
N650, 645.00
-
-
per annum
“
N260, 258.00
N24, 000.00
“
Utility
-
N9, 600.00
“
Meal Subsidy
-
N10, 800.00
“
Domestic Service (2)
-
N283, 714.80
Entertainment
-
N10, 800.00
Total
-
“
“
N1, 249,817.80
Gratuity at 300% (i.e. 300% x 1,249,817.80) = N3, 749,453.40
Pension at 100% (i.e. 100% x 1,249,817.80) = N1, 249,817.80 per annum
Monthly Pension Payment = N1, 249,817.80/12 = N104, 151.48
72
Example II
A Corporal who retires in November 2001 on Harmonized Salary Structure 3,
step 15 with 30 years in service, the gratuity/pension payment was based on
260% / 70% respectively of final total emoluments.
Basic Salary
-
N103, 997.00
Rent (40% of Basic)
-
Transport
N13, 200.00
-
Utility
-
Domestic Service -
-
Entertainment
-
Total
-
per annum
“
N41, 598.80
“
“
N3, 600.00
“
“
-
N168, 395.80
Gratuity at 260% (i.e. 260% x 168,395.80) = N437, 829.08
Pension at 70% (i.e. 70% x 168,395.80)
= N117, 877.00
Monthly Pension Payment = 117,877.06/12 = N9, 823.09
It is reiterated that the upward reviews especially since the inception of the
civilian administration in October 1999 are positive development for Nigerian
workers which have since witnessed a lot of massive brain drains because of
poor remuneration and appalling conditions of service. The reviews have
brought some measure of relief to retirees and pensioners in the public service.
However, the inability of government to devise appropriate strategies for
funding the reviews has constituted serious problems for pension scheme in the
country. Many public organizations found it very difficult to get funds to pay
their retirees and pensioners since government has failed to release the required
money. For example, the Federal Government released a total sum N34 billion
in the year 2001 for pension payment out of which N15 billion went to
government parastatals. (The post express, (2000) this was however, grossly
73
inadequate. As at 5th February 2002, N10 billion was needed to pay pension
arrears in the civil service. (The post Express 2000: 23).
Obi (2002:96) asserts that gratuity granted under pensions decree 1979, No 102
do not exceed 360% of the final pay. She defines a final pay in respect of an
employee whose appointment is terminated as the amount payable to him for a
month (or if he was on a daily rate of pay, for 31 days) multiplied by 12 months
in respect of the last substantive rank held by him immediately before the end of
his service. A pension granted under this decree shall not exceed 50% of the
highest pensionable emoluments earned by him at any time during the course of
his service. A pension granted under this decree shall not be less than N360 per
annum. Pensionable emoluments means the salary attached to the last
substantive rank held by him, and does not include any allowance or fringe
benefits received while in service.
Table 2.1 shows the formula for pension and gratuity calculations based on
percentage of final pay in respect of retirement after 31st March, 1977.
Analyzing the table, Abidoye (2003.9) declares that an employee who puts in 14
years of service earns 14% gratuity and no pension. He only gets his pension
from 15 years of service where he earns 10% gratuity (this is less than what he
earns at 14 years of service by 40%) and 30% pension. Fifteen years of
qualifying service is the starting point of calculating pension and it is the lowest.
He further remarks that the maximum year of qualifying service is 35years
where the employee earns the maximum gratuity of 30% and maximum pension
of 70% (See Table 2.1).
74
Table 2.2: Formulae for pension and gratuity calculations based on
percentage of final
salary in respect of retirement after March 31st 1977.
Years to Qualifying Gratuity Percentage
Pension as Percentage
Service
of final Pay
of final Pay
10
100%
-
11
110%
-
12
120%
-
13
130%
-
14
140%
-
15
100%
30%
16
110%
32%
17
120%
34%
18
130%
36%
19
140%
38%
20
150%
40%
21
160%
42%
22
170%
44%
23
180%
46%
24
190%
48%
25
200%
50%
26
210%
52%
27
220%
54%
28
230%
56%
29
240%
58%
30
250%
60%
31
260%
62%
75
32
270%
64%
33
280%
66%
34
290%
68%
35
300%
70%
Source: Nzeshi (2009).
Table 2.3 shows incapacity pension to employees who are too ill to continue
working, or those who sustain severe injuries or death while on duty.
Incapacitation is graded in degrees into A, B, and C i.e. from the most severe
down to severe injuries. For employees in category A, their degree of
incapacitation is most severe and not less than 70%. For employees in category
B, their degree of incapacitation is 50%-69%. Their incapacity pension is 15%
of the final pay at date of injury. For employees in category C, their degree of
incapacitation is 30%-49%. Their incapacity pension is 10% of the final pay at
the date of injury.
Ogohi (2002:18) reveals painfully that in Nigeria, the groups of employees who
are most vulnerable to accidents and to sustain severe injuries on duty are the
junior staff. The incapacity pension payable is usually low because their income
is low generally.
Table 2.3 Incapacity Pension payable after 31st March 1977
Category
Degree of incapacitation
Incapacity pension payable
A
Not less than 70%
30% of final pay at date of
B
50% to 60%
injury
C
30% to 40%
15% “ “ “ “
10% “ “
“ “
“
“
“
“
“
“
76
Source: National wages commission 2004
Table 2.4 Shows the formula for pension and gratuity calculations based on
percentage of final salary in respect of retirement since 1992. The table shows
that an employee who puts in 5-9 years of qualifying service receives gratuity as
percentage of final total emolument of 100%-132% but does not receive any
pension. The employee is entitled to both gratuity and 30% pension. At 35 years
which is the maximum years of qualifying service, he earns the highest pension
of 80% of final emolument (See table 2.2). This formula is an improvement on
that shown in table 2.1 of which it supersedes after a critical review. It is
currently in use for the computation of gratuity and pension of employees in
public service in Nigeria. Whatever the increases as observed in table 2.2, it is
obvious that the pension of a retiree is still 20% lower than his regular monthly
income on retirement. This experience is traumatic and causes stresses and
strain on retirees, especially, when matched with hyper –inflationary economy
we have been experiencing in this country since the 1980’s. This traumatic
experience is expected to reduce with the introduction of the contributory
pension scheme.
Table 2.4 Formula for Pension and Gratuity Calculations based on
Percentage of final Salary in respect of retirement since 1992
Before 1992
Years of
Qualify
Service
Since 1992
Gratuity
Pension
Years of
as % of as %
Qualify
final Pay
of final Service
Pay
Gratuity as % of Pension as % Of
final
final
Total
Total Emolument
Emolument
5
100
-
6
108
-
7
116
-
8
124
-
77
9
132
-
10
100
-
10
100
30
11
110
-
11
108
32
12
120
-
12
116
34
13
130
-
13
124
36
14
140
-
14
123
38
15
100
30
15
140
40
16
110
32
16
148
42
17
120
34
17
156
44
18
130
36
18
164
46
19
140
38
19
172
48
20
150
40
20
180
50
21
160
42
21
188
52
22
170
44
22
192
45
23
180
46
23
204
56
24
190
48
24
212
58
25
200
50
25
220
60
26
210
52
26
228
62
27
220
54
27
236
64
28
230
56
28
244
66
29
240
58
29
252
68
30
250
60
30
260
70
31
260
62
31
268
72
32
270
64
32
276
74
33
280
66
33
284
76
34
290
68
34
292
78
35
300
70
35
300
80
78
Source: National wages commission booklet 2004
2.3.5 The Private Sector
Bosede (2003:17) examines the management of pension in the private sector
and concludes that unlike the government – owned parastatals, whose pension
schemes were managed by Boards of Trustees, the private sector pension
scheme were managed by one body, the Nigerian Social Insurance Trust Fund.
He stated further that the foundation for the payment of retirement benefits to
workers in the private sector was usually laid in the National Social Insurance
Trust Fund Act. This Act provides for retirement benefits to be paid to workers
from contributions made by both the worker and the employee.
Lawanson (2000:7) suggests that the Pension and gratuity scheme in the private
sector may have taken its cue from the public sector. This according to him led
to the promulgation of the Pension Ordinance in 1951 for public employees and
its retroactive application from 1946 which made a few corporate organizations
(mainly European-based) to give some retirement benefits to their workers.
Oresanya (2000:3) accepts this as an improvement in the earnings of retirees
then, but points out that it did not provide much for the workers security.
This situation prevailed until an “Organized Private Sector” in the form of
Nigeria Employers Consultative Association (NECA) came into being in 1957
and put pressure on Government to introduce a social security scheme in line
with the Social Security (Minimum Standards) Convention adopted by the
International Labour Organization in 1952. The Convention contains provisions
for benefits covering medical treatment and survivor benefits in case of death.
As highlighted by Obilor (2001:27), it was this pressure on Government that
79
gave birth to the National provident Fund Act in 1961 which introduced a
mandatory contributory scheme and retirement gratuity for the private sector.
The contribution under the National Provident Fund Scheme, irrespective of
status, was N4 each by the employer and the employee, making a total of N8 per
month. At its introduction in 1961, membership was 350,000. This figure
reached about 12 million in 1994 with a cumulative investment asset of over
N2.5 billion. (Pension Reform Act 1979). Humphrey (2003:34) remarks that
though this amount was paid in a lump sum it was too meagre to give enough
protection against poverty in old age. The scheme was therefore bedeviled with
problems of management, late payment of benefits, inadequate records and late
or non-remittal of contributions to the fund.
Braimoh (2001:35) points out that in an effort to find solutions to these
problems, the Federal Government replaced the National Provident Fund with
the Nigeria Social Insurance Trust Fund (NSITF) in 1994. The Decree
establishing the Trust Fund was promulgated in August 1993 (Decree No. 73 of
1993) with retroactive effect from 1st January 1992, but due to the need to
examine certain issues arising from its provisions, its operation was delayed
until 1st July 1994.
Abidoye (1999:17) discloses that the Nigerian Social Insurance Trust Fund was
established by the Federal Government of Nigeria for the protection of workers
in the private sector of the economy against the loss of employment income in
the event of old age, invalidity or death. According to him, the scheme is
mandatory for employers and employees in the private sector and failure to
abide by the provisions of the Decree is considered a criminal offence and may
80
lead to the legal prosecution of the offending organization and its directors or
officers. Since the NSITF replaced the National Provident Fund with effect
from 1st July 1994, all registered members of the defunct National Provident
Fund Scheme automatically became members of the new scheme.
Boeri (2003:23) admits that the introduction of the National Social Insurance
Trust Fund brought respite to workers. The coverage of the scheme became
extended to every person employed by a company incorporated under the
Companies and Allied Matters Decree of 1990 or employed by a partnership or
in any other case, where the number of persons employed is not less than five.
The scheme also covers individuals who wish to have a private pension scheme
on their own. The rate of contribution at the beginning of the Fund was 2.5% by
employee and 5% by employer making a total of 7.5%. This figure was raised to
3.5% and 6.5% respectively making a total of 10%. An employee under the
scheme should be at least 18 years of age and not older than 65 years. The
various benefits payable by the NSITF are shown in Table 2.5
81
Table 2.5: Benefits Payable by NSITF
S/N Types of Qualifying Conditions
Benefits Payable
Benefits
Employee
who
had A lump sum payable equivalent of
1.
Retirement
attained the age of 60 and the
Grant
above and retired from multiplied by the number of months
employment
having
final
monthly
contribution
12 of paid contributions.
months paid contributions.
Employee
2.
who
had Minimum of thirty percent and
Retirement
attained the age of 60 and maximum of 65% of final average.
Pension
above and retired from Insurance earning depending on
employment
having
at number
of
contributions
paid.
least 120 monthly paid Amount payable is not less than
contributions.
Employee
3.
80% of National Minimum wage.
permanently An amount equal to the final
Invalidity
incapable of working. At monthly contributions multiplied by
Grant
least
12
monthly the number of months of paid
contributions paid.
Employee
4.
contributions.
permanently A
minimum
of
30%
and
a
Invalidity
incapable of working. At maximum of 65% of final average
Pension
least
36
monthly insurable earnings. In either case,
contributions paid out of amount payable not to be less than
which he is expected to 80% of National Minimum wage.
have worked continuously
for 12 months.
Death of an employee 100%
of
deceased
employee’s
82
5.
Survivor
receiving
retirement
Pension
invalidity
pension
or pension.
with
dependants as survivors.
Where a dependant is not Equivalent
6.
of
the
deceased
Survivor
entitled to a survivor’s employee’s invalidity or retirement
Grant
pension
but
deceased grant.
employee had at least 12
monthly
paid
contributions.
7.
Funeral
Death
Grant
receiving
of
employee N2, 000.00 for meeting funeral
invalidity
or expenses.
retirement pension.
Source: NSITF Information Booklet (Page 17).
The Nigerian Social insurance Trust Fund was managed and controlled by a
Management Board comprising a Chairman, two representatives each of the
Nigerian Employee Consultative Association (NECA) and Nigeria Labour
Congress (NLC); One representative each of Federal Ministry of Employment,
Labour and Productivity and
Central Bank of Nigeria, three Executive
Directors and the Managing Director. There were financial and operational
problems with this method of administering pension in Nigeria.
Fafunwa (1999:18) notes that between 1994 and March 2003, NSITF paid
N217.20 million to 53,494 claimants, its predecessor, the Nigerian provident
fund, paid the sum of N118.07million to claimants between 1962 and 1964
(Business day, Abuja, 28/4/06:.33). The NSITF was regularly reviewing its
pension system to improve its effects on retirees. One of such review led to the
introduction of the payment of N4,400 as minimum basic pension to retirees
83
with effect from November 2002. This amount was calculated as 80% of the
minimum wage of N5,200=00.
The payment was unconditional and non
discriminatory. This means that even those who never earned up to N4,400 per
month while they were in paid employment started to benefit from the
improvement in the pension income of retirees. This gave succor and raised the
quality of life of the NSIFT pensioners. (Salami, 2000:24).
Chizea (2003:12) alleges that despite its success, the private sector pension
administrative system had internal weaknesses. Allan (2001:22) reports that to
redeem some of these weaknesses, the fund embarked on internal reforms to
improve its delivery of pension to retirees. These included the removal of
operational bottlenecks, establishment of a reliable data base, publishing of
annual audited accounts as from 2003, computerization of the entire fund by
September 2003. Others included, financing the management of funds through
investment. Between 1962 and March 2003, the fund recorded a total of 37,854
registered employers with 13,952 million registered employees. Total
contributions collected during the period amounted to N 24.351 billion, while
total benefits of N 335.26 million was claimed by 508,035 retirees.
Describing the NSITF as a success, Akinade (2001:22) reveals that the book
value of the funds investment Portfolio as at March 31, 2003 was N20.18 billion
while the market capitalization stood at N20.24 billion. According to him, to
ensure profitable returns on investments, the funds investments were
concentrated in equities, money market and real estate. The fund also had
substantial investments in shares of quoted companies where it was active in
about 22 sub sectors including banking, oil, marketing, manufacturing and
textile. It’s trading activities on the floor of the Nigeria stock exchange which
was done through many stock broking firms, contributed substantially to the
84
volume traded on the floor of the exchange. In addition NSIFT also had
substantial investments in money market instruments including treasury bills
and bankers acceptance of some blue chip companies. This was done to enhance
its liquidity in the event of need to make payments to stakeholders; the third
area of investment by the fund was in real estate.
The investment in this sector between September 2002 and March 2004 are as
shown below.
Table 2.6 Investment Portfolio of NSITF as at 31 December 2003.
Closing Balance
Quoted Investment
Equities
N
4,261,070,530.6
Market Value
%
N
%
46.31
4,492,877,020.34
40.43%
0
Debenture stocks
34,669,600.28
0.38%
34,231,221.11
0.31%
FRN Developer stock
21,443,516.49
0.23%
21,432,104.00
0.19%
Nigerian Treasury Bills 200,000,000.00
2.17%
200,000,000.00
1.80%
State
1.53%
140,873,535.60
1.27%
50.62%
4,889,404,881.05
44.00%
governments 140,873,535.60
Bonds
4,658,057,182.9
7
Unquoted
Investments
Equities
85,293,353.50
0.93%
85,293,353.50
0.78%
Debenture stocks
25,000,000.00
0.27%
25,000,000.00
0.22%
0.04%
4,047,619.28
0.04%
20.04%
1,844,236,702.62
16.60%
State
government 4,047,619.28
bonds
Bank placements
1,844,236,702.6
2
85
Fund management
150,000,000,00
1.63%
150,000,000.00
1.36%
Unit trust
3,000.000.00
0.03%
5,2577,530.00
0.o5%
2,111,577,675.4
22.95%
2,113,835.205
19.05%
20.09%
3,524,741,453.06
31.71%
583,214,236.58
6.34%
583,214,236.58
5.24%
2,431,697,254.9
26.43%
4,107,955,689.64
36.95%
9,201,332,113.2
100.00
11,111,195,776.09 100.00
8
%
0
Property/Real Estate
Real estates
1,848,483,018.3
3
Project in progress
1
TOTAL
%
Source: Trust Fund Newsletter Vol. 2 Nos 13&14 July. December 2003.
These investments conformed with the guidelines given by the Board of
directors of the Fund, which stress safety, liquidity and yield which should not
be less than the minimum rate of return (NRR) stipulated by the CBN.
2.3.6 The Public Sector
Boje (2001:27) discusses that unlike the private sector, it was discovered that
pension delivery was not uniform in the public sector. According to him while
some organizations, like the central bank (CBN) and Nigerian National
Petroleum corporation (NNPC) pay pension to their retirees promptly like the
private sector, other organizations like the Nigeria Police Force and the
Nigerian Armed Forces, experience considerable delays or non-payment of their
pension entitlements for 4 to 48 months.
86
Jemibewon (1999:34) enumerates the likely consequences of delayed or nonpayment of pensions to retired military personnel to include:
a. Falsification of age by workers to prolong their stay in service.
b. Encouragement of get-rich-quick syndrome which forms the bedrock of
fraud and crime in the military.
c. Fueling the growth and sustenance of ethnic militia as could be witnessed
in the Niger Delta region.
d. Unfavourable perception of government as insensitive to the plight of
military pensioners.
e. Discouraging people from enrolling in the military in future if they have
alternatives.
f. Development of a linkage between retirement and poverty.
g. Promotion of retaliatory vengeance by one perceived to be responsible for
its plight.
h. Destruction of the much cherished espirit-de-corps in the Military.
2.3.7 Implication of Delayed Pension on National Security
In the survey conducted over a period of eighteen months (November, 2001 –
April, 2003) there was a total of 49 demonstrations out of which 29 were
violent. They involved closure of roads, paralysis of business and official
functions, occupation of office premises. So far, there has been no major
incident or loss of lives as the police often used teargas and minimum force to
disperse the pensioners. The use of this method may not be effectives forever.
Desperation could make the military pensioners to get arms or invite ethnic
militias to assist them.
87
As observed in the survey, violent demonstrations had succeeded in getting the
management of corporations and state governments to provide some few
months pension to the retirees. Bala (2003.21) alerts that the impression was
that pensioners may only get some pension when they stage violent
demonstrations. According to him, this method should not be allowed to
become the means of getting pensions.
Ahmed (2003.4) opines that the creation of a swelling group of hungry,
desperate and bitter military retirees against the society they had served in their
youth, is an invitation to violent crimes, breakdown of law and order should this
group decide to vent their anger on the society. According to him, the Military
Pension Board should not allow the situation to degenerate to this stage.
While condemning the situation, Ibikunle (2002:21) expresses the fear that
hungry military retirees roaming the streets in search for a living could become
handy tools for mischief makers or saboteurs. Some of these retirees have
acquired considerable knowledge in various fields which could be used to
sabotage government activities or vandalize oil pipelines and Power Holding
Company of Nigeria or even stage a coup. The Gideon Orkar Coup of April
1989 was suspected
to have been carried out by disgruntled retired military
personnel who were fed up with the entire system. (Balanke, 2000:16).
Ogohi (2002:4) states that the above scenario demonstrated the need for an
effective pension administration for the military. The effectiveness of pension
administration depends among other things, on maintenance of accurate records
of retirees, monitoring, policing and regular updating of the records of retirees.
Consistency of government policies in the funding of pension schemes and
88
prompt delivery of pension to retirees. It is in line with this that the federal
Government through the National Assembly embarked upon the reform of the
pension scheme.
2.3.8 The Need for Pension Reform
In their work, Holzman, Orenstein and Rutkowski (2003:33) assert that pension
reform has received greater attention in Western, Central and Eastern Europe
than any other topic on the economic reform agenda even though the process in
individual countries is uneven. According to them a comprehensive PanEuropean pension reform (in the 15 European Union (EU) countries, the 10
European Union Accession Countries) is motivated by three main factors viz
high budgetary or expenditure pressure and the tendency of an aging population;
socio-economic changes, which render current provision inadequate ; and
European economic integration and common currency, which tend to prompt
higher levels of internal and external migration that current retirement
provisions could hardly support (Norman, 1986:2).
The conference organized by world Bank and International Institute of Applied
System Analysis in 2001 also found that the reform changes in both the EU and
EUA Countries had been characterized by claims over the inability to finance
prior commitments, and the need to make pension systems more sustainable in
terms of a move towards a greater role for privately managed, funded systems,
and the conversion of the Pay-As-You-Go (PAYG) Systems into defined,
contributory systems, which are perceived to be more self-sustaining and
transparent (Richard, 1989:8).
89
Conga (2001:34) states that as was the case in Europe, pension reform in
Nigeria was also rationalized by arguments over the inability of financing prior
commitments. It was also based on the need to make pension systems more
sustainable and a move towards greater role for privately managed funded
systems and the conversion of the Pay-as-you-go systems into defined
contributory systems.
Rush (2000:6) is worried that life expectancy, the main driver of pension cost,
has been increasing for many decades. Despite this, he insists that the right to
pensions and subsequent improvements in the level of pension provision has
been won in almost all the countries. According to him, it is only recently, as
part of what has been termed Neo liberation or globalization, that the argument
has changed and it is now claimed that pensions are no longer affordable and
that companies will only be competitive if regulation on pension provision is
less onerous.
2.3.9 Key Patterns of Pension Reforms
Dressler (2000:34) maintains that two reform styles have emerged in both EU
and EUA countries. These are the “Parametric” and “Paradigmatic” styles.
Magginson (1985:8) describes a parametric reform is an attempt to rationalize
the pension system by seeking more revenues and reducing expenditure while
expanding private pension provision. A PAYG pillar is downsized by raising
the retirement age, reducing pension indexation, and curtailing sector privilege
and a development of voluntary pension fund beyond the mandatory social
security system is promoted through tax advantages, organizational assistance,
tripartite agreements, and other means of administrative and public information
90
facilitation. These among other things are happening in Austria, the Czech
Republic, France, Germany, Greece and Slovenia (Schuler, 1988:16)
There is also the paradigmatic reform which is often called a “three-pillar
reform”. Dressler (2000:14) also defines a paradigmatic pension reform as an
attempt to move away from the monopoly of a PAYG pillar with the mandatory
social security system. According to him, a paradigmatic reform is a deep
change in the fundamentals of pension provision typically caused by the
introduction of a mandatory funded pension pillar, along with a seriously
reformed PAYG pillar and the expansion of opportunities for voluntary
retirement savings. Schuler (1988:11) discloses that apart from other measures,
this is what Bulgaria, Croatia, Denmark, Hungary, Latvia, Poland, the
Netherlands and the United Kingdom decided to do.
Harrison (2000:15) lists some of the attraction of a paradigmatic reform to
include the possibility of increasing a nation’s savings and investment,
acceleration of the development of a nation’s capital market institutions and
therefore overall economic growth rate, which a funded pension system could
afford. He states further that these advantages are perhaps the reasons for the
predominance of paradigmatic reforms in other countries than in the EU
countries.
Haladu (2003:22) reveals that the Paradigmatic pattern of reform predominantly
characterized Nigeria’s pension reform. Even though the changes reflect an
amalgam of elements of parametric and paradigmatic changes. The fundamental
changes include the following:
· The introduction of a mandatory defined contributory system.
91
· Abolition of payment of gratuity and payment of pension for life
· Delay in accessing contributions.
· An opportunity for early retirement, and
· Significant downsizing of the PAYG system by limiting it to judicial
officers and those who have three years or less to retirement from the
introduction of the law.
Ibekwe (2002:78) remarks that the opportunity for early retirement in Nigeria as
opposed to late retirement in Europe may have been informed by shorter lifespan and relatively higher fertility rate in Nigeria as opposed to the tendency for
low fertility rate and aging populations in Europe .Howard (2003:27) frowns at
a situation where the Nigerian pension reform does not provide tax advantages
for additional voluntary pension contribution as indicated by the elements of
parametric reform.. Instead, the pension reform Act subject’s voluntary
contributions above the statutory rates to taxation at the point of withdrawal of
such funds.
Benson (2006:21) reveals that another element of parametric reform missing in
the Nigerian pension reform is transparent or democratic administration of
pensions through tripartite agreements. According to him, there is only marginal
representation of trade union organizations in the management and transitional
structures.
2.3.10 The Political Economy of Pension Reform
In his study of four countries in Latin America and Eastern Europe, namely
Argentina, Bolivia, Hungary and Poland, (Muller 1975:9) identified five key
variables that could trigger reforms. These are dynamic political leadership, the
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role of international financial institutions, pension system crisis, intelligent
reform strategy design and the respective power or powerlessness of reform
advocates and opponents of all the five variables. Muller finds the role of
political leadership to be critical in the four case studies. In particular, he finds
that paradigmatic reform is often triggered by new actors being involved in the
debate process. In addition, while severe financial crisis may strengthen the
position of the finance ministry, high foreign debt may enhance the arguments
of international financial institutions pushing for reforms, she also reports that
the movement relationship could also facilitate or hinder reforms.
Alagba (2003:23) maintains that some of the factors identified by Muller were
very relevant in analyzing the pension reform process in Nigeria. For example,
many of the economic reforms, including pension reform, could not be carried
out under military dictatorship as the military rule does not give room to
divergent views, they could therefore only be realized under a civilian political
regime. In other words, it appears that an active combination of both actors and
type of political system tend to influence the feasibility of changes in social
policy.
As was the case in the countries studied by Muller, Baloko (2006:33) reasons
that the pension and general debt crises also played important roles in the
pension reform process in Nigeria. He said that the unpaid pension liability in
the public sector alone has been estimated at Nigeria Naira 2 trillion (US 15.4
billion) while government foreign debt (before the $15.4 debt relief by Paris
Club) strengthened the arguments of government and the pressures of the
international financial institutions for the reform process.
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Bodman (2006:1) admits that unlike Europe, the relative powerlessness of the
trade union movement in Nigeria was also clearly demonstrated in the process
of developing legislative changes. Although all of the three central labour
organization (The Nigeria Labour Congress (NLC), The Trade Union Congress
(TUC) and the conference of Free Trade Union (CFTU) and the military were
opposed to the fundamentals of the pension reform, radical changes were made
in the new legislation on pension without reflecting their views. Similarly, the
organized private sector resisted lumping together of pension schemes in both
the public and private sectors. But the new law disregarded private sector’s
inputs in this regard, in spite of existing constitutional provisions, which support
their position.
However, Culam (2006:8) finds out that in spite of the inability of the unions to
prevent the enactment of the Pension Reform Act, 2004, they seem to have
prevented its full implementation. The private sector employers organized under
the National Employers Consultative Association (NECA) have been forced to
retreat by continuing the payment of gratuity. The Association had planned to
begin the implementation of the Pension Reform Act by issuing its ‘Guidelines
for migration into a new Dispensation of one Terminal Benefit Scheme’.
The Association considered having to pay both pension and a terminal gratuity
as burdensome; it preferred to change to a ‘Monolithic Scheme. However, as a
result of the spontaneous agitations of the Trade Unions Congress (TUC) and
other unions such as the Food Beverage and Tobacco Senior Staff Association
(FOBTOB), the NECA, through its Director General, Olusegun Ogunowo, was
compelled to temporarily surrender. He said,” the attention is not to scrap
gratuity now. We are simply setting in motion the planned reformation of
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terminal benefits in which we would be talking of only one terminal benefit,
pension. Gratuity will be subsumed under a new pension dispensation, (The
Nation, December 4, 2006:15).
On a different related aspect, Wanderg, (1999:19) argues that contrary to
previous political economy literature which portrayed democratic structures and
processes as obstacles to changes, pension policy changes had never been very
democratic. Rather, it had been monopolized and manipulated by small policy
networks, which operated in backrooms and excluded those lacking sufficient
technical expertise. The trend of un-democratic process changed in the 1990s
when greater conflicts among opposing interest groups with different pension
perspectives, ideas and policies developed. The findings and perspectives by
Wanderg are confirmed in the recent Nigerian experience.
With the termination of military rule in May 1999, and the introduction of
representative system of governance, it is assumed that the process of lawmaking or changes in policy- making should reflect democratic norms. The
work of Chlou-Dominczak and Nora (2003:13) suggest that the identity of the
foreign pension reform agenda setter – whether the World Bank, the United
States Agency for International Development (USAID), or the International
Labour Organization (ILO) – does not matter. Instead, domestic actors take a
lead on the reform process – depending on the depth of the pre-existing pension
system crisis.
Chlou-Dominczak and Nora (2003:18) also finds that there is no strong
relationship between institutional arrangements and implementation of pension
reforms, noting that reforms have occurred equally in authoritarian and
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democratic countries. Rather, they argue that the influence of neoliberal ideas is
more decisive as a causative factor to trigger pension reform.
The findings of Chlou-Dominizak and Nora (2003:19) regarding the influence
of neoliberal ideas are relevant in explaining the evolution and development of
pension system in Nigeria. The pension Reform Act, 2004 appears to be a
neoliberal piece of legislation. The Group Managing Director and Chief
Executive officer of the United Bank for Africa (an amalgam of the UBA and
STB), for example, described the reforms, including the pension reforms, as a
‘silent’, ‘quiet’, ‘steady’, ‘irreversible’ or ‘permanent revolution’ aimed at
‘creating a conducive investment climate’ (ThisDay Newspaper, Nov 15,
2005:8). However, what is considered a ‘revolution’ from the stand point of
beneficiaries of the policy has been described by a section of the Nigeria labour
movement as ‘counter revolutionary’ (Momoh, 2005:10).
Brown (2003: 157:29) and Orensterin (2003: 171:13) examine the relationship
between international demonstration effects and domestic policy choice. The
insights they provide help in an understanding of the impacts of global politics
on reforms in developing countries, not only on pension reforms but also on the
broader social policy models they adopt. Doyle (2003:16) argues that the choice
of social policy model in transition countries is influenced by geographical
proximity to the EU countries. His work shows that countries with a greater
chance of EU accession adopted social policy models that were more in tune
with those of EU member states.
Orenstein (2003:8) also analyses the global spread of paradigmatic pension
reform. Drawing on the literature concerning diffusion of innovation, he posits
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that pension reforms should not be seen simply as a result of domestic political
process but also as a product of global pattern of ideational innovation and
diffusion. Countries tend to follow the model of innovative leaders in their
regions. Hence, the larger, richer and more industrial countries tend to innovate
first and smaller and poorer countries tend to lag behind. Orenstein (2003:12)
also shows that international organizations have played a major role,
particularly in cross regional diffusion of ideals and models.
Orenstein (2003:22) further explains that the international labour organization
gave a major boost to pension system creation in the years after the Second
World War while the World Bank has played a leading role in diffusing
paradigmatic reform in recent years. He also points out certain key differences
between the creation of pensions and the diffusion of their reforms. The reforms
in Chile were part of a neoliberal experiment introduced after the overthrow of
the democratically elected leftist president of Allende in 1973.
Widespread privatizations including pension provision, was introduced by the
military junta led by General Pinochet (Harrey 2005:11). The insights offered in
the works of Boeri (2003:16) and Orenstein (2003:25) are confirmed by the
Nigerian experience. The trade unions have had to constantly rely on the
provisions of the conventions and recommendations adopted by the
International Labour Organization in their strivings to maintain its universal
minimum standards. Also, the tendency of the Nigeria judiciary is to hold that
where there is variation between international law and domestic law, the
international law or treaty prevails.
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2.4 PENSION REFORM AND SOCIAL SECURITY
The question of how to use social policies to link successful economic
development with effective poverty reduction is at the core of contemporary
political debate. One feature of this debate is the focus on policy learning and
policy transfer in the context of comparative country studies. An important
starting point is that policy learning is most appropriate for countries that share
certain regime characteristics or at least, display similar levels of economic
development. It is therefore problematic to compare developing countries with
more advanced transition countries, and drawing lessons across the divide might
be either difficult or simply inappropriate (Barr and Diamond, 2009: 11).
Nevertheless (Casey and Dostal, 2008) maintain that analysts are drawn to focus
on countries that appear to have managed leaps between developmental stages.
This attention is not always well-founded: prominent models such as the 1981
Chilean pension reform - i.e. the replacement of an earlier Pay-As-You-Go
(PAYG) and public pension system with a new compulsory system of
individual, funded and privately managed pension accounts based on defined
contribution (DC) principles - have been credited with linking old age social
security with the facilitation of macroeconomic growth. In particular, World
Bank experts suggested that the Chilean case proved that a shift of pension
provisions from the public to the private sector and from PAYG to Direct
Contribution would maintain social protection while increasing economic
growth via the deepening of financial markets (World Bank, 1994:17).
However, the World Bank's earlier advocacy of private pensions has by now
lost its appeal for a number of reasons. First, the Chilean case proved to be
much less successful than was originally assumed.
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The work of Illanes and Riesco, (2007:12) sheds more light on the Chilean
Pension Reform. Their findings suggest that: “Although the Chilean system
succeeded in making a large share of workers subscribe to individual funded
pension accounts, the level and length of contributions and subsequent expected
pension payments remained on average quite low. In fact, the system delivered
poverty pensions rather than old age security to most contributors.” They also
maintained that in reaction to the coverage gaps of the funded system, the last
Chilean government once again had to strengthen the public and tax-financed
basic social pension system in order to provide additional income for current
and future pensioners with low funded pensions. Claims about the contribution
of Chilean pension funds to macroeconomic growth have also become more
modest over time. Commentators including Davis (1995:3), Barr and Diamond
(2008:6) Iglesians (2009:9) have emphasized the limited significance of pension
funds as institutions as opposed to the quality of the regulatory environment to
explain macroeconomic success or failure. Hence Illanes and Riesco conclude
that the Chilean pension system is not really a privately administrated,
individual account based, fixed contribution system, but a mixed, public -private
system instead. A major part of the workforce depends today and will rely in the
future on the non-contributory state financed, public pension pillar of the system
for the major part of their pensions (Illanes and Riesco 2007:33.)
In summary, analysis of the funded pension system has suffered from treating it
in isolation from the economic and social systems. The presumed fairness of a
funded pension system - directly linking contributions with benefits ignores
insurance and redistributive goals that tend to re-emerge on the policy-making
agenda once the extreme inequalities of' fairness become salient.
99
It is in the broader context of debates on policy learning that this thesis now
turns towards the country case of the 2004 Nigerian pension reform. 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. By contrast, the recent
changes to the Chilean model have so far not featured prominently in the
Nigerian debate.
2.4.1 The Nigerian Case of Pension Reform
As in other countries of Sub-saharan Africa, Nigeria’s pension Issues have a
fairly limited relevance for the country's social protection system. The
demographic profile of the population is biased towards young people and older
people mostly rely on informal provisions for survival in old age. Henshaw
(2006:40) asserts that formal social security, including pension provision is
limited to the formal sector of employment such as civil servants at each of the
three levels of the Nigerian federation (federal, state and local) the military and
employees of public enterprises (parastatals) In spite of low coverage rates in
relation to the overall size of the Nigerian workforce, many pension systems
existed in parallel before the 2004 reform. There were special schemes for
public servants of the Nigerian federation, the police, security services and the
military. In addition, each of the 36 federal states plus the capital territory had
their own pension schemes for their respective public servants as did each of the
774 local government authorities. These public sector pension schemes were
non-contributory and unfunded (Casey and Dostal 2008:36).
Alabadan, S. (2009:22) reports that the formal private sector was pre-2004
reform covered by a PAYG pension scheme administered by the Nigerian
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Social Insurance and Trust Fund (NSITF). He also notes that the scope and
coverage of the latter were more limited than in the public sector. Only some
larger enterprises offered access to the scheme and since its foundation in 1994,
the Fund's accumulated capital as well as pension payouts were low while
administrative costs were high (ILO 2006:4). In summary, the resulting pattern
of pension provisions was highly fragmented and the available data suggests
that only 10 per cent of the Nigerian work force (app. 4.8 million out of app. 48
million) belonged to the formal employment sector out of which app. 3.7
million also belonged to a pension scheme (Casey and Dostal 2008:77).
The 2004 pension reform has not significantly expanded the scope of pension
provisions in comparison to the pre-reform period. Although data on pensions
under the variety of old systems and the new system is difficult to compare, the
reform might have worked to limit coverage further. The Pension Commission
(2009) reports that it took the emerging system of retirement savings accounts
until the first quarter of 2009 to reach 3.5 million registrations which was still
below the pre-reform level. This slow growth of coverage was partly due to the
slowness with which legislatures at the state and local government level
emulated the federal legislation for pension reform at their level of authority.
Another significant factor was the reluctance of private sector employers to join
the new scheme and general doubt about the credibility of the new system.
Akintunde (2008:44) believes that the shortcomings of the pre-2004 Nigerian
pension systems such as the existence of large-scale unfunded entitlements
under the DB pension scheme for civil servants matched by large-scale arrears
of pension payments in all sectors of the system were one reason for the reform
undertaken. He went further to suggest that the more prominent line of
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reasoning stressed that pension reform should allow Nigeria to follow the
Chilean model of providing long-term capital to develop financial markets and
improve economic growth. This reasoning is clear from a number of high
profile reports issued by subsequent Nigerian governments. The first
mentioning of the 2004 pension reform project can be found as early as 1997 in
the Vision 2010 document of the then military government. It stated that 'by the
year 2010 most Nigerians shall have access to some form of social protection
offered by the formal Social Security Program' (Pension Subcommittee
1997:11).
However, the international financial institutions such as the IMF and the World
Bank did not offer any significant support for the country's pension reform. The
Fund engaged in two technical assistance missions to estimate pension arrears
of the pre-reform pension system in the context of a 'Policy Support Instrument'
but offered no direct financial assistance. The Bank originally offered Nigeria a
technical assistance programme to improve economic reform and governance in
general which included funding for a pension reform component. However, the
funding was not paid out but subsequently shifted to address Nigerian aviation
safety (World Bank 2009).
The IMF (2005) states that there are three main explanatory factors for the
decision to enact the 2004 pension reform:
i.
The existing unfunded pension promises under the pre-reform DB system
for civil servants resulted in quickly growing pension entitlements that
the government was unable or unwilling to fund
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ii.
The example of Chile suggested that pension reform might 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 Nigerian federal state budget on a fiscally sustainable footing
Jorg (2010:28) shares a different opinion. He says that “as far as the first
objective of pension financing is concerned, the reform made civil servants and
public sector employees contribute to the system for the first time withholding
7.5 per cent of salary (an amount matched by 7.5 per cent of employer
contributions) while the contributions of private sector workers, which were
previously collected by the NSITF were raised from 3.5 per cent to 7.5 per cent.
The contribution rate of private sector employers was increased in parallel from
6 per cent to 7.5 percent. Members of the armed forces were exempted from this
funding formula as they must contribute only 2.5 per cent while 12.5 per cent is
contributed on their behalf by the government. The management and investment
of contributions is conducted by Pension Fund Administrators (PFAs) while the
money is being held on trust by Pension Fund Custodians (PFCs), both in
accordance with the Chilean model. The system is regulated by the Nigerian
Pension Commission (PenCom) which mirrors the Chilean regulatory body - the
Superintendency - and is responsible for approving PFAs and PFCs and for
setting rules governing investment portfolios.
Casey and Dostal (2008:50) maintain that under the new system, the
replacement rate of future pension benefits in relation to wages is uncertain.
While simulation exercises by IMF (2005:42) suggest that the replacement rate
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will be in the order of 40 per cent of final wage or salary in the case of a 30-year
contribution record. This the IMF says is much lower than under the former
public and private sector schemes that, admittedly, often went unpaid. In
addition, the authorities at all levels of the Nigerian state have failed to deal
with existing pension arrears deriving from the earlier pension systems that are
held to have reached new record highs in 2009 (Nzeshi 2009:18).
2.4.2 Funded Pensions in the context of the Nigerian Political Economy
In the Nigerian context, Stewart (2009:28) suggestion that compulsory
individual funded pensions might affect national savings levels and economic
growth must be read against conventional wisdom. According to him, this is
necessary in at least two respects, first, increased savings rates might not be
desirable in a very poor country. In the context of lack of basic social security in
the present, any forced saving for the future might not be rational or desirable
both at the level of individuals and society at large. He states further that 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.
The academic literature does not offer support for funded pensions in the
content of developing countries with a GDP as low as that of Nigeria. Davis
(1995:29) and (Barr and Diamond 2008:22) suggest that there exists a very
close link between GDP per capita and the development of financial markets.
Davis (1995:32) also held that it would be impossible to skip stages in the buildup of regulatory capabilities and financial market development must be
advanced enough to allow for funded pensions to contribute to the system.
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Some authors like Davis and Hu (2006:14) have also pointed to the potential of
contractual savings, such as funded pensions, to be more beneficial in the
context of developing rather than developed countries. However, the literature
uses the term "developing countries' for countries that are more advanced than
Nigeria and the sample is too limited to allow for any generalization (Catalan et
al. 2000:62). Thus, if regulation is poor and promising investment opportunities
are limited, enforced long-term saving might fail to develop financial markets.
Holzmann and Hinz (2005:66) offer a summary on the Nigerian pension reform
context, they assert that one can expect a mismatch between the accumulation of
pension savings and the failure to find appropriate investment outlets that would
produce real returns to pension savers. This may not be too far from the truth
when looking at current trends in the Nigerian economy.
2.4.3 The Debate on Social Pensions and the Nigerian case
Toye and Toye (2005:44) and Standing (2008) found that over the last ten years,
agendas of basic social security have increasingly influenced international
organizations and global debates on economic development. Advocacy for basic
social security - with social pensions as one potential policy instrument - has
originated from the ILO and later influenced the IMF, OECD, World Bank and
EBRD. The debate has focused on aspects such as normative issues, the
building of state capabilities and empirical modeling of expected costs in
different developing countries
Crucially, although earlier IMF and World Bank visions of avoiding direct state
agency in the sphere of production is maintained, the new agenda no longer
advocates a weakening of state agency. Rather, it serves to encourage
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developing countries to provide social services and infrastructure in order to
create the right environment for entrepreneurial activity to flourish.
Hendricks (2008:20) suggests that the most obvious candidate country to serve
as a model would be South Africa since social pensions together with other
basic social security measure, have been made available to most of the country's
pensioners. However, South Africa is a poor model in the current context since
the country's extremely high Gini index of 57.8 according to 2007 IMF data, as
compared to Nigeria's 43.7, makes it one of the most unequal societies in the
world. Hendricks goes ahead to say that during the last stages of the Apartheid
regime, the country shifted its former PAYG public sector pension scheme to
full funding, thereby triggering high transition costs and an explosion of state
debt in which most of the pension savings are invested. Yet the absence of a
model has not stopped the discourse on basic social protection to address a large
variety of potential applications and country cases. Relevant issues concern the
percentage of people over the age of 65 covered by social pensions, the relative
contribution of social pensions to household income levels as opposed to other
sources of income, and the size of the social pension in relation to average
earnings. In this context, a number of developing and transition countries can be
identified in which social pensions contribute significantly to the income of
older people. Palacios and Sluchynsky (2006:10) recognize South Africa,
Mauritius, Namibia, Botswana, Brazil and Bolivia countries in which pensions
contribute immensely to old people’s income. However all exhibit levels of
development as measured in GDP per capita (PPP) at least twice as high as in
the case of Nigeria. (IMF, 2005:5)
This casts some doubt on the potential of a social pension policy in the Nigerian
case and leads back to questions of affordability and policy design. First,
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judgment on laudability depends on assumptions about the level of benefits
granted such as universalism of entitlement versus targeting, and whether or not
social pensions should be 'packaged' with additional social policies. (lLO
2008:18) assumes that social pensions should be part of a package of basic
social security together with child benefits, disability pensions and basic health
care. ILO also assumes that developing countries would be assisted in their
financing of provisions by OECD donor countries willing to redirect and
increase their spending on aid. Nevertheless, initial country conditions and
administrative capabilities will determine the potential of social pensions to
contribute to social security. For example, Colonies-Ross and Huq (2009:2)
pose the question of how much the richest fifth of the population would have
to contribute as a proportion of their disposable income to move all members of
society above a one or two dollar income threshold. Their results suggest that
costs would be exceptionally high in Nigeria when compared to all other
countries under review and would demand the virtual appropriation of all
disposable income of the richest fifth to meet the two dollar threshold. Behrendt
and Hagemejer (2009:13) suggest that attempts to limit expenditure by targeting
social pensions in a non-universalist manner would result in very high
administrative costs in comparison to overall spending levels. Thus, the issue of
funding remains paramount in deciding about the viability or otherwise of
introducing social pensions.
In the Nigerian case, it might also be appropriate to ask about the role of
sequencing in the expansion of social policies. The Vision 2010 document
published in 1997, suggests that Nigeria should be able to provide some form of
formal social security to the majority of its citizens by 2010. It is obvious that
107
this target has been missed and more importantly there has not even been any
move in the right direction.
Social pensions might act as the only available policy instrument to increase
formal social security in the short and medium term. Johnson and Williamson
(2006:30) note that social pensions may be credited with effects such as
improving women's health, supporting the rural poor, heightening the status of
older people in the family and increasing school enrolment.
However, social pensions also have some disadvantages. In the Nigerian case,
as noted by the National Planning Commission (2009:20) social pensions would
be reliant upon the same revenue base. (oil rents distributed by the Nigerian
federation amongst the 36 states according to a funding formula It would
merely involve an alternate way of distributing government revenue, channeling
it away from elites to broader sections of the population.
Social pensions would also have some advantages not available through other
policy choices. Johnson and Williamson (2006:17) assert that distributing some
of the revenue of the country's oil wealth in an equal manner between richer and
poorer federal states would help the federal government gain more legitimacy.
In all likelihood, social pensions could constitute the next step in the country's
evolution while becoming the only African country with a system of funded
private pensions means Nigeria is entering uncharted territory.
2.4.4 Review of the First Five Years of Pension Reform in Nigeria
The review of the outcome of pension reform within Nigeria covers two main
issues. On the one hand, the government and the Pension Commission
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(PenCom) have abandoned their earlier use of the Chilean model. (Alabadan,
2009:6) On the other hand, observers like Henshaw (2006:70) have started to
re-focus debate on how the assembled savings might be used for productive
investment. However, both debates have so far tallied to produce new insights
to enable future action. According to Globalaging (2009:42), Government is of
the opinion that "Nigeria needs to consider a non-contributory pension scheme
(social pension) currently being operated aside the new scheme for the purpose
of addressing the problems facing it' However, the conference did not focus on
the issue and the parallel expansion of social pensions in Chile was not
discussed. Instead, nearly all presentations concerned attempts to find
'alternative' future investment opportunities, such as general comments about
public-private partnerships which appeared to lack relevance.
In Nigeria Pension Fund Administrators (PFAS) are at the core of the funded
pension system, and as noted by Jorg (2010:11) their ability to manage
contributions over time in a manner that produces real returns to savers after
deduction of inflation and management fees determines future pensioners'
prospects is very important.
IMF (2006:4) reports that in the Nigerian
regulatory system, PenCom issues guidelines on the maximum share of
investment that PFAs are allowed to take out in different asset classes i.e.
government bonds, Money market instruments issued by domestic banks and
selected domestic equities - and the Pension Fund Custodian (PFC) holds
savings on trust to separate asset holdings from the PFAs investment function.
For their services, PenCom and PFC both receive a small share of the
management fee that used to amount overall to 3 per cent and was cut to 2.25
per cent in the second quarter of 2009. (Jorg, 2010:8). Jorg also notes that
currently, 1.6 per cent of the management fee goes to the PF A, 0.4 per cent
109
goes to the PFC and 0.25 per cent goes to PenCom. Judging from the
proliferation of PFAs since the start of the reform, management of Nigerian
pension investments appears to be a good business proposition, at least as far as
the PFAs themselves are concerned. Casey and Dostal (2009:12) conducted a
survey on 23 October 2007 and on 13 September 2009, the number of PFAs had
proliferated from 13 to 26 in that time interval. It is likely that the number of
competing PFAs in the small Nigerian market with less than four million
subscribers is in relative terms the highest in the world.
In spite of the proliferation of PFAs, their competence must be questioned; they
appear to fail their customers in terms of not providing clear information about
their investment strategy. Jorg (2010:31). Casey and Dostal (2009:29) also
conducted a survey of PFA websites which showed that many had not been
updated for at least two years. Moreover, virtually all companies were in breach
of PenCom guidelines to publish the rate of return of their RSA funds at the end
of each financial year and to make unit prices of their RSA funds 'readily
accessible on their websites' (PenCom, 2009:14)
Carsey and Dostal’s (2009:16) report says that: ‘Only 14 PFAs (out of 26) did
provide any recent information about the value of their respective RSA units on
their website. Amongst the 14 PFAs, seven offered only out-of-date or even
undated unit prices that lacked informational value. Amongst the remaining
seven PFAs that provided some recent data on the value of their RSA units, only
three provided sufficient data to calculate approximate rates of return and only a
single PFA provided full coverage of the value of the company's RSA unit since
its inception which allowed calculating the actual rate of return. The silence on
rates of return appears to be no coincidence, and covers up negative returns
110
once inflation and management charges are factored in. Taking the single case
in which a PFA company provided sufficient information, the real rate of return
after inflation and charges between 2 May 2006 and 2 September 2009 was
negative. This is significant since the company in question has been an
acknowledged industry leader.
However, as noted by International Social Security Association (2009:12) the
biggest losses of pension and social security funds on a global scale have been
sustained in OECD countries with the most developed financial markets rather
than in developing countries.
Nevertheless, one must also account for domestic features of the Nigerian crisis
as the country was once again unable to translate an unexpected hike in oil
prices into convincing economic results. Akintunde (2008) asserts that under the
pre-2007 government, oil revenue was shifted away from the federal state
budget toward an Excess Crude Account with unclear constitutional status and
hazy lines of accountability. This new source of funding worked to strengthen
the position of the President as did the creation and subsequent high profile of
the Economic and Financial Crimes Commission (EFCC), which is closely
linked with the President's office. (Akintunde, 2008:37)
As far as the funded pension system is concerned, the lack of regulatory control
of the financial markets might damage the interests of savers in a number of
ways. According to Alabadan (2009:72) as at 2009 the overall figure of savings
accumulated in contributions from workers and employers since 2006 amounted
to 472 billion Naira. This sum is principally invested in government securities,
money market instruments of private banks and to a lower extent, equities.
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2.5 PENSION REFORM IN NIGERIA
Across the globe, the wind of reforms in the pension system has blown in
virtually every continent. Howard (2003:21) discloses that countries around the
world are reforming their pension system to meet demographic challenges and
to reflect changes in labour markets and industrial, economic and social
structures. According to him, a good number of countries around the world have
introduced individual accounts as a substitute for all or part of their public
PAYG pension schemes
Whiteh (2005:15) states that the spread of these schemes through Latin America
from the mid 1990’s and through Eastern Europe in the years since then has
been quite dramatic. Many more countries are at various stages of the reform
process including Lebanon and Ukraine. Countries that have introduced various
forms of reforms include Bolivia, Chile, El Salvador, Mexico, Argentina, Costa
Rica, Uruguay, Croatia, Latvia, Poland, Hungary, Bulgaria, Sweden, Lithuania,
Colombia, Australia and Slovak Republic (Whitehouse 2005:15).
Nigeria introduced its Pension Reform Act in 2004. Both the United States and
Britain are in the throes of introducing similar reforms to their Social Security
Systems. In Britain, the Department for work and pensions is leading a National
Debate on the future of pensions in the country. To this end, a National Pension
Day took place on Saturday, March 18, 2006 (Pension Service February 2006).
Also, the Pension Commission set up by the British Government submitted its
second report in November 2005.
Kotler (2002:12) stresses that these reforms were necessitated mainly by
changing demographics and funding problems in the government run pension
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system. The previously existing schemes used the tax payments of current
workers to fund the pension benefits of retired persons and their dependants.
However, these systems have increasingly proved unsustainable. Thus, the
arguments have shifted from whether or not there should be reforms to the kind
of reforms that should be made. The apparent choice has been privately
managed individual capitalization account built up over the years. Upon
retirement, funds accumulated in such accounts form the mainstay of retirement
benefits for workers.
According to Mahmad (2000:12) the Nigeria pension reform is overtly
patterned after the Chilean system. It has shown considerable deference to local
conditions, particularly with the joint contributions made by both employer and
employee into the retirement savings account opened by the employee with the
PFA of his choice. In Chile contributions are made solely by the employee.
However, the success or otherwise of the system will depend largely on the
implementation of the scheme under the oversight of the National Pension
Commission. The Act which gave birth to this scheme will be analyzed in the
subsequent chapters to bring into effect salient provisions of the Act.
Williams (2004:14) in his work on pension reforms reports that to determine the
direction of changes in Pension reform, it is apposite to trace the development
of pension system in Nigeria, particularly from the 1970s. According to him, in
the public sector, including civil and public services, statutory bodies and
government owned companies, pension were governed by the pensions Act of
1979, later the pensions Act of 1990 as amended by the pension Regulations of
1991. The Act provided for benefits in terms of gratuity and pension payments.
Gratuity is a single, lump sum payment while pension is a periodic payment,
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normally on monthly basis for life. The scheme was a compulsory and noncontributory one, which created a right to monetary collection by public
servants and an obligation on the part of government to make payment. Before
April 1974, gratuity and pension for public servants were not treated as rights
but as privileges. The applicable law provides that no officer shall have an
absolute right to pension or gratuity.
Ibekwe, (2001:45) explains that after 1974, pension and gratuity became rights
to which a qualifying public servant was entitled to claim from the government.
The general pension scheme for civil servants was then financed from
government general revenue on a ‘Pay-As-You Go’ basis and not from a special
fund established for the purpose. Under the pension Act of 1979, both gratuity
and pension were salary rated and were financed wholly by the government
without contribution by the workers. In contrast, government parastatals tended
to operate separate funded schemes which required setting aside on annual
basis, a percentage of the total basic salaries of their staff in a special fund under
the management of a board of trustees.
The National provident fund act provided for private sector pension schemes.
Ibikunle (2003:22 ) reports that originally, the National Provident Fund (NPF), a
contributory scheme, which was established in 1961, also covered public
servants .He states that it was wound up for public servants after it had lost
N17bn in corruption. Haladu (2003:6) discloses that unlike the public sector,
most in-house pension schemes in the Nigerian private sector were funded by
both the employers and employees. The employees contributed a percentage of
their monthly salaries, subject to a maximum while the employers also
contributed a percentage of employee’s salary to the scheme. Considering the
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small benefits resulting from the statutory scheme, individual companies tended
to operate their own company administered contributory gratuity schemes to
supplement the statutory retirement gratuity scheme.
Aluko (2004:12) emphasizes that one of the
major advantages of the public
sector over the private sector was that the public sector employees enjoyed
greater security of tenure with a guaranteed entitlement to both a pension and
gratuity. He states that in contrast to the public sector, private sector employers
tend to have the right to hire and fire at will, with or without providing any
explicit reasons. The nature of the recent Nigerian pension reform and why it is
perceived to be a retrogressive piece of legislation by, for example, the
Academic Staff Union of Universities (ASUU) is provided by the ‘Blue print on
the contributory pension scheme’ this document is a summary of proceedings of
the National workshop on pension Reforms, which was held in Abuja on 11 - 13
September 2001.
However a pension analyst Orifowona (2005:26) declares that from the Federal
Government point of view, the previous pension system had to be reformed
because increasingly, the number of officers on pension payroll may in the next
few years outnumber those in active service. He states that at the moment, the
Federal and State Governments are bearing the cost of pension one hundred
percent under the ‘Pay-As-You Go system. Similarly, the president of the
Federal Republic of Nigeria expressed concern for a situation in which in some
of our sectors, the pension bills are as high as the bills for wages and salaries.
This is neither feasible nor sustainable.
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The pension bill has continued to grow phenomenally and giving the growing
demand from other economic sectors, the government will need to share the
burden. This review shows that though there are certain differences in the
content and speed of reform, there are also similarities between the reform
process in Europe and in developing countries, particularly in the areas of the
rationale for reform, the typology of reform changes and the political economy
of pension reform. The literature has shown that pension reform is a globalized
idea, which is influenced by and consistent with, neo-liberal ideology.
(Okhomina 2005:37)
2.5.1 The Pension Reform Act 2004
Prior to the Pension Reform Act, Pensions were not mandatory in the private
sector. On the other hand, Government workers’ pension was devised under the
pension act (Laws of Federal Republic of Nigeria (2004) Cap, p4. Under that
Act, the pension or gratuity granted to retirees was on the basis of final pay and
the sums were made chargeable to the consolidated Revenue fund of the
Federation (Adegbayi, 2006:11). It is important to note that the Federal public
service operated an unfunded non-contributory defined benefit Pay-As-You Go
Scheme. In a Pay-As-You-Go system, the government taxes active workers to
pay for the benefits of retired workers. Under such systems, retirement benefits
are a function of the rate of growth of the tax base, which in turn depends on the
rate of growth of the labour force and the rate of growth of real wages per
worker (Adetola, 1999:30).
Ojujoh (2004:9) laments that in other words, the retires may or may not receive
their benefits depending on whether or not their employer has sufficient cash
resources to make payments at that time. Thus, a situation exist whereby, even
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though government guarantees gratuity and pension, the pension scheme is not
funded by the setting aside of money from which the commitment could be
serviced. He questions the rational for this situation. Could this be as a result of
poor economy/financial difficulties, inadequate government commitments, and
high rate of corruption or insincerity in the system. Without going into the
dialectic of what factors may have been responsible, Governor Gbenga Daniel
of Ogun state was quoted as saying that “the imminent collapse of PAYG
scheme is real and very unsettling for a nascent democracy (Tribune Newspaper
July 6, 2006 Pg 11).
Bethel (2005:30) reports that the pension liability in the public sector is about
N2 trillion and it is on the increase every passing day. According to him, there
was the likelihood of the pension salary bill outrunning the salary of active
workers in a few years. . One thing stands out: there has been a crisis of non –
payment/delayed payment of pension and gratuity across the public sector, the
main stream civil service, parastatals, military, state governments etc. The sheer
size of the public sector workforce in Nigeria has made it difficult for the
government to pay its workers their salary, let alone adequately meet its pension
commitments. Most institutions in the private sector did not have any pension or
retirement benefits scheme for their employees.
According to Jack (2004:25) some institutions operated schemes similar to the
PAYG, while a few others operated funded contributory schemes. In the latter
case, contributions to a pension, provident or other retirement benefits fund,
society, or scheme are made tax free, with deductions allowed in the
ascertainment of income of an individual. However, such an arrangement must
have been approved by the joint Tax Board (Laws of the Federation of Nigeria,
117
2004 Cap p8) it would then appear that workers in the public sector enjoyed an
advantage over their counterparts in the private sector, to the extent that
pension/retirement benefits were guaranteed to one sector but not to the other.
Under the old pension Act, the retirement age stipulated was 60 years. (Laws of
the Federation of Nigeria 2004 Cap 8) or 35 years of continuous service,
whichever came first. An officer who has put in service up to 10 years but less
than 15 years, shall be entitled to the payment of gratuity only, but no pension
is payable. However, where he has served for not less than 15 years, he shall be
entitled to both gratuity and pension.
Payment of gratuity and pension, whichever is applicable, is computed under
the provision of the Act. In general terms, the foregoing represents the
conditions for the payment of gratuity and pension under the old pensions Act.
However, progressively and quite noticeable in recent years, the government
has struggled with little success to meet its pension obligations. Payment of
retirement benefits has become erratic and irregular. Military Retirees no longer
receive payment of their entitlements when due. The crisis generated by this
development has necessitated the reform undertaken by government which
culminated in the enactment of the Pension Reform Act 2004. (Levine 2005:28)
2.6 A CRITICAL ANALYSIS OF THE PENSION REFORM ACT 2004
In the foregoing section, the Pension Reform Act 2004 which gave birth to the
contributory pension scheme shall be examined in order to highlight some
salient features of the Pension Reform Act.
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In section 1(i) the Act provides that “there shall be established for any
employment in the Federal Republic of Nigeria, a contributory pension
scheme”. According to James (2006:18) it would appear that the provisions of
the Act have general applicability to the entire federation, that is, it has country
wide application at federal, state, and local government levels like the old
pension scheme. According to him, this application raises a constitutional
concern in that Section 4 of the 1999 constitution of the Federal Republic of
Nigeria Spells out the legislative powers of the Federation. The National
Assembly has the power to make laws for the peace, order and good governance
of the Federation or any part thereof, with respect to matters contained in the
Exclusive legislative list set out in part 1 of the second scheduled to the
constitution.
Benson (2006:1) argues that in such matters, the National Assembly makes laws
to the exclusion of the States House of Assembly. In other words, the states
Houses of Assembly cannot competently legislate over such matters. Even in
matters that are in the concurrent legislative list, inconsistencies on laws made
by the National Assembly vis-à-vis those made by any State House of Assembly
are resolved in favor of the former. Such laws made by the latter are invalidated
to the extent of their inconsistency.
Bodham (2006:8) states that it is instructive to note that pension, gratuities and
other like benefits payable out of the consolidated fund or any other public
funds of the federation are placed under paragraph 44 Part 1 of second schedule
to the constitution, that is within the exclusive legislative list. According to him,
the Act provides that the scheme established under it shall apply to all
employees in the public service of the federation, federal capital territory and
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the private sector. In the case of the public sector, to those who are in
employment, but in the case of private sector, to those who are in organizations
in which there are five or more employees (Pension Reform Act 2004).
Arising from the foregoing, Kunle (2006:13) admits that the Act stands valid to
the extent that the contributions of the employer in the case of the public sector
are directly or indirectly chargeable to the consolidated revenue fund. However,
he opines that a strong case can be made against the applicability of the Act to
the private sector. Within this sector, neither the contributions of the employer
nor the employee are chargeable to the consolidated revenue fund, or any public
fund of the federation. Indeed to that extent, the Act could be regarded as
unconstitutional and therefore null and void. Again he asks, does the Act apply
to workers in the states and local governments. This doubt is created by the
limiting effect of section 1 (2) of the act. Once it is considered inapplicable to
workers in the employ of the states government. It would not apply under the
local governments.
This position is reinforced by the provisions of section 7 of the Constitution. It
guarantees the existence of a system of local government, as the third tier of
government within the federal system of government in Nigeria. Furthermore,
each state government is charged with the responsibility of bringing the local
governments into existence by an applicable law (Nigerian Constitution Article
7, 1999).
Bosede (2005:18) queries that if the Pension Reform Act does not apply to the
public service of the states and local governments in Nigeria, what law them is
applicable. He queries further if the states are to promulgate Pension Reform
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Laws, possibly within the tenor of the Act, if they consider its provision
desirable under what auspices, seeing that pension matters are neither within the
concurrent legislative list, nor are they to be regarded as residual matters?.
2.6.1 The Contributory Nature of the Scheme.
The Act was signed into law on June 2004. It became effective on July 2004 for
the public sector and January 1, 2005 for the private sector. Unequivocally, the
Act established “for any employment in the federal Republic of Nigeria, a
contributory pension scheme for payment of retirement benefits of employees to
whom the scheme applies”. By this provision, the hitherto unfunded pension
system has been overthrown or substituted with a contributory scheme.
Apparently, the scheme applies only to those workers who are to be regarded as
employees.
Lomen (2005:23) asserts that the term “employee” is restrictive in nature.
According to him, section 108 of the personal Income Tax Act (laws of
federation of Nigeria, 2004 cap p8 defines employment to include any
appointment or office, whether public or otherwise for which remuneration is
payable and “employee” and “employer” shall be construed accordingly.
Section 91 of the Labor Act 91 Act (1990) Cap 198) defines “employer” as any
person who has entered into a contract of employment to employ any other
person as a worker. Put differently, only those workers with a contract of
employment, with all its formalities, are expected to participate in the
contributory pension scheme.
Beach (2007:15) states that for such category of workers, it is a mandatory
component of employment, and not optional or discretionary, even for the
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employer. According to him failure to comply duly may be visited with
discernible sanction.
However, Harrison (2005:18) reasons that in Nigeria, there exist remarkable
classes of “workers” who are classified as casual workers. In most cases, these
casual workers cannot lay claim to any formal contract of employment.
Nevertheless, they are engaged in various forms of work even for reputed and
well organized organizations and establishments. In a bid to circumvent the
stipulation of section 7, of the Labour Act, establishment that engage those
“casual workers make a show of sacking such workers shortly before they have
been three months on the job and re-engaging them thereafter. Often this
practice goes on, in that circle for many years.
Babalande, (2005:51) argues that the casual class of workers forms a
considerable proportion of the working force in Nigeria. Indeed, this tendency
of casualisation of workers has been recognized as a thorny issue in labor and
industrial matters. From all indication therefore, the casual worker stands
excluded from the avowed benefits of the pension scheme as a form of
insurance in old age for the Nigerian worker. The gap in the law becomes more
pressing considering that there is no credible welfare system, indeed for the
worker during tenure as well as in retirement in Nigeria.
Oredugba (2006:1) posits that it is desirable that the government takes a hard
look and stand over the issue in casualization of labor in the country. According
to him there may be seasons during which a worker might not hold onto a
tenured job or one that has some degree of continuation. However, a situation
where despite qualifications, a worker is permanently casualised” for the greater
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portion of his productive working life, or the entirety of it, leaves so much to be
desired. This trend would put a lie to the avowed objectives of the pension
scheme as stated in section 2 of the Act.
2.6.2 Stipulation of Retirement Age
In section 4 of the Pensions Act, the retiring age was put at sixty years. In the
alternative, the officer would be retired having put in thirty five years of service,
whichever comes first (Pension Act 2009). The pension Act has been repealed
by the new pension Reform Act. The question then becomes what is the
retirement age for the workers in Nigeria? The pension Reform Act is strangely
silent on this. Therefore, without much difficulty, the private sector could devise
its own cut off point for workers in its service, but what about the public
service? Ney (2005:13) explains that the provision of section 8 of the pension
Act has no much basis. It exempts from the scheme, officers who have three
years or less to retire. He asserts that the utmost that can be made from the
provision is that an officer has a maximum of thirty five years he could spend in
service after which he will have to disengage. This can be construed from
section 8(3) which states that such officers shall continue to derive retirement
benefits under existing scheme as provided for in the first schedule to the Act.
Under the first schedule, computation of retirement benefit is based on a
maximum number of thirty five years. In view of this, under the present law,
retirement in Nigeria, particularly in the public sector, is to be determined with
reference to years in service. The age of the employee does not appear to be
relevant.
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Aloma (2005:15) assumes that this position is undesirable and unsatisfactory. A
Branch commissioned officer who entered the military at age forty might as
well continue with that employment until age seventy-five (since he could
remain in service up to thirty-five years) by which time he would have been past
his prime and productive years, and ought to have gone into retirement, drawing
his benefits in old age. The closest to retirement age under the Act is the
provision of section 3(1). “It states that a contributor to the scheme who has
opened the mandatory ‘Retirement Savings Account’ shall not be permitted to
make withdrawals from the account until he has attained the age of fifty, unless
he retires at an earlier time on medical grounds, disability or in accordance with
the terms and conditions of his employment. This stipulation of retirement age,
apparently envisages voluntary retirement”.
This is a situation whereby an officer opts to retire from service of his own
volition, for reasons other than being required to do so by statute on account of
age or number of years in service. To this end, the authentic age of the soldier
would be age he indicated at the time he took up the employment. This is a
precaution against cases whereby an officer at a later stage in service attempts to
offer or mend the record on his age one way or the other
2.6.3 Retirement Savings Account
Under section 11 of the Act, every employee is required to open an account to
be known as Retirement Savings Account in his name with a Pension Fund
Administrator of his choice. This individual account belongs to the employee
and will remain with him through his life. The employee may change employers
or pension fund administrators but the account remains the same. He may only
withdraw from this account at the age of 50 or upon retirement thereafter. This
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withdrawal may take the form of a programmed monthly or quarterly
withdrawal or a purchase of annuity for life through a licensed life insurance
company with monthly or quarterly payments and a lump sum from the balance
standing to the credit of his retirement savings account; provided that the
amount remaining after the lump sum withdrawal shall be sufficient to procure
an annuity or fund programmed withdrawals that will produce an amount not
less than 50% of his monthly remuneration as at date of his retirement.
Adejugbe (2005:34) agrees with the above options and states that there is now
an assurance that a pensioner has sufficient funds available to him for his old
age. Although critics of the scheme have contended that at the end of the
working period, they should be allowed to collect their savings in one lump
sum.(Ney 2005:33,Stein 2005:17).They point to the fact that only few
individuals have the discipline to manage funds effectively over a long period of
time. Therefore the above was considered a better process than to allow the
individual withdraw his accumulated savings at once, spend it all and then have
no income when he is no longer in a position to work as was the case with the
former scheme (Nielsen et al, 2006:21).
Where the employer fails to remit on time (within seven days of payment of the
employee’s salary) he is liable for a penalty of not less than 2% of the total
contribution that remains unpaid for each month or a part of it (Pension Reform
Act, 2004). The penalty is treated as a recoverable debt to the employee’s
Retirement Savings Account. The Retirement Savings Account is mobile and
transferable. Thus, upon transfer by the employee from one employer or
organization to another, the employee shall continue to maintain the same
Retirement Savings Account.
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Ibrahem (2004:15) laments that before now, procedure for merger of service for
the purpose of continuity of service, relevant for computation of retirement
benefit has proven cumbersome. He observes that this was even complicated by
administrative bottlenecks, bureaucracies and tendencies towards corruption and
inefficiencies in the civil service. Thus, it was sometimes a nightmare for a
retiree soldier to wade through the maze of paper work and ‘protocol’ that
attend a merger of service.
Noah, (2005:25) believes that it is even worse when the officer served as
another rank before been commissioned as an officer in the armed forces. This
according to him was one of the reasons for the dismal performance of the Pay
As You Go system.
Holzman (2003:18) describes these problems as insignificant under the present
scheme. He believes that the identified problems and related ones would be
considerably, if not totally obviated in this new scheme. In addition, he suggests
that the flexible nature of the scheme and the RSA should encourage mobility of
labor in Nigeria. A ‘type’ of the Nigeria worker, particularly in the public
sector, is one who stays on a job, until he has to retire. Sometimes the worker is
even reluctant to disengage from the employment to forestall retirement; the
worker makes designs to alter his age as contained in the records of service.
Hopefully, this manner of practice could be discouraged under the present
scheme. Okotoni (2005:4) believes that the New Pension Scheme will eliminate
the incidence of lack of funds inherent in the old scheme.
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2.6.4 Pension Fund Administrators
Pereira (2005:12) explains the rampant mismanagement of funds in the Pay –As
–You –Go system as the main reason for the establishment of the pension fund
administrators. According to him, Section 44 prescribes that from henceforth,
pension funds are to be managed by pension fund administrators (PFA) licensed
by the National Pension Commission (hereinafter called the “commission)”.
This is done by the opening of Retirement Savings Accounts (RSAs) for
employees, each with a distinguishing Personal Identity Number (PIN). The
Pension Fund Administrators will carry out investment and Management of the
pension funds and assets, maintaining of books of accounts relating to the
pension funds, providing of regular information on investment strategy, market
returns and other performance indicators. They are also to provide customer
service support to employees, calculate employees retirements benefits and pay
the appropriate benefits. Pointedly, the employer is empowered to appoint a
Pension Fund Administrators of his choice, apparently among those to be
licensed by the commission, with whom he opens a Retirement Savings
Account.
Nickel (2002:23) avers that one of the highpoints of the contributory pension
scheme is that the employee is at liberty to transfer his Retirement Savings
Account from one Pension Fund Administrators to another, not more than once
in a year without giving any reason for so doing. He states that what the entire
employee needs to do is to supply his employer with particulars of his
Retirement Savings Account, when he opens one with a particular Pension Fund
Administrators or of a change in the Pension Fund Administrators when he has
cause to change him (Pension Reform Act 2004). This is necessary to enable the
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employer to remit appropriately the monthly contributions made by both the
employee and the employer.
Jonah (2006:13) agrees that the role of the Pension Fund Administrators is very
crucial to the state of health and success of the contributory pension scheme.
According to him, the Pension Fund Administrator is the strongest link in the
scheme. This arises from the fact that the management of the pension funds
being the whole essence of the scheme is vested in the Pension Fund
Administrators. The employee has no direct dealings with his Retirement
Savings Account except through the Pension Fund Administrator.
Arising from the foregoing, Layman (2006:35) maintains that the licensing,
operation, management, performance, competence, integrity, continuity and
success or failure of the Pension Fund Administrator is a very vital issue to the
employee. According to him, the Nigerian soldier is being saddled with a
responsibility he is ill prepared for-that of being partly responsible for what
becomes of his retirement benefits ‘sheltered’ in the Retirement Savings
Account. This responsibility arises from the employee being the “appointor” of
his PFA, and also from his liberty to dump one Pension Fund Administrator for
another, purely at his discretion. In other words, the employee must keep a
watchful eye on ‘his” Pension Fund Administrator.
Confirming Layman’s fear, Bright et al (2005:33) argue that the average soldier
is generally unresponsive to happenings around him arising from a low level of
awareness consciousness and preparedness to get involved. The average soldier
suffers from financial inadequacies, inability to meet the needs and demands
placed on him, on account of poor salary and wages among others, considers
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himself as an outsider on matters of finance and investments. As a result, the
government had to advance loans to soldiers under the PSPSL plan before some
could buy shares in companies under the privatization exercise. To require the
average soldier to ‘supervise’ his Pension Fund Administrator will no doubt
prove to be a Herculean task for him. The commission has the prerogative to
license Pension Fund Administrators that would operate under the Pension
Scheme. In coming to a decision, a prospective Pension Fund Administrator is
required to furnish an application to the commission.
To safeguard workers fund, Waterman (1998:12) agrees with the prescribed
conditions for licensing of a Pension Fund Administrators .Among other things,
the applicant must be a duly registered limited liability company and must have
a minimum paid up share capital of N150,000,000 or such sum as may be
prescribed by the commission from time to time (Pension Reform Act, 2004).In
addition, it must have requisite professional capacity and competence to manage
pension funds, give satisfactory undertaking that it would not engage in any
other business than the management of pension funds and meet any other
additional requirement(s) specified by the commission. However, the Act
permits a licensed life insurance company to apply and be issued with a license
to function as a Pension Fund Administrator. The applicant must have met all
other requirements necessary for the issuance of a license as Pension Fund
Administrator. When licensed, the Pension Fund Administrator shall ensure that
the pension funds at all times are managed in accordance with relevant
provisions of the statue and regulations made under it. It should promptly report
to the commission circumstances inimical to the observance of this duty
including unusual occurrences, information of frauds, forgeries and thefts and
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staffs dismissed on the ground of fraud. Failure to make these reports results in
a penalty for the administrator or custodian in violation.
Furthermore, no Pension Fund Administrator shall hold any pension fund assets
nor should such assets be kept with a pension fund custodian (PFC) in which the
Pension Fund Administrator has any business interest, shares or any link
whatsoever. In addition, a Pension Fund Administrator shall establish a Risk
Management Committee and an Investment Strategy Committee that would
assist the Pension Fund Administrator in carrying out its functions.
Yakubu (2005:42) submits that no doubt, the foregoing provisions are far
reaching and well intended, designed as safety valves to the operators of
Pension Fund Administrators under the scheme, hence there are checks and
balances that guarantee the safety of the funds. However, he insists that most of
the licensed Pension Fund Administrators are newly established with no track
records of pension funds management. According to him, Employees would still
have to make choice among them for the purpose of opening personal
Retirement Savings Accounts as directed by statute. At the initial stage, the
choice may appear to be largely as one going down a blind alley. This is
significant considering the fact that once a choice is made, the soldier does not
have the opportunity of a reversal until one year later.
Butler (2004:13) is of the opinion that the periodicity could be increased from
once a year to twice a year. Under the Chilean system, at the outset, the
employee had the liberty to make one transfer from one administradoras de
fondos de pensioners to another every three months, which is not more than 4
times a year.
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However, this has been reduced to twice in a year since 1997 in order to bring
down administrative costs and prevent too frequent rotation of workers among
the administradoras de fondos de pensioners. Yusuf (2004:45) submits that one
appreciates the need for the Pension Fund Administrator to manage pension
assets for a reasonable portion of the year, so that the assets might stand the
chance of yielding appreciable returns. Then once a year may appear too frugal,
the possibility of switching Pension Fund Administrators twice in a year should
better meet the expediencies of the matter. Otherwise, the Pension Fund
Administrator could afford to be slack in a particular year, calculating that no
charge could be made concerning it until one year is passed in any period of
time under reference.
Osakwe (2004:22) notes that the commission must take caution not to have too
few Pension Fund Administrators, considering that a lot of funds are likely to be
generated under the scheme. In his estimate, the scheme is expected to yield
about N600 billion annually given uninterrupted contributions and strict
regulatory checks on operators. Twenty million employees are expected to
contribute an average of N2,500 per month, such that N50 billion would be
realized every month. Already, the possibility has started to generate interest
and excitement in the relevant industries. According to Mrs. Seyi Ifaturoti,
President, Chartered Insurance Institute of Nigeria (CIIN), “the potentials of the
pension reform would boost growth in Insurance Industry. With due premium
given to credibility, employees should be made to have considerable choices to
make among licensed Pension Fund Administrators”. Sunday punch, November
20, 2008: 8).
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Rodriguez
(2001:12) submits that one of the identified problems with the
Chilean experience was the ‘tyranny’ of the few private companies known as
administradoras de fondos de pensioners (AFP) who managed the fully funded
pension system. The administradoras de fondos de pensioners (equivalent of the
Nigerian PFAs) are corporations specially established for the sole purpose of
administering the pension funds for their affiliates (the affiliates are similar to
those who open
Retirement Savings Accounts with particular Pension Fund
Administrators under the Nigerian Pension Reform Act). Over the years, the
Chilean administradoras de fondos de pensioners have shrunk from over twenty
to six, greatly reducing competition. (Rohter, 2006:10)
2.6.5 Pension Fund Custodians
Pension Fund Custodians are responsible for the warehousing of the pension
funds assets. It is envisaged that at no time will the Pension Fund
Administrators hold the pension funds assets. The employer sends the
contributions directly to the Custodian, who notifies the Pension Fund
Administrator of the receipt of the contribution and the Pension Fund
Administrator subsequently credits the retirement savings account of the
employee. The custodian will execute transactions and activities relating to the
administration of pension fund investments upon instruction by the Pension
Fund Administrator. Aborishade et al (2005:32) agree that the establishment of
the Pension Fund Custodians separate from the Pension Fund Administrators
demonstrate Government’s desire for a break from the past in terms of
corruption. In addition to the aforementioned functions, The Pension Fund
Custodians perform the following:
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a. Receive the total contributions remitted by the employer under section 11
of this Act on behalf of the pension fund administrator within 24 hours of
the receipt of contributions from any employer.
b. Notify the pension fund administrator within 24hours of the receipt of
contributions from any employer.
c. Hold pension funds and assets in safe custody on trust for the employee
and beneficiaries of the retirement savings account, on behalf of the
pension fund administrator.
d. Settle transactions and undertake activities relating to the administration
of pension fund investments including the collection of dividends and
related activities.
e. Report to the commission on any matters relating to the assets being held
by it on behalf of any pension fund administrator at such intervals as may
be determined from time to time by the commission.
f. Undertake statistical analysis on the investments and pension funds in its
custody and provide data and information to the pension fund
administrator and commission, and execute in favor of the pension fund
administrator relevant for the purpose of voting in relation to the
investment.
To safeguard these provisions (Effiong, 2005:12) reports that the Act imposes a
penalty on any one who functions as a PFC without a license issued by the
commission. In seeking for this license an applicant must be “a licensed
financial institution registered under the companies and allied matters Act, as a
minimum net worth of N5 billion unimpaired by losses, or be wholly owned by
a company “that meet this requirement, and “has a total balance sheet of at least
N125 billion “or wholly owned by such a company. He further states that the
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custodian company (or its parent company) shall issue a guarantee to the full
sum and value of pension funds and assets it holds (for instance, where it holds
funds under an existing pension scheme before the commencement of this Act)
or would hold under the new scheme, undertake to hold the pension fund assets
to the executive order of the Pension Fund Administration on trust for the
employees. The applicant must not have been “a custodian of any fund which
was mismanaged or had been in distress due to default either fully or partially of
the custodian.
The Act stipulates that each Pension Fund Custodian must maintain all of their
pension funds and assets in keeping with the orders of the appropriate Pension
Fund Administration; and the funds shall not be used for the Pension Fund
Custodian’s own financial purpose in any way. In addition, the Pension Fund
Custodian shall keep proper books of accounts and records, because its accounts
must be duly audited by qualified external auditors and submit the same to the
commission for approval. Thereafter, the audited account shall be published in
dailies and exhibited in each of its offices and branches. It shall submit to the
commission an annual report on the pension funds it managed in the preceding
year.
The Pension Fund Custodian shall always hold the pension funds in accordance
with statutory provisions, regulations, and guidelines made by the commission.
(Pension Reform Act 2004) The Pension Fund Custodian shall duly inform the
commission of fraud, forgery at or in its organization and the dismissal of any
staff shall not be employed by any Pension Fund Custodian, except with prior
approval of the commission. The Act imposes penalty of a minimum of N1
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million for every violation of the provisions outlined above by either a Pension
Fund Administration or Pension Fund Custodian.
2.6.6 Transfer of Entitlements from Old Existing Schemes to the New
Scheme
Under the Act, benefits that have accrued to employees in the public sector
(Public Service of the federation and the FCT) under the previous unfunded
scheme shall be converted to bonds. By this, the federal Government is required
to issue “Federal Government Retirement Bonds” in favour of the employees.
These bonds are to be redeemed when the employee retires. The amount so
redeemed would then be added to the employee’s Retirement Savings Account.
In making provisions towards redemption of the bonds, the central bank of
Nigeria is mandated to establish, invest and manage funds to be known as the
“Retirement Benefit Bond Redemption Fund” (hereafter referred to as the
Redemption Funds). On a monthly basis, the Federal Government shall pay into
the redemption funds an amount equal to 5% of the total monthly wage bill
payable to employees in the public service of the federation and the Federal
Capital Territory. The central Bank shall utilize such funds to redeem the bond
as the occasion arises. Once all of the bonds have been redeemed, the payments
into the redemption funds will stop (Pension Reform Act, 2004).
In his contribution Salubi (2006:15) stresses that section 12 (1)(b) of the Act
contains provisions the import of which is slightly unclear in general terms and
particularly as it relates to employees of public service of the Federation and the
Federal Capital Territory. It states that, with reference to the retirement benefits
of any employee under a previously existing scheme, the Retirement Savings
Account of the employee shall be credited with funds to which the employee
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was already entitled, in the event of insufficient of funds to meet this liability;
the shortfall shall immediately become a debt of the employer concerned. The
debt shall be treated with same priority as salaries owing, that is, it becomes a
present debt to which the employee has an immediate right of recovery. It states
further that the employer shall issue a written acknowledgement of the debt, to
the relevant employee; the employer shall also take steps to meet the shortfall.
By section 12 (2), the employer shall duly notify the commission of the debt and
the steps taken or to be taken, to settle the debt. Yakubu (2005:38) outlines that
the provision is made applicable to employees of the public service of the
Federation, the Federal Capital Territory and the private sector. He demands to
know what will happen to the public sector where the scheme had been totally
unfunded and how would the employee’s Retirement Savings Account be
credited as directed by the Act. According to him, if we assume that the debt is
accomplished in the bonds to be issued by the Federal Government does it
represent a present debt in the class of salaries? The Bonds are redeemable only
upon the retirement of the employee. In some cases, the retirement of the
employee may not be until thirty years after the employee enters the retirement
scheme. In addition, the retirement funds out of which the bonds are to be
satisfied are in residence with the central bank of Nigeria.
Adebanjo (2005:31) explains that if the provision is to be given full import, it
would mean that the arrangement made by the federal government to gradually
settle its liability to it employees under the old scheme is inconsistent with
provisions of the Act. To that extent, according to him, the arrangement
becomes illegal. It would mean that the affected employees have a present right
in themselves to make an immediate demand for the sums rather than wait till
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when they retire .It is doubtful if the federal government could successfully
plead in defense that, under the old scheme, such sums do not constitute a
present liability until the employee has retired. In any event, even under the old
scheme, employees’ retirement benefits have remained outstanding for many
months and it does not appear there is little if anything that any employee (in
retirement) has been able to do to compel the Government to pay up.
Bodham (2006:11) agrees that the strength of the provision would appear lost
with reference to the private sector where it could not be applied against the
government without difficulty. Not withstanding, where there had been an
existing funded pension scheme for instance, where contribution is made by
both the employee and the employer in the private sector, the affected employer
is required to credit the outstanding sum to the employee’s Retirement Savings
Account under the new scheme. Otherwise, it should make adequate and certain
satisfactory arrangements as to how any shortfall would be settled.
It should be pointed out that where there is delay in crediting the funds to the
Retirement Savings Account of an employee, particularly over a considerable
period of time, then such employee would ordinary have been denied returns
that would have accrued on such funds if they were invested in accordance with
the provisions of the Act.
Butau (2004:19) suggests that such funds should attract some interest in the
hands of the employer (regardless of whether it is government or private) not
less than 5%. He believes that the commission may even consider a higher
percentage when the funds remain outstanding beyond a stipulated period. In
the Chilean experience, for workers who made a switch from the old system to
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the new, the government issued “recognition Bonds” to recognize the
contributions made to the old system by those workers. However, unlike in
Nigeria, the bond pays 4% annual interest, and may be cashed in by workers
upon retirement (Public Interest Institute, 2003:15).
Barcheuz (2004:19) believes that this practice is consistent with the spirit of the
new pension scheme, which among others is aimed at providing the employee
with investible retirement funds which grow over the years and are made
available to the employees use upon retirement. It is therefore recommended
that a similar regime be introduced into the Nigerian Pension Scheme.
2.6.7 Investment of Pension Funds and Assets
All contributions under this act shall be invested by the Pension Fund Accounts,
with the objectives of safety and maintenance of fair returns on amount invested
(Pension Reform Act, 2004). According to Maclin (2005:4), subject to
guidelines issued by the commission, the funds and assets may be invested in
bonds, bills and other government securities, debentures, redeemable preference
shares or ordinary shares of companies listed on the stock Exchange and with
good track records in the last five years. Others include, bank deposits and bank
securities, investment certificates of closed-end investment funds or hybrid
investment funds listed on a stock exchange recognized by the commission;
bonds and other debt securities issued by listed companies.
Ishola (2004:5) explains that the Act empowers the Pension Fund Account to
invest the pension funds assets in units of any investment funds but not outside
the above classification of investments. In addition, the funds and assets may be
put in investments outside Nigeria. However, this can only be done subject to
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the approval of the president of the Federal Republic of Nigeria acting on the
recommendations of the commission. The Act places specific restrictions on
investment of pension funds and assets, they are not to be invested in shares and
other securities issued by the Pension Fund Administration or Pension Fund
Custodian or the shareholders of the Pension Fund Administration or Pension
Fund Custodian. In addition, the Pension Fund Administration shall not sell the
assets to itself or anyone directly or indirectly related to it, neither must it
purchase such pension fund assets nor supply them by way of loans and credits
or as collateral for any loan taken by any person. While he is in agreement with
this position, Ishola asserts that as a matter of sincerity, the contributor should
be allowed to know how his fund would be invested and the return on
investment.
The commission may impose other restrictions in order to protect the interest of
the beneficiaries of the Retirement Savings Accounts. In making investment
choices, the Pension Fund Administration must have due regard to the risk
rating of instruments made by a risk rating company registered under the
investments and securities Act 1999. Default by the Pension Fund
Administration in complying with any provisions of the Act attracts a penalty
not exceeding N500,000.00 for everyday the non-compliance continues, in
addition to forfeiture of the profit from that investment to the beneficiaries of
the Retirement Savings Accounts (Pension Reform Act, 2004). If the default led
to a loss, the Pension Fund Administration shall make up for the loss.
Elegbuna (2005:11) states that one of the high points in the new pension
scheme, apart from crediting the employee’s retirement savings into the
Retirement Savings Account with the Pension Fund Administration, is the fact
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that the pension fund assets are to be privately managed and invested by
professional pension fund managers. This is with a goal of bringing appreciable
returns on investment, accruable to the benefits of the beneficiaries of the
Retirement Savings Accounts. According to him, this is important, considering
that the funds and assets are to be held by the Pension Fund Administration over
a long period while the employee is still in employment and even after he has
gone into retirement. Indeed, the scheme is designed to survive the death of the
employee, at any point, be it in service or in retirement.
However, Emiola (2005:19) insists that apart from the safeguards put around the
manner and class of investment of these funds and assets, there should be a
stipulation of a minimum return on investment which these funds should attract,
for the beneficiaries of the Retirement Savings Accounts. The Chilean system
imposes a maximum and a minimum return to the administradoras de fondos de
pensioners to pay their members (the employees who maintain accounts with
them) which are set in relation with the average performance of the whole
system over the last twelve months. The minimum is either 50% of the average
return across administradoras de fondos de pensioners, or two percentage points
lower than the average. In case the fund falls short of the minimum, the
administradoras de fondos de pensioner has to make up the difference by
withdrawing funds from its reserves.
On the other hand, if the administradoras de fondos de pensioner has a real
investment return above the 50% average for all the pension funds or exceeds it
by 20% points, it has to deposit the excess funds in a “profitability reserve”
account to be used incase the administradoras de fondos de pensioners portfolio
under performs. In his contribution Imagbon (2005:18) sees some merits in the
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Chilean approach. According to him, in this way, funds in the Retirement
Savings Accounts stand a fair chance of appreciating over a period. Therefore,
the gap in the Act, by not investment should be filled by regulations to be made
by the commission under the Act.
2.6.8 Retirement Benefits
The Pension Reform Acts states that upon retirement or attaining the age of 60,
whichever comes later, the holder of a Retirement Savings Accounts shall
utilize the funds standing to his credit by programmed monthly or quarterly
withdrawals calculated on the basis of an expected life span life annuity
purchased from a licensed insurance company with monthly or quarterly
payments and a lump sum from the balance standing to the credit of the
Retirement Savings Accounts, provided that the residue after the lump sum
withdrawal would be sufficient to procure an annuity or fund programmed
withdrawals that will provide an amount not less than 50% of his annual
remuneration as at the date of his retirement.
Bolako, (2006:13) believes that there is an ambiguity introduced into the
provisions by the word ‘or’ in section 4(1)(c) of the Act. According to him, does
it mean that the programmed withdrawals and the life annuity are meant to be
mutually exclusive? Or are they co-extensive? He asserts that in addition, a
sufficient link is not provided between the life annuity to be purchased by the
holder of the Retirement Savings Account at the appropriate time and the life
insurance policy that should have been maintained by the employer in favour of
the employee while the latter was still in that employment. Presumably, the life
insurance policy becomes the fulcrum of the life annuity. In the event that this
assumption is correct, it would mean that the programmed withdrawal and the
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life annuity will co-exist. This argument is strengthened by the fact that the life
insurance policy could not have been a subject of the Retirement Savings
Account. While the Retirement Savings Account is kept with the
administradoras de fondos de pensioner, the insurance policy is held by the
relevant insurance company. Indeed, only in the event that the employee dies,
do we have his entitlements under the life insurance policy paid into his
Retirement Savings Account (Bosede 2005:19). Apparently, this is to facilitate
eventual payments of the funds to beneficiaries of the employee in question.
Fallout from the foregoing is that insurance companies are expected to play vital
roles in the implementation of the pension scheme.
Apparently, their involvement is also required in the calculation of the expected
life span of a particular employee relevant to determining the amount of the
programmed monthly or quarterly withdrawals to be made by him in retirement
(Ibezor 2006:11). Therefore, it becomes imperative to have the emergence of
credible and reliable (companies with character and track records) insurance
companies in the industry. This development also calls for greater regulatory
supervision and control by the National Insurance Commission (NAICOM).
The payment of a lump from the Retirement Savings Account to the retiree
serves as a weak “replacement” for the payment of gratuity under the Pay-AsYou-Go system. This payment is contingent on a leftover of funds in the
Retirement Savings Account sufficient to provide the retiree with no less than
50% of his last salary while in employment. Thus, it is not a certain payment
that could be envisaged by the pensioner.
Usoro (2004:18) believes that this qualification leaves in doubt the provision
made under the scheme for possible capitalization of the pensioner to enable
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him start a business venture where he desires to do so, rather than become
dependant on the periodic withdrawals which in some cases could be largely
illusory and insufficient to meet the needs of the pensioner and that of his
family.
2.6.9 Death of an Employee
When an employee dies, his entitlements under the life insurance policy
maintained by his employer in his favour are paid into his Retirement Savings
Account. The proceeds are then paid in similar fashion (as it would have been
paid to him if he were alive and goes into retirement) to his beneficiary under a
will, in case there is one, his wife and children, where he dies intestate. In case
there are no wife and children, payment would be made to his specified next-ofkin or any other person appointed by the probate Registry as administrator of
the estate of the deceased employee. An employee who is declared missing and
is not found in the space of one year may be presumed to be dead. In such a
case, provisions which apply to dead employee shall apply to him with equal
force.
However, Nakande (2006:5) argues that the supposed free application of the
provisions of section 4 to beneficiaries of a deceased employee is misconceived.
Otherwise, whose life expectancy would be applied? The wife’s or the
children’s or even those other categories of beneficiaries-next-of-kin or
administrator? Would they also be allowed, where appropriate, to make a lump
sum withdrawal? He further recommends that these and other related issues
require clarification by the commission in the absence of legislative amendment.
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Allison, (2006:23) also believes that the provisions of section 5 appear to run
contrary to law. It assumes that in the absence of a will, the next preferred
beneficiaries are the wife and children, but that only in their absence can a
specified next-of-kin take benefits. Allison submits that in the absence of a will,
a specified next-of-kin takes over as a beneficiary even over the wife and
children in the event that the two categories do not coincide. This argument,
according to him is reinforced by the provisions of section 36 of the Act. It
states that upon the death of an officer in active service who is exempted from
the scheme under section 8 of the Act. The department shall pay his next-of-kin
or designated survivors a gratuity and pension to which the office would have
been entitled to the time he died calculated under relevant rules of the Pay-AsYou-Go system.
2.6.10. Minimum Pension Guarantee
The Act speaks of an unspecified amount as minimum guaranteed pension for
those who have contributed for a yet to be specified number of years to a
licensed Pension Fund Administration. The commission is required to specify
applicable bench marks by regulation. This has not yet been done. One of the
issues arising is to determine who makes the guarantee – the government or the
Pension Fund Administration? In addition, what is going to be the minimum
amount guaranteed as pension to a contributor? How long must he have been a
contributor? What other requirements must he meet to be entitled to the
minimum pension?
Cobat, (2005:18). Compares this provision with the Chilean system and notes
that under the Chilean system, this matter has proved to be one of the sorest
points in the system. The system guarantees contributions to a pension not
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below 70% of working income that is an individual’s last monthly salary. If
there are insufficient funds to generate the required pension levels in the
account, the pension fund company must make up the difference. If the
company is unable to meet its obligations, the state which guarantees the system
has to cover the shortfall.
The guaranteed minimum pension is currently worth about $150 a month (The
Economist, Nov 10, 2005) an amount which has changed over the years. There
is also the non-contributive “assistance pension” offered by the state which
currently amounts to about $65 a month. However, most affiliates (contributors
who maintain accounts with the administradoras de fondos de pensioners) do
not apply for this assistance because it is subject to quotas and targeted towards
the extremely poor. In addition, to qualify for the guaranteed minimum pension,
the worker must have made contributions to the system for a minimum of 20
years. Poitus (2001:16) condemns the above equation as according to him it
leaves most of the Chilean workforce with no entitlement at all regarding
pensions – except withdrawing the merger funds accumulated in their pension
accounts. These results have been confirmed by the World Bank. It turned out
that many contributors have not been able to make the required 240 monthly
payments into a private fund over a 20 year period.
Riesco (2004:3) states that many low-wage earners registered with the private
system evade the mandatory monthly payments by underreporting their income,
assuming that the minimum pension will yield more than whatever their
retirement accounts offer. A majority of participants only make an average of
two to three monthly payments a year.
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Nicholas, (2006:8) asserts that the lesson to learn from the foregoing is that the
commission in setting parameters for the minimum pension guarantee must be
realistic so that access to the minimum is possible. According to them, the
aspiration of such a provision is to provide some form of social security for the
class of workers who do not have enough to cater for themselves in retirement.
The parameters should not unwittingly exclude the very people it aimed to assist
“The improvident individuals”. In addition, it must be made clear who bears
responsibility for the guarantee – the Pension Fund Administrators or the
Government (in all cases, whether public or private sector employee) or both.
2.6.11 Fees, Charges and Expenses
Pension Fund Administrators are authorized to deduct fees, charges, costs, and
expenses they incur on transactions made in respect to employees’ Retirement
Savings Accounts. Aside from these, all income earned from investment of
pension funds must be duly credited to the Retirement Savings Accounts. The
only limitation is that these deductions should be reasonable. (Cynthia Rush
2004:12). Obizor (2005:3) argues that the test of “reasonableness”, though
patently objective, may end up being subjective in reality. It would be
appropriate for the commission, by regulation to specify useful indices for
making these deductions in order to avoid arbitrariness and accusation of undue
profiteering against the Pension Fund Administrators by Retirement Savings
Account holders. In Chile, on administradoras de fondos de pensioners is
permitted to charge a fee for the following:
a. Mandatory contributions into the affiliate’s individual Capitalization
account to fund its retirement pension.
b. Voluntary savings withdrawals.
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c. Transfer of account balances from another administradoras de fondos de
pensioner, and
d. Payments of programmed withdrawals.
Each administradoras de fondos de pensioner is allowed to set the level of fees
it charges to its affiliates. Fees may be changed at any time by an
administradoras de fondos de pensioner upon three months notice to affiliates,
the Superintendent of Pension Funds (which is equivalent of the commission
under the Nigeria System) and the public. Although there is no legal limit on the
fees which an administradoras de fondos de pensioners may charge, (except that
each administradoras de fondos de pensioners is required to charge the same
level of fee to each affiliate such that commission must be a certain percentage
of contributions regardless of a workers income) competitive pressures have
resulted in a narrow range for fees charged by different administradoras de
fondos de pensioners. This environment has generated anger, resentment and
criticism in the public against the administradoras de fondos de pensioners.
Bandue (2005:27) states that in the opinion of they public, the charge gigantic
commissions for their services making the system unbelievably costly. A May
2002 report by the United Nations Development Fund (UNDP in conjunction
with Chilean experts) found that the administradoras de fondos de pensioner’s
charge commissions on the order of $500 million annually. It is estimated that
as of March 2002, some 25% – 32% of each mandatory deduction went to
payment of commission (Rush, et al, 2006:5). This issue becomes more critical
under the Nigerian Pension system where we have two bodies the Pension Fund
Administrators and the Pension Fund Custodians functioning in related terms
with respect to the pension funds and assets. Naturally, both must “Reap
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Something” for their efforts and activities. This analyst suggests contrasts with
the singular body the administradoras de fondos de pensioners under the
Chilean system. Ibikunle (2005:11) suggests that deliberate policy must be put
in place to ensure that ‘administrative fees’ do not become too high.
2.6.12 Statutory Reserve Fund
Every Pension Fund Administrator is authorized to maintain a statutory reserve
fund which is credited annually with 12.5% of the net profit after tax or such
other percentage as the commission may stipulate from time to time. This is
treated as a contingency fund used to meet claims for which it may be liable as
determined by the commission. As it stands, this 12.5% is quite considerable. It
is equally significant that the commission has the powers to review it one way
or the other. Apparently, it is quite distinct from the fees, charges, etc. that could
be laid out by the Pension Fund Administrators on the income derived from
investment of pension funds.
Braimoh (2006:33) argues that in contrast, the Chilean System Permits a reserve
of at least 1% of the total value of the fund. According to him, this requirement
was set up to provide the administradoras de fondos de pensioners with the
necessary funds in case they do not obtain the “minimum return” from its
portfolio. This is against the background of an imposed maximum and
minimum return to the administradoras de fondos de pensioners to pay their
members, which are set in relation to the average performance of the whole
system over the last twelve months. In case the fund falls short of the minimum,
the administradoras de fondos de pensioners has to make up the difference by
withdrawing from its reserves. On the other hand, if the administradoras de
fondos de pensioners has a real investment returns above the specified
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minimum, it has to deposit the excess funds in a “profitability reserve” account
for use in the case that the administradoras de fondos de pensioners portfolio
underperforms. Administradoras de fondos de pensioners must invest this
reserve requirement in the same portfolio as the pension fund under its
administration.
Budman (2006:40) is of the opinion that it might prove useful where the
commission provides clarification. According to him, liability here should not
be tantamount to culpability as where the Pension Fund Administrator in
question incurred the liability due to faulty, incompetence, or the like, it should
be construed strictly and limited to liabilities justifiably incurred by the Pension
Fund Administrators.
2.6.13 Dispute Resolution
Disputes arising between parties under the Act are to be referred to the
commission in the first instance and thereafter to arbitration. Arbitral awards are
binding and enforceable in the Federal High Court. Preliminary notice of an
impending suit must be given to the commission before the commencement of
such a suit. Otherwise, it would be incompetent and liable to be thrown out by a
preliminary objection. According to arbitration and conciliation act, arbitration
proceedings cannot commence unless there is an agreement in writing duly
signed or otherwise authenticated by the parties. Thus, there has to be mutual
consent to submit to arbitration. They also assert that for good cause, a party
could apply to set aside an arbitral award or the court could refuse recognition
or enforcement of the award.
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Harrison (2005:13) believes that there is no firm objection to the ‘arbitration
clause’ in the Act so long as it is taken as a prescription to explore alternative
dispute resolution (ADR) and not as a ploy to shut out the parties, particularly
the contributors to Retirement Savings Accounts, from the jurisdiction of the
regular courts of the land. This option according to desirable in view of the
patent congestion in the courts and tardiness in the Nigerian legal process,
especially as the direction towards arbitration is optional and not mandatory.
2.6.14 The National Pension Commission – Pencom
The Act provided an institutional and regulatory framework for pension
administration in Nigeria by the establishment of the National Pension
Commission. The principal object of the commission shall be to regulate,
supervise and ensure the effective administration of pension matters in Nigeria.
The commission is vested with legal personality and the common attributes of
such statues. The commission has extensive powers enumerated under section
21 of the Act .These include the power to formulate, direct and oversee the
overall policy on pension matters in Nigeria request or call for information from
any employer, pension administrator, custodian or any other person or
institution on matters relating to retirement benefits, charge and collect fees,
levy or penalties as may be specified by the commission, establish standards,
rules and regulations for the management of the pension funds under the Act,
investigate any Pension Fund Administrators or Pension Fund Custodians or
other party involved in management of pension funds or assets under the
management or held by a Pension Fund Custodians when necessary and do such
other things which in its opinion are necessary to ensure the efficient
performance of the functions of the commission.
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These powers are required to enable the commission to perform the whole
gamut of functions contained in section 20 of the Act. It shall regulate and
supervise the scheme, issue guidelines for the investment of pension funds,
approve, license, regulate and supervise Pension Fund Administrators, Pension
Fund Custodians and other institution relating to pension matters, establish
standards, rules and guidelines for the management of the pension funds, ensure
the maintenance of a National Data bank on all pension matters carry out public
awareness and education on the establishment and management of the scheme
promote capacity building and institutional strengthening of Pension Fund
Administrators and Pension Fund Custodians and perform such other duties
which in the opinion of the commission are necessary or expedient for the
discharge of its functions under the Act.
Under the contributory pension scheme, the National Pension Commission as
the regulator of pension matters shall receive; investigate any complaint of
impropriety leveled against any Pension Fund Administrator, custodian or any
of their staff or agents. Basically, the National Pension Commission stands as
watchdog with the overriding objective of ensuring that all pension matters are
administered with minimum exposure to fraud and risk. Baruwa (2007:18)
discloses that a hard look at the powers and functions of the commission under
the Act suggests that the commission carries the sole responsibility for pension
administration in virtually all its ramifications. Obviously, there is no shortage
in its enabling power.
However, Lukeman (2006:29) emphasis that one is quick to point out that the
bane of institutional and regulatory bodies in Nigeria has not been inadequacy
of powers, but failure to incorporate governance and due oversight on the part
151
of such bodies. According to him, the eventual failure of a Pension Fund
Administrators or Pension Fund Custodians could be attributed to a failure of
the commission to satisfactorily discharge its own duties under the Act. These
demand in the overall interest of the system, a demonstration of competence,
vigilance, political will and fairness in the operation of the commission.
2.7 SOME CRITICISMS OF THE CONTRIBUTORY PENSION
SCHEME
The last few years of pension administration shows that Nigeria is yet to have a
perfect pension system as stakeholders in the scheme have observed that certain
issues are still not in order. Akpabio (2006:11) observes that many employers
and employees still see contribution to the scheme as an additional burden in
view of the amount of allocation going to it at the end of the month. But just as
there has been a general consensus that the National Pension Commission has
recorded tremendous successes in the Pension Reform Act 2004 since the
inauguration of its board in 2004, there have been growing concern regarding
how efficiently its huge asset are being managed by the fund managers in
operation.
With 25 Pension Fund Administrators, 7 closed ones and 4 Pension Fund
Custodians in addition to numerous approved existing schemes, there is no gain
saying that the sector is growing by all indicators. Mangitu (2005:9) states that
as at the end of December 2007, the number of registered contributors stood at
2.78 million while the value of pension fund assets was N815 billion as at
December 31, 2007.
Benson (2006:8) discloses that considering the rapid growth of accumulated
funds under the new contributory pension scheme, one of the challenges being
152
experienced is the counted number of investment windows for pension funds.
There is also the fear that the resulting concentration of pension funds in few
asset classes and securities without any deliberate efforts to deepen the capital
market through the introduction of alternative asset classes such as
infrastructure Bonds, Real Estate investment Trusts (REITS), Asset backed
Securities (ABS), Mortgage Backed securities (MBS) and private Equity for
investing these funds could create an unprecedented shocks in the capital market
and the economy as a whole in future.
Bolako (2006:3) opines that with the recent collapse of Lehman Brothers in
America, what the nation’s pension funds managers need to learn with respect
to management of pension fund assets in Nigeria is the fact that pension funds
managers and their advisers need to be more circumspect in the selection of
counterparties and take efforts also to diversify such counterparties and manage
their collateral sufficiently tight as not to allow them being owed a significant
sum of money.
According to Braimoh (2006:33) as it is today, the Nigerian capital market
appears to be the only investment window open to the 25 Pension Fund
Administrators for ensuring that the fund at their disposal are optimally
deployed for higher returns to the workers in line with statutory mandate. It
must however be admitted that so far, the Nigerian government has through the
reform demonstrated strong commitment towards its implementation in an effort
to give her retirees higher hopes of working for various institutions. For
instance, despite the protracted legislative process occasioned by the concerns
raised by the stakeholders in respect of the various aspects of the reform it is
153
being implemented voluntarily with little or no serious resistance from both the
private and public sectors.
Nwachukwu (2008:16) states that four years down the line, the greatest concern
today for the funds is whether the workers can actually look forward to a
secured retirement. Debrah (2006:30) adds that an assessment of the schemes
performance shows that the contributory system is up and running in both the
private and publics sectors and what one may not be very sure of is whether the
collective pool is well managed by the operators in a manner that gives workers
the deserved secured retirement that everyone is looking forward to in future.
Put differently, can Nigeria workers go to sleep with both eyes closed knowing
that the Pension Fund Administrators and other parties in the management of
the fund are doing what they are licensed to do?
According to him the question becomes very apt considering some of the recent
shocks that investment witnessed in the last few months. Just as the case of
America where millions of investors lost so much with the collapse of some of
the leading investment Banks, the Pension Fund Administrators as prominent
players in the Nigeria market must have suffered some losses with the funds
under their portfolio. Emiola (2005:18) states that the difference perhaps is that
the workers whose funds are at risk may not have a way of determining the
magnitude of loss affecting them.
The Director General of Pencom, Dr Mohammed Ahmed has put the
contribution so far at N871.27 billions but there are fears however in some
quarters that the amount may have been understated considering reports that
some employers particularly in the private sector often delay remittance of
154
funds to the Pension Fund Administrators. As an umpire, Pension Commission
management had always insisted that employees must monitor returns on their
Retirement Savings Accounts and ensure that personal profile with the Pension
Fund Administrators are regularly up to date. It also called on the employers to
ensure that all remittance to the fund administrators are made 7 days after
payment of salaries, particularly as contributors remittance of contributions,
management and custody of retirement benefit funds and assets are the critical
compliance issues confronting the scheme. Insurance companies handling some
of the deals have not fared any better in enhancing the transparency of the
system.
Only recently, the management of Femstar and company limited had petitioned
Pension Commission urging it to intervene over the alleged refusal of Great
Nigeria insurance PLC to transfer its` workers accrued retirement benefits funds
to their respective pension fund Administrators. Femstar's had in a petition by
its head of human Resources, Mr. Godwin Oyedapo challenged the refusal of
the
insurance company to transfer the entitlement of his workers to the
respective Pension Fund Administrators managing their accounts, pointing out
that it was a gross violation of the 2004 Pension Reform Act.
2.8 THE CURRENT OPERATION OF THE PENSION SCHEME
The current operation of the Pension Scheme in the Nigerian Armed Forces
since 2004 makes it mandatory for every Nigerian Soldier in the Nigerian
Army, Navy and Air Force to choose a Pension Fund Administrator of his or her
choice. The Pension Fund Administration companies are free to interact with
the military staff. The military staff then go to the office of the Pension
155
Management Company to complete the Pension Registration Form (Bako,
2010).
It is on the basis of the information provided by the military staff that the
Pension Management Company issues the staff with the Pension Registration
Certificate.
Appendix G shows the Stanbic IBTC Pension Registration
Certificate. The Pension Registration Certificate contains such data such as the
name of the staff, RSA Details, RSA Pin, Username and Passcode. The Pension
Fund Certificate Data include Account Name, Pension Fund Certificate details
and Bank (Bako, 2010:7).
The photocopy of Pension Fund Certificate is submitted to the Pension Section
of the Payroll Section so that monthly pension remittances can be done to the
Pension Fund Administration Company.
From time to time, the Pension
Section of the Payroll Department sends an urgent requirement from the
National Pension Commission to update the personnel profile of the military
staff.
It is the responsibility of the Pension Section to ensure monthly
remittances of all military staff are sent to the Retirement Savings Account of
the staff kept by the Pension Administrator (Bako, 2010:9). There are monthly
text messages from the Pension Fund Administrators that notify the personnel
the amount credited to his/her account.
On retirement from the service, the personnel is paid 50% of his contribution by
the Pension Fund Administrators. The remaining balance is calculated based on
the expected number of years he/she still has to live on earth. This procedure
has generated a lot of problems in the Armed Forces leading to the current
debate in the National Assembly for the withdrawal of the military from the new
156
Pension Scheme. The bill has so far passed the second reading in the National
Assembly (Bako, 2010:7).
With the passing into Law, the Contributory Pension Act of 2004 otherwise
known as Pensions Reform Act of 2004, there was the dawn of a new Era of
Pension Administration. Firstly, there is now one unifying law for both the
public and private sector pension administration. Secondly, the new law makes
contribution towards pension compulsory for both employer and employee. We
now have fully funded schemes in place (Bako, 2010:10)
This paper critically examines the case of Pension Reform in Nigeria, a
developing country, and specifically its Pension Reform Act, 2004, as an
example. In essence, the presentation identifies weaknesses in the Act which
could lead to reduced pension provision especially for poorer sectors of society.
A review of relevant literature by Bako (2010:1-12), was undertaken in three
board areas, namely, the need for pension reform, key patterns of pension
reform and the political economy of pension reform. Also, certain critical
provisions of the Act are highlighted and analyzed. All in all, research in the
area of retirement in Nigerian have been ongoing as shown in the research work
of Obi (2002: 91 -100); Oteh and Ogbike (2009: 95 – 105) and Bako (2010: 112).
2.9
SUMMARY OF THE REVIEW OF RELATED LITERATURE
The management and Administration of Pensions in Nigeria has become one of
the thorniest issue in the country today with millions of retired workers living in
abject poverty and neglect as a result of the failure of the country’s pension
system. Arguably, the federal government of Nigeria is the highest employer of
157
labour within the formal sector of the economy. Unfortunately, the government
has increasingly encountered difficulties in meeting its liabilities to its workers
both servicing and retired.
Pension is a series of regular payments provided by the Government or a former
employer for a person who has come to the end of his normal working life. A
Pension Scheme is a plan or systematic arrangement for the provision of
pension and ancillary benefits. Cobar (2001) Posits that the pensioners are
experiencing difficulties especially in developing countries like Nigeria.
According to him, most employees neither have any meaningful retirement
benefits nor earn enough during their working life to cater for their retirement.
Additionally, the extended family system and other traditional ways of
supporting the old are already weakened under the pressure of urbanization and
increased mobility. Pension costs constitute a significant proportion of the
personnel costs of the various ties of government.
The pension system was therefore fiscally unsustainable. The old pension
system in the public service was unfunded and therefore payments were
budgeted annually. Even if the old scheme was funded, it would have been
impossible to sustain it because of the declining support ratio as a result of
demographic shifts due to rising life expectances. Therefore, the old scheme
became moribund and outlawed. Its essence having been dogged with lack of
funds, diversion of pension funds and mismanagement thereby creating
nightmares and hardships to the beneficiaries. With an estimated outstanding
pension liabilities nation-wide of about N2 trillion, the Defined Benefits
Pension Scheme could no longer be sustained. The Nigerian Railway
Corporation is a classic example of unsustainable relationship between the
158
income generating and the non income generating salary earners. The
corporation generates N30 million every month, pays N250 million to
pensioners and N200 million to its regular workers.
The Pension crisis in Nigeria has manifested most dramatically and tragically in
the Nigerian Armed Forces. It became unthinkable that retired soldiers who had
contributed immensely to national development are treated in most
dishonourable manner due to lack lustre Pension Scheme and poor
administration. There have been incidences of collapse while queuing up for the
stipends, partial paralysis and even deaths among military men while struggling
to collect their pensions. Several pension verification exercises conducted by the
military had recorded so many deaths arising from long queues and delays.
Oshiomole (2006) bemoans that Nigeria with her vast resources and acclaimed
giant of Africa had continued to dehumanize her retired military personnel. The
need for pension reforms therefore became glaring and inevitable. It became
necessary to make the system more sustainable in terms of a move towards a
greater role for privately managed, funded systems and the conversion of the
Pay-As-You-Go (PAYG) systems into defined, contributory systems which are
perceived to be “more self sustaining and transparent”. (Holzman et al 2003)
Therefore, in July 2004, the government of Chief Olusegun Obasanjo
established the Pension Reforms Act which gave birth to the contributory
pension scheme.
159
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172
CHAPTER THREE
RESEARCH METHODOLOGY
3.1
RESEARCH DESIGN
The research chosen is a combination of a survey, oral interview and model
modification. In the survey, the researcher does not have control of the
independent variables affecting the assessment of the contributory pension
scheme in the Nigerian Armed Forces because they have already occurred and
so they cannot be manipulated by the researcher. Also a survey was chosen
because it is possible to use a specific research instrument to interview a large
number of respondents (Unyimadu, 2006). If it were possible for the researcher
to manipulate the independent variables, the appropriate research design would
have been an experiment. An oral interview was also done. A system’s
cybernetic model of transform of a pension 2004 scheme was also done.
3.2
SOURCES OF DATA COLLECTION
In the conduct of this research, necessary information was obtained through two
sources namely:
a. Primary data.
b. Secondary data.
a.
Primary Data
The primary data is the data collected by the researcher with the appropriate
instrument. The reason for using primary data is ensure that there is a control in
which there is originality. The primary data involved moving around during the
field work to collect information on the topic.
173
b.
Secondary Data
In the case of secondary data, these are information already in existence before
the need to carry out this research was muted. This information should be in
agreement with the focus of the research topic. The secondary data for this work
was collected from various sources especially, textbooks, journals, magazines,
periodicals, the internet and other published and unpublished works that relate
to the contributory pension. (Anyanwu, 2004:12)
3.3
DESCRIPTION OF THE RESEARCH INSTRUMENT
There were three research instruments. The first is a questionnaire containing 23
questions, all in the likert scale form asking various questions about the old and
new pension scheme. The second instrument is an oral interview schedule
asking five questions. The third instrument is a dichotomous (yes or no) oral
interview schedule containing nine questions to be used in implementing the
system’s cybernetic model.
3.4
POPULATION OF THE STUDY
The population size of the study is 6000.
Specifically, the population size of this study comprised the following:
i.
305 Flying Training School, Nigerian Air Force Enugu
- 390
ii.
2 Brigades Nigerian Army, Port-Harcourt
- 1409
iii.
Nigeria Naval Ship (NNS) Pathfinder, Port-Harcourt
- 1,500
iv.
97 Special Operations Group, Nigerian Air Force P/H
- 610
v.
Nigerian Naval Ship (NNS) Anansa Calabar
- 607
vi.
34 Field Artillery Brigade, Obinze Owerri
- 1484
Total
- 6000
174
This brought the total population to 6000 Officers and Men of the military
formations selected.
3.5
THE SAMPLE AND SAMPLING TECHNIQUE
Sampling represents the process of selecting a subset of observations from
among many possible observations for the purpose of drawing conclusions
about the larger set of possible observations. Agbadima, (2004:35) describes it
as a strategy a researcher adopts in order to arrive at a good representative of the
population. The sample method adopted in this study was the stratified but
systematic random sampling method. Using this method, the researcher applied
an appropriate sample size method to determine the sample size from the
population which comprised different demographic strata. Stratification of the
personnel was strictly based on their ranks in the military thus: senior military
officers, middle level officers, junior officers and other ranks respectively.
In calculating the sample size for this study, the researcher applied the statistical
formula for selecting from a finite population as propounded by Taro Yamane
(1964).
Therefore, a total number of three hundred and seventy five respondents were
used for this study. After the sample size has been calculated, this value was
allocated proportionately to the six (6) military units depending on the
proportion of the entire population that came from each unit using Kumar
(1976) proportional allocation formula given as
nh
Where
=
nh
n
N(nh)
N
=
=
Group Population from each Stratum
Overall Sample Size
175
N
=
The Overall Population
Nh
=
Sample size from each stratum, in this case the
sampled units.
From the population size of 6000, using the same organization in 3.3 the sample
sizes for the six organizations studied were as follows: 24, 88, 94, 38, 38, 93
respectively giving a total sample size of 375.
Table 3:1
S/No
1.
2.
Distribution of Questionnaire among the Military Units
Military Units
Category
of
Personnel
2
Recce
Brigade, Officers
Nigerian
Army Soldiers
Kaduna.
Total
2 Airborne Brigade Officers
Nigerian
Army, Soldiers
Makurdi.
Total
Number of Number of
Personnel Questionnai
re
administere
d
150
1259
88
1409
130
1384
93
1454
3.
305 Flying Training Officers
100
School, Enugu.
Airmen
1400
Total
1500
4.
Nigerian Naval Ship, Officers
80
Pathfinder
Port Ratings
527
Harcourt.
Total
607
5.
106
Nigerian
Air Officers
60
Force,
Camp Airmen
330
Headquarters, Abuja.
Total
390
6.
Nigerian Naval Ship, Officers
50
Anansa Calabar.
Ratings
560
Total
610
Grand Total
6000
Source: Field Survey, 2009 and statistical analysis.
94
38
24
38
375
176
3.6
INSTRUMENTATION
The major research instrument that was used in gathering data in this
investigation was the structured questionnaire. The mode of administration was
through personal delivery to the various military units under investigation. This
method ensured a high rate of return of the questionnaire by the different
respondents. The instruments were administered to the respondents one after the
other during which the way the instruments was to be completed were read and
interpreted to them. The researcher ensured that the instruments were
completely retrieved from the respondents after completion. The questionnaire
was issued to both the officers and the other ranks in the different units. There
was also oral personal interview with some high ranking officers in the Military
Pension Board (MPB) and the National Pension Commission (PENCOM). This
was useful in clarifying some Nitty-gritty issues that was raised in the
questionnaire.
3.7
VALIDITY
AND
RELIABILITY
OF
DATA
AND
TEST
INSTRUMENTS
3.7.1. Reliability of Data
The reliability of a test instrument is the constitency of the test in measuring
whatever it purports to measure (Uzuagulu, 1988:15). It is the consistency of
scores obtained from the same individuals when administered with the same test
on different sets of equivalent items or under other varying examining
conditions. (Ikeagwu, 1988:15). To solve the problem of reliability of data, a
test retest method was employed, i.e. a pilot survey was carried out before
finally embarking upon the actual survey. The respondents were served with the
questionnaire. After about three weeks the same questionnaire was given to the
same respondents. The two sets of scores were then correlated using Pearson’s
product moment correlation coefficient statistics. The correlation between the
177
two scores from the two administrations gave a measure of the reliability of the
instrument. Using the Spearman’s Rank Correlation the ratio of reliability was
found to be 1 which shows that the instrument was reliable, while the content
validity was 16.
3.8
DATA ANALYSIS TECHNIQUE(S)
The data collected for this research work through questionnaire and oral
interview was analyzed using percentages, frequencies, Chi-Square, Pearson
product moment correlation coefficient, Z-test and t-test.
178
3.8.1 The Chi Square
Chi-square (X2) is meant to indicate whether or not a set of observed
frequencies differ significantly from the set of expected frequencies and not
necessarily the way in which they differ. The sole aim of chi-square is to
determine the degree of deviation or departure from the expected frequencies
that could be allowed before the null hypothesis is rejected. The frequency
counts can be placed into two or more categories. Therefore, if O denotes the
expected frequency in a cell, and the corresponding expected is E, then X2
statistics can be computed as follows:
X2 d.f
Where
=
X
∑ (Fo – Fo)2
FE
=
Computed value of the Chi –square
Fo
=
Observed frequency
Fe
=
Expected frequency
In our calculation, we either reject or confirm the null hypotheses. The null was
accepted if the discrepancy between the observed and expected frequency was
so small that the difference could be attributed to chance. However, the null was
rejected if the discrepancy was considered large that we could not attribute the
departure to chance. Chi-square is also useful in the assumption of certain level
of confidence or error margin. The degree of freedom which is one of its
characteristics is determined as follows: df = (R-1) (C-1)
Where
df
= Degree of Freedom
179
R
= Number of rows
C
= Number of columns
3.8.2 Decision Rule
A decision rule indicates the action to be taken and the justification for it as
regards research findings. Two sets of figures are relevant to the decision rule in
the use of Chi-square (X2).These two variables are the chi-square calculated
value (X 2) and the chi-square critical value (x0).The rule in calculating the chisquare value (X 2) and the critical value (x0) are as follows:
Reject Ho, x 2 > x0 2
Accept Hi, x2 < x0 2
Where
Ho = Null hypotheses
Hi = Alternate hypotheses
X2 = Calculated value of chi-square
X02 = Chi-square critical value
>
= Greater than
<
= Less than
<
= less than or equal to
3.8.3 Degree of Freedom (d.f.)
The formula for computing the degree of freedom for Z-test statistics is given
as:
= n1 + n2 – 2
d.f
Decision Rule:
Reject the Ho and uphold Hi if the Z calculated value exceeds
the critical or the Z-table values. But if the reverse is the case, do not reject the
null hypotheses Ho.
180
3.8.4 Confidence Level/Level of significance
In management sciences, a confidence level between 0 and 5 percent are often
allowed as provision for committing a type one error (that is rejecting the null
hypotheses when it should have been otherwise accepted).In this work
therefore, the 95% confidence level was applied. This meant that the specified
hypothesis was tested at 5% or 0.05 significant level.
3.8.5 Spearman Rank –Correlation
The Spearman Rank –Correlation was used to test the fifth hypothesis which
states that the Pension Reform Act 2004 had not provided checks and balances
that would guarantee safety of depositors’ funds. The Spearman Rank is a non
parametric test statistics. The formula for calculating the spearman rank
correlation is given as:
OR
rs (or p) =
Where:
Rs
1
= Spearman Rank-Order Correlation coefficient
= Unity i.e. Perfect Correlation from which any value in the
quality may be taken to reduce the coefficient
6
= A constant value
∑d2 = the sum of the difference in ranks squared
3.8.6
The z – test Statistics
The z – test is used exactly like the t – test but only when the sample size is
equal to or greater than 30 (i.e. n > 30) Uzuagulu (1998:2006). The z – test
statistics is also computed exactly the same way the t – test statistics is
181
computed using the same formula. According to Ewurum (2003:113) a z-test
statistics can be used interchangeable with a t-test statistics when there is at least
150 degree of freedom. The formula is given as follows:
Z-test = tn –1.
=
X -U
S
n
with n – 1 degree of freedom
With n – 1 degrees of freedom.
Where
X
=
Sample mean
U
=
Hypothesized mean of the sample
S
=
Sample standard deviation
n
=
Sample size
182
3.9 MODEL ADAPTATION
A model is a representation of a reality and not reality itself. The aim of a model
is to predict, analyze and interpret the real word system.
INPUTS
Retired Military Personnel
Retired Federal Civil
Servants
Retired Staff of the
Parastatals, Retired Staff
of the Private Sector
Materials Money Time
Energy Knowledge
TRANSFORM
OUTPUTS
The new Pension contribution
scheme
Payment of gratuity and pension as
at when due and proper funding by
the Pension Act 2004. Commitment
by government towards
implementation
Feedback
Feedback
Control
Figure 3.1: The cybernetic Model
Source: Adapted by the Author
The systems cybernetic model has five components: inputs, transform, output,
feedback and control. The inputs included retired military personnel, retired
federal civil servants, retired staff of parastatals, and retired staff of the private
sector, materials, money, time, energy and knowledge. The money includes the
contributions of the employees and the employers.
Under section 9 of the Pension Reform Act as applied to the public service of
the Federation and Federal Capital Territory, both the employer and employees
183
are required to contribute a minimum of 7.5% respectively of the employees’
monthly emoluments to the scheme. In the case of the military, a minimum of
12.5% should be contributed by the employer while the employee contributes a
minimum of 2.5%.
In other cases especially for the private sector, the
employees contribute a minimum of 7.5% respectively (Pension Reform Act,
2004).
Also an aspect of the money is the Retirement Savings Account. Under section
11, every employee was expected to open a retirement savings account (RSA) in
his name in the custody of a Pension Fund Administrator (PFA) of his choice.
The contributions of both the employer and the employee were to be remitted
promptly from month to month to the account. The lodgment was to be made
by the employer on the employee’s contribution from his salary at source
(Federal Republic of Nigeria, 2004:32).
Part of the money is also from the investment of pension funds and assets. All
contributions of the Act shall be invested by the PFAs with the objectives of
safety and maintenance of fair returns on the amount invested. Subject to the
guidelines issued by the commission, the funds and assets may be invested in
bonds, bills and other government securities, debentures, redeemable preference
shares or ordinary shares of companies listed on the stock exchange and with
good track records in the last five years. Others include securities, investment
certificate of closed and invest funds or hybrid investment funds listed on the
stock exchange recognized by the commission, bonds and other debt securities
(Pension Fund Act, 2004:5).
184
The Transform is the new Pension Funds Scheme which has its legal backing
from the Pension Reform Act, 2004. Before this Act, the Federal Public Service
operated an unfunded non-contributory scheme with defined benefit of the PayAs-You-Go (PAYG) scheme. In this system, the government taxed active
workers to pay for the benefits of the retired workers. So, under this system,
retirement benefits were a function of the rate of growth of the tax base which in
turn depended on the rate of growth of the labour force (Nwachukwu, 1988:3).
This old scheme had such problems as delay in getting the retirement benefits
paid, mismanagement, stress and even death of retirees. The outputs were in the
form of payment of gratuity and pension as at when due, good management,
legal Backing by the Pensions Act 2004 and commitment of the government
towards implementation. Feedback is the system’s element that provides
information of whether the inputs are being transformed to the expected aspects.
The control element is that part of the system that involves appraisal and
appreciation of results, variance analyses, separation of variables into
controllable and uncontrollable and correcting action if necessary (Nwachukwu,
1988:41).
185
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the Social Sciences . Lagos Ama Resources Limited.
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Jomere, G. O., & Agbonifoh. (1999) Research Methodology in the Social
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Nwachukwu, C. C. (1988) Management Theory and Practice. Onitsha: Africana
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Podsakoff, P. M., & Dalton, A. R. (1987), “Research Methodology in
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Stone, E. W. (2005). Research Methods in Organizational Behaviour. Santa
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187
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND MODEL SOLUTION
4.1 INTRODUCTION
In the last chapter, the Research Methodology was handled stipulating that the
research design was a combination of a survey, an oral interview to collect data
to implement the model. Also a systems cybernetic model was adapted in
which the inputs were men, materials, money, time, energy and knowledge, the
transform was the contributory pension scheme of 2004 and the output was
improvement in the retired life of the pensioners with feedback and control.
Data is a representation of facts, observation and occurrences (O’Brien,
2000:150).
4.2 ANALYSIS OF DATA
Both secondary and primary data were used. The primary data generated the
information on the personal data of the 370 respondents and data for
implementing the system cybernetic model. The data was presented by means of
tables, simple bar charts, histograms and pie charts to make them amenable for
further analysis.
By analysis is meant the act of noting relationships and
aggregating data on a variable with similar characteristics on the data
(Contributory Pension Scheme) and splitting the units into their parts (Mills and
Walter, 2004:35).
Yomere and Agbonifoh (1989:126) observed that it is at the analysis stage of a
dissertation that meaning is given to the data that was collected. If the data is
188
not properly analyzed, it will lead to making wrong discussion of findings,
summary, conclusion and recommendations.
The researcher accepts the contention of Podsakoff and Dalton (1987:250) that
the factual information from the data was going to be used as a basis for
reasoning, discussion and calculation. It was also going to be used as a basis for
the discussion of findings in the next chapter and the summary of findings,
conclusion, recommendations and contribution to knowledge in the next two
chapters.
Apart from the headings above, the other headings used in this chapter were
data presentation, percentage analysis, analysis using frequency distribution,
analysis of some Likert scale responses, theoretical analysis, hypotheses testing
and model solution
4.3 DATA PRESENTATION
Table 4.1: Gives the Demographic characteristics of the Respondents
Q/N
Question
Response
Frequency
Percentage
l.
Sex
Male
Female
277
93
74.8
25.2
Total
370
100.0
2.
Marital Status
Married Single
Divorced
Widowed
Separated
Total
Total
252
108
2
4
4
370
68.1
29.4
0.5
1.0
1.0
100.0
3.
Ages
13.8
14.7
22.2
Below 25 years
26-35 years
31-35 years
36-40 years
44
43
46
50
11.9
11.6
12.4
13.5
189
34.1
15.2
41-45years
46-50years
51-55years
Above56 years
Total
4.
Length of Service Less than 5 years
in the Military
6-10 years
11-15 years
16-20 years
21 years and above
Total
5.
Highest
Senior School
Educational
Certificate
Qualification
R.S.A
Trade certificate
Diploma
O.N.D
H.N.D
First Degree
Second Degree
Ph.D.
Total
Source: From the questionnaire administered
51
49
45
42
13.8
13.2
12.2
11.4
370
51
55
82
126
56
370
136
23
9
22
24
30
75
48
3
100.0
13.8
14.7
22.2
34.1
15.2
100.0
36.8
6.2
2.4
5.9
6.4
8.1
20.2
13.0
0.8
370
100.0
From Table 4.1, it was shown that for the sex of the 370 respondents, 277 of
them were males while 93 of them were females. For the marital statuses of the
370 respondents, they were married, single, divorced, widowed and separated
with frequencies of 251, 109, 3, 3 and 4 respectively. For the ages of the 370
respondents, they were in years below 25, 26-30, 31-35, 36-40, 41-45, 46-50,
51-55, above 56 years with frequencies of 44, 43, 46, 50, 51, 49 and 42 of them
respectively.
For the highest educational qualifications of the 370 respondents, they had
Senior School Certificate, R.S.A, Trade Certificate, Diploma, and OND, H.N.D,
190
First Degree, Second Degree and PhD. They have frequencies of 136, 23,
9,22,24,30, 75, 48 and 3.
Figure 4.1 shows the simple bar chart of the data on the sex of the 370
respondents.
Figure 4.1: The sex of the 370 respondents.
Source: Author’s Field work
From figure 4.1 it was shown that the male respondents had a modal frequency
of 277 out of 370 while the female respondents had the lower frequency of 93 of
them.
191
Figure 4.2: The Marital Status of 370 Respondents.
Source: From the data in Table 4.1
From Figure 4.2, it is shown that married respondents have the modal frequency
of 251 out of 370 while the single, divorced, widowed and separated
respondents have the lower frequencies of 109, 2, and 4 of them respectively.
192
Fig. 4.3: Shows the ages of the 370 respondents
Figure 4.3: The ages of the 370 respondents.
Source: From the data in Table 4.1
From Figure 4.3, it was shown that the ages in years were below 25.5 years,
25.5-30.5, 30.5 – 35.5, 35.5 – 40.5, 40.5 – 45.5, 45.5 – 50.5 55.5 and above 55.5
years. They had frequencies of 43, 44, 45, 51, 52, 48, 46, and 41 of them
respectively. This showed that the 40.5 – 45.5 age class has the modal
frequency of 52 out of 370.
193
Fig. 4.4 shows the highest education qualification of the respondents
Figure 4.4:
The highest educational qualification of the 370 respondents.
Source: From the data in Table 4.1
From Figure 4.4, it was shown that the highest educational qualifications were
Senior School Certificate, R.S.A. Trade Certificate, Diploma, O.N.D, H.N.D,
First Degree, Second Degree and Ph.D. They subtend angles in the centre of the
circle in degrees equal to 132.32, 22.38, 8.76, 21.41, 23.35, 29.19, 72.92, 46.70
and 2.92 respectively.
194
Figure 4.5 shows the histogram of the data on the length of service of the 370
respondents
Figure 4.5: The Length of service of the 370 Respondents.
From Figure 4.5 it was shown that the classes for length of service of the
respondents were: below 0.5 years, 0.5 – 5.5years 5.5 – 10.5years, 10.5 –
15years and 15.5 – 20.5 years. They have frequencies of 51, 55, 82, 126 and 56
out of 370. This showed that the 10.5 – 15.5years length of service had the
modal frequency of 126 out of 370
4.4 RELIABILITY AND VALIDITY ANALYSIS
4.4.1. Reliability Analysis
The same version of the questionnaire was delivered to the same
respondents at two points in time. The scores were correlated. Table 4.2 shows
the reliability analysis related to the five objectives
Table 4.2: The reliability analysis related to the five objectives
Number
Responses
the first
time
Rank
Responses
the second
time
Rank
%
%
195
I
353
9.5
353
9.5
0
0
Ii
352
9.5
352
7.5
0
0
Iii
351
5.5
351
5.5
0
0
Iv
310
1.5
310
1.5
0
0
V
350
3.15
350
3.5
0
0
Source: The responses of the number of respondents that strongly agreed or
agreed is got from the questionnaires administered
From Table 4.3, it is shown that the Spearman’s rank correlation of the scores at
two points in time is 1. This shows a perfect positive correlation. This shows
that the measure is reliable.
4.4.2 Validity Analysis
Using the Taro Yamane’s formula
n
=N
1+N(e)2
where
n is the sample size,
N is the population size = 6000
e is the error term which is 5% at 95% confidence level.
196
Since the systematic sampling technique is used to get the sample numbers and
the stratified sampling technique is used to allocate the sample sizes to the
organizations and the same version of the instrument is used, this gives the
measure, content validity.
4.4.1 Percentage Analysis
Table 4.3: Analysis of the response rates for the questionnaire administered
(a)
Total number of questionnaire administered
375
(b)
Total number of questionnaire returned
370
Response rate
ab
x 10
b
Non response rate =
97.63
a-b
x 100
a
02.37
Total in percentage
100
Source: From the questionnaires administered.
From Table 4.3, it was shown that the total number of questionnaire
administered was 375 while the total number of questionnaire returned was 370.
This gave a response rate of 370 out of 375 giving a percentage of 97.63 to 7
decimal places. Also the non-response rate was 5 out of 375 giving 02.37% to
two decimal places.
Table 4.4 Shows the percentage analysis of some Likert scale statement
S/
N
Statement
S
A
1.
The Military has not 6
done
enough
to
%
A
1.62 6
%
N %
1.62 8
2.1
6
D
%
S
D
%
Tot
al
No
30 81.0 50 13.5 370
0 8
1
Tot
al
%
100
197
2.
3.
4.
5.
6.
7.
sensitize
her
personnel on the
contributory pension
scheme
Members
of
the
armed forces are not
well informed about
the operation of the
contributory pension
scheme
The military should
have been exempted
from contributing to
the
scheme
considering
their
contribution
to
national development
Incidences of backlog
of
payment
of
pension will cease
with the introduction
of the contributory
pension scheme.
Government’s
contribution to the
scheme should be
increased to 20%
The failure of a PFA
will not affect the
funds and assets kept
by PFC
All those managing
or keeping custody of
pension funds and
assets will be licensed
5
1.65 7
1.89 8
2.1
6
29 80.5 52 14.0 370
8 4
5
100
51 13.7 29 80.8 5
8
9 1
1.3
5
7
1.89 8
2.16 370
100
49 13.2 30 81.3 6
4
5
1.6
2
7
1.89 7
1.89 370
10
47 12.7 30 81.6 8
0
2 2
2.4
3
6
1.62 6
1.62 370
10
6
1.62 8
2.1
6
30 81.0 50 13.5 370
0 8
1
100
47 12.4 30 81.8 9
3
2 9
2.1
6
6
100
1.62 6
1.89 6
1.62 370
198
8.
and
continually
regulated
and
supervised by the
National
Pension
Commission
therefore the safety of
the
funds
are
guaranteed
A member of the 46 12.4 30 81.8 8
armed forces who
3
3 9
retires on medical
ground or permanent
disability is entitled
to withdraw from his
RSA even though is
below 50 years at
such retirement.
Source: From the questionnaire administered.
2.1
6
7
1.89 9
1.62 370
100
199
NB 99.99 is rounded up to 100 in statements 1, 2, 3 4, 5, 6, 7 i.e. in all the
seven statements.
Table 4.3 showed the statements and the responses in absolute numbers
and in percentages. For the statement that the military has not done
enough to sensitize her personnel on the contributing pension scheme, the
responses were strongly agreed, agreed, neutral, disagreed and strongly
disagreed with frequencies of 6, 6, 8, 300 and 50 out of 370 giving
percentages of 1.62, 1.62, 2.16, 81.08 and 13.51 of them respectively.
For the statement that members of the armed forces were not well
informed about the operation of the contributory pension scheme, the
responses were strongly agreed, agreed, neutral, disagreed and strongly
disagreed with frequencies of 5, 7, 8, 298 and 52 out of 370 giving
percentages of 1.65, 1.89, 2.16, 80.54 and 14.05 respectively. For the
statement that the military should have been exempted from the scheme
considering the nature of their job, the responses were strongly agreed,
agreed, neutral, disagree and strongly disagreed. They had frequencies of
51, 299, 5, 7, and 8 out of 370 giving percentages of 13.78, 80.81, 1.35,
1.89 and 2.16 respectively.
For the statement that incidences of backlog of payment of pension will
cease with the introduction of the contributory pension scheme, the
responses were strongly agreed, agreed, neutral, disagreed and strongly
disagreed with frequencies of 49, 30, 6. 7 and 7 out of 370 giving
percentages of 13.24, 81.35, 1.62, 1.89 and 1.89 respectively. For the
statement that government’s contribution should be increased to 20%, the
responses were strongly agreed, agreed, neutral, disagreed and strongly
disagreed. They had frequencies of 47, 302, 8, 6 and 6 out of 370
200
respectively giving percentages of 12.70, 81.62, 2.43, 1.62 and 1.62
respectively. For the statement that the failure of a PFA will not affect
the funds and assets kept by PFC, the responses were strongly agreed,
agreed, neutral, disagreed and strongly disagreed. They had frequencies
of 6. 6. 8, 300 and 50 respectively giving percentages of 1.62, 1.62, 2.16,
81.08 and 13.51 respectively.
For the statement that all those managing or keeping custody of pension
funds and assets will be licensed and continually regulated and supervised
by the National Pension Commission and therefore, the safety of the
funds are guaranteed, the responses were strongly agreed, agreed, neutral,
disagreed and strongly disagreed. They had frequencies of 47, 302, and
9. 6 and 6 respectively giving percentages of 12.43, 81.89, 2.16, 1.89 and
1.62 respectively.
For the statement that a member of the armed forces who retires on
medical ground or permanent disability was entitled to withdraw from the
RSA even though he is below 50 years at such retirement, the responses
were strongly agreed, agreed, neutral, disagreed and strongly disagreed.
They had frequencies of 46, 303, 8, 7, and 9 out of 370 respectively
giving percentages of 12.43, 81.89, 2.16, 1.89 and 1.62 respectively
201
Table 4.5 Shows the Analysis of some Likert scale statement using relative
frequency
S/
Statement
Responses
SA
A
N
D
SD
N
9. A soldier who has been Frequency
6
7
7
50
300
contributing to the scheme and
dies before his retirement is not
entitled to any payment
Relative
0.01 0.01 0.09 0.12 0.81
frequency
6
4
5
10. Incidences of long delay in Frequency
49
301 7
6
7
payment of pension associated
with the pay as you go system
will be eliminated in the
contributory pension scheme.
Relative
0.13 0.81 0.01 0.05 0.07
frequency
2
4
9
6
9
11. The military is worried that the Frequency
47
302 7
7
7
pension administrators may no
know what to do with the large
sum of money accruing to it
from the contributors.
Relative
0.12 0.81 0.01 0.01 0.01
frequency
7
6
9
9
9
12. The
contributory
pension Frequency
45
301 8
8
8
scheme does not encourage
payment
of
gratuity
to
members of the armed forces.
Relative
0.12 0.81 0.02 0.02 0.02
frequency
2
4
2
2
2
13. Soldiers who retire before the Frequency
7
7
7
40
309
stipulated age of retirement in
the military are not entitled to
pension.
Relative
0.01 0.01 0.01 0.01 0.83
Tot
al
370
1
370
1
370
1
370
1
370
1
202
frequency
14. Those retired compulsory or Frequency
voluntarily in the armed forces
are not entitled to pension in
the new scheme.
Relative
frequency
15. The new contributory pension Frequency
scheme would not be much
different from the previous
pension scheme.
Relative
Frequency
16. The old pension scheme failed
because
of
corruption,
mismanagement
by
those
entrusted with its management.
Relative
frequency
17. The new contributory pension Frequency
scheme will lead to a decrease
in
soldiers’
monthly
emolument.
Relative
frequency
Source: From the questionnaires administered
9
7
9
7
9
7
8
41
5
308
370
0.01 0.01 0.01 0.11 0.83 1
9
9
9
1
3
8
8
8
40
306 370
0,02 0,02 0.02 0,10 0.82 1
2
2
2
8
7
48
301 7
7
7
370
0.13 0.81 0.01 0.01 0.82 1
0
4
9
9
7
48
301 7
7
7
370
0.13 0.81 0.01 0.01 0.01
0
4
9
9
9
203
NB for statements 9, 0.999 was rounded up to 1. For statement 1.002 is
rounded up to 1. For statement no. 14 and 16 1.661 was rounded up to 1.
Source: The questionnaire administered.
Tables 4.5 showed the responses to some Likert scale statements in
absolute numbers and relative frequencies. For the statement that a
soldier who has been contributing to the scheme and dies before his
retirement age was not entitled to any payment, the responses were
strongly agreed, agreed, neutral, disagreed and strongly disagreed. They
had frequencies of 6, 7, 7, 50 and 300 out of 370 respectively giving
relative frequencies of 0.016, 0.014, 0.009, 0.125 and 0.810 respectively.
For the statement that incidences of long delay in payment of pension
associated with the Pay As You Go system will be eliminated in the
contributory pension scheme, the responses were strongly agreed, agreed,
neutral, disagreed, and strongly disagreed. They had frequencies of 49,
301, 7, 6, and 7 out of 370 giving relative frequencies of 0.132, 0.814,
0.019, 0.016 and 0.019 respectively.
For the statement that the military is worried that the pension
administrators may not know what to do with the large sum of money
accruing to it from the contributors, the responses were strongly agreed,
agreed, neutral, disagreed and strongly disagreed. They had frequencies
of 47, 302, 7, 7 and 7 out of 370 respectively giving relative frequencies
of 0.127, 0.816, 0.019, 0.019, and 0.019 respectively.
For the statement that the contributory pension scheme does not
encourage the payment of gratuity to members of the armed forces, the
responses were strongly agreed, agreed, neutral, disagreed and strongly
204
disagreed. They had frequencies of 45, 301, 8, 8, and 8, out of 370
respectively giving relative frequencies of 0.122, 0.814, 0.022, 0.022 and
0.022 respectively.
For the statement that soldiers who retire before the stipulated age of
retirement in the military were not entitled to pension, the responses were
strongly agreed, agreed, neutral, disagreed and strongly disagreed, they
had frequencies of 7, 7, 7, 40, and 309 out of 370 respectively giving
frequencies of 0.019, 0.019, 0.019, 0.018 and 0.835 respectively.
For the statement that those retired compulsorily or voluntarily in the
armed forces were not entitled to pension in the new scheme.
The
responses were strongly agreed, agreed, neutral, disagreed and strongly
disagreed, they had frequencies of 7, 7, 7, 41 and 308 out of 370
respectively giving relative frequencies of 0.019, 0.019, 0.019, 0.111 and
0.833 respectively.
For the statement that the new pension scheme would not be much
different from the previous pension scheme, the responses were strongly
agreed, agreed, neutral, disagreed and strongly disagreed.
They had
frequencies of 8, 8, 8, 40, and 306 out of 370 respectively giving relative
frequencies of 0.022, 0.022, 0.022, 0.108 and 0.827.
For the statement that the old pension scheme failed because of
corruption and poor mismanagement by those entrusted with its
management, the responses were strongly agreed, agreed, neutral,
disagreed and strongly disagreed. They had frequencies of 48,301,7,7,7
out of 370 respectively giving relative frequencies of 0.130, 0.814, 0.019,
0.019 and 0.019 respectively.
205
Table 4.6: The Analysis of some Likert scale Statements Using Z test
S/
Statement
SA A
N
D
N
17. The new contributory pension 18
97
23
45
S
Mea
D
n x
25
4.05
S
Z
1.26
15.67
scheme will lead to a decrease 5
0
in soldiers’ monthly emolument
18. Some members of the armed 22
forces retired voluntarily at the 3
introduction
of
the
11
11
6
15
4.42
0.93
29.31
1
4
14.6
1.11
17.33
0
6
0
4.50
0.81
35.46
4
0
4.54
1.02
28.37
0
9
9
3.88
1.27
13.24
0
8
9
5
reform
scheme for fear of losing their
pension and gratuity.
19. The
contributory
pension 14
scheme has performed well 5
against
any
14
34
30
17
4
performance
objectives that have been set.
20. Contributors
should
decide 22
investment portfolios for their 9
12
4
10
7
0
contribution.
21. The
contributory
scheme
has
pension 30
removed
10
25
30
5
the 0
incidence of lack of funds
associated
with
the
PAYG
system.
22. The new pension scheme will 14
address
the
issue
mismanagement
characterized
system.
of 3
that
the
PAYG
14
6
15
25
41
206
23. The
pension
reform
acts 49
provides checks and balances
30
6
7
7
1
4.02
0.77
26.40
0
3
6
that would guarantee the safety
of contributors funds.
Source: From the questionnaire administered
Table 4.6 showed the responses to the Likert scale responses in
frequencies out of 370 and the sample means x , sample standard
deviations and calculated Z value.
For the statement that the new
contributory pension scheme will lead to a decrease to soldiers’ monthly
emolument, the responses were strongly agreed, agreed, neutral,
disagreed and strongly disagreed. They had frequencies of 187, 97, 23,
45 and 25 out of 370 respectively giving a sample mean of 4.05, sample
standard deviation of 1.26 and calculated Z value of 15.670.
For the statement that some members of the Armed Forces retired
voluntarily at the introduction of the Reform Scheme for fear of losing
their pension and gratuity, the responses were strongly agreed, agreed,
neutral, disagreed and strongly disagreed. They had frequencies of 223,
115, 11, 6 and 15 out of 370 respectively giving a sample mean of 4.42,
sample standard deviation of 0.931 and calculated Z value of 29.314.
For the statement that the contributory pension scheme has performed
well against any performance objectives, the responses were strongly
agreed, agreed, neutral, disagreed and strongly disagreed.
They had
frequencies of 145, 144, 34, 30, and 17 out of 370 respectively giving a
sample mean of 14.60, sample standard deviation of 1.116 and calculated
Z score of 17.380.
207
For the statement that the contributors should decide the investment
portfolios for their contribution, the responses were strongly agreed,
agreed, neutral, disagreed, and strongly disagreed. They had frequencies
of 229, 120, 4, 10 and 7 out of 370 respectively giving a sample mean of
4.50, sample standard deviation of 0.814 and calculated Z score of
35.460.
For the statement that the contributory pension scheme has removed the
incidence of lack of funds associated with the PAYG system, the
responses are strongly agreed, agreed, neutral, disagreed and strongly
disagreed. They had frequencies of 300, 10, 25, 30 and 5 out of 370
respectively giving a sample mean of 4.54, sample standard deviation of
1.029 and calculated Z score of 28.379.
For the statement that the new pension scheme will address the issue of
mismanagement that characterized the PAYG system, the responses were
strongly agreed, agreed, neutral, disagreed and strongly disagreed. They
had frequencies of 143, 146, 15, 25 and 41 out of 370 respectively giving
a sample mean of 3.883, sampled standard deviation of 1.278 and
calculated score of 13.249.
For the statement that the pension reform act provides checks and
balances that would guarantee the safety of contributors’ funds, the
responses were strongly agreed, agreed, neutral, disagreed and strongly
disagreed. They had frequencies of 49, 301, 6, 7 and 7 out of 370
respectively giving a sample mean of 4.02, sample standard deviation of
0.743 and calculated Z score of 26.406.
208
For the seven Likert scale statement on some aspects of the PAYG and
Pension Reform Schemes, all the statements were positive and each of
them had calculated Z score greater than 1.645 which means that most of
the respondents either agreed or strongly agreed with the statements and
few of them were neutral, disagreed or strongly disagreed. This also
meant that most of them were positively disposed to the new pension
scheme and so most of the members of the Armed Forces interviewed had
a positive attitude, disposition and support for the new pension scheme
occasioned by the Pension Reform Act of 2004.
4.4.2 Theoretical Analysis
In response to the question of what Pension means to a pensioner, the
response was that pension was an amount of money paid regularly by a
government or a company to somebody who has retired from work. It is
considered as the life line of the pensioner. It is the only safety net of
Nigerian workers when they grow old and retire.
In response to the question of what their assessment of the pension reform
were, they stated that the reform was progressing well. They said that the
Pension Reform Act 2004 has been enacted. They also said that the
arrangement the National Pension Commission had with the Pension
Fund Administrators and custodian was also in place.
One of the challenges of the Pension Reform Act stated by the
respondents was that of compliance. They said that the Act stated all
those who came under the purview of the Act: All Federal Public
Servants, all staff of the Federal Capital Territory, all members of the
Armed Forces and workers in the private sector in employment with five
or more staff.
209
In response to the question of whether the soldiers and other workers
were informed, they replied that the soldiers, workers in the public and
private sectors were already contributing to the scheme and were
informed about the Act.
They said that there was the need for all
concerned to be fully educated about all the benefits without this; it
would be difficult for them to buy in.
In response to the question of whether there was a problem of gratuity,
the respondents said yes. There was the ongoing problem of whether with
the new reform there was still going to be gratuity. However, they said
that once it was contained in the collective agreement it was binding in
the employers especially those in the private sector. They however hoped
that since the reform was meant to improve the benefits and not to
dampen them, they hoped that gratuity would be paid.
The soldiers interviewed all agreed it was good to prepare for retirement.
This was because a stitch in time saves nine.
4.5 TESTING THE RESEARCH HYPOTHESES
Five hypotheses formulated for this study were now tested statistically to
ascertain the final findings of this research endeavour.
210
4.5.1 Testing the First Hypothesis
The null hypothesis states that the poor management and administrative
lapses and challenges in the PAYG system are of the same order of
magnitude. The alternative hypothesis is that they are not of the same
order of magnitude. Table 4.7 shows the computational details of the first
hypotheses.
Table: 4.7: The computational details of the first hypothesis
S/N The
management
and Observed
administrative lapses and frequency, o
Expected
frequency, e
(o - e )2
e
challenges in the PAYG
system
1.
Delay in paying pensions 65
61.667
0.1801431
and gratuities to retirees
2.
Poor funding
64
61.667
0.0882625
3.
Poor policy formulation
62
61.667
0.0017981
4.
Mismanagement
of 61
61.667
0.0072143
and 60
61.667
0.00450628
61.667
0.218056
funds
5.
Lack
of
balances
sheets
to
guarantee
safety of funds
6.
Lack of contribution by 58
staff
0.5005445
30.501
Source: From the questionnaire administered.
211
Table 4.7, shows that the calculated chi-squared value which was 0.501 is
less than the table chi-squared value at 5% level of significance which
was 1.645. So the null hypotheses that the management and
administrative lapses and challenges in the PAYG system are of the same
order of magnitude was accepted.
212
4.5.2 Testing the Second Hypothesis
The null hypothesis that members of the armed forces were not to a large
extent well informed about the operation of the contributory pension
scheme was tested against the alternative hypothesis that members of the
armed forces were to a large extent well informed about the operation of
the contributory pension scheme. Table 4.8 shows the computational
details of the second hypothesis.
Table 4.8: Computational details of the second hypothesis
Number of respondents that
disagreed or strongly disagreed
that members of the armed
forces are to a large extent not
well
informed
about
the
contributory pension scheme
298 + 52 = 350
Sample size = 370
Z =
x
- p0
n
( p0 )( p0 )
n
Source: From the questionnaire administered
Z =
(0.9549459- 0.9)
(0.9)(0.1)
370
0.05498159 370
= 3.523018
0.3
» 3.523
Z =
The table Z value at 95 confidence level = 1.645
Source: The number of respondents that disagreed or strongly disagreed
with the negative statement 350 was got from the questionnaire
administered.
213
Ho: P = 0.9, HA: P > 0.9
Since the calculated Z value which was 3.523 is greater than the table Z
value which was 1.645, the null hypothesis that the prescribed proportion
is 0.9 was rejected and the alternative hypotheses that the proportion is
greater than 0.9 was accepted. So the alternative hypothesis was accepted
at 5% level of significant.
214
4.5.3 Testing the Third Hypothesis
The null hypothesis states that the new pension scheme has not
eliminated the problems of long delays in payment associated with the
PAYG system was tested along the alternative hypotheses that it has
eliminated the problems of the long delays in payment associated with the
PAYG system. Table 4.0 shows the computational details of the third
hypothesis.
Table 4.9: Computational details of the third hypothesis
Year Increase in the Rank Year Decrease in the problems of Rank d d 2
use
of
the
long delays in payment of
contributory
pension
associated
scheme
PAYG system.
with
2008 5
9.5
2008 5
9.5
0 0
2007 4
7.5
2007 3
5.5
2 4
2006 4
7.5
2006 3
5.5
2 4
2005 2
3.5
2005 1
1.5
2 4
2004 2
3.5
2004 1
1.5
2 4
16
Source: From the questionnaire administered
Spearman’s rank correlation coefficient
x =1-
6å d 2
n(n - 1)(n + 1)
= 1 - 6(16) /(5 x 4) x6 = 20 / 20 - 16 / 20 = 4 / 20 = 0.2
Source: The ranks are got from the questionnaire administered by taking
the average of the scores.
215
From Table 4.9 it was shown that the Spearman’s rank correlation
coefficient was 0.2 and which showed a very low positive correlation
between the increase in the use of the contributory scheme and decrease
in the problems associated with the PAYG system.
So the null
hypothesis was rejected and the alternative hypothesis was accepted.
216
4.5.4 Testing the Fourth Hypothesis
The null hypothesis states that the contributory pension scheme had not
removed the incidence of lack of funds inherent in the old pension
scheme. This means that the contributory pension scheme was not going
to increase with the incidence of lack of funds inherent in the old pension
scheme. The alternative hypothesis was that the contributory pension
scheme had removed the incidence of lack of funds associated with the
old pension scheme.
Table 4.10: The computational details of the fourth hypothesis
Year Increase of the use Year
Decrease in the lack of d
of the contributory
difference
scheme
inherent
Rank
pension scheme
d2
fund,
in
the
old
Rank
2008
5
9.5
2008
5
9.5
0
0
2007
4
7.5
2007
4
7.5
0
0
2006
3
5.5
2006
3
5.5
0
0
2005
2
2.5
2005
2
2.5
0
0
2004
2
2.5
2004
2
2.5
0
0
Source: From the questionnaire administered.
Spearman’s rank correlation coefficient
rs = 1 -
6å d 2
n(n - 1)(n + 1)
the number of years = 5
rs = 1 -
6(0 )
=1
5(4 )(3)
Source: The ranks are got from the questionnaire administered by taking
the average of the scores and approximating.
217
So there was a positive correlation between the increase in the use of the
contributory pension scheme and increase of funds (decrease of lack of
funds) inherent in the old scheme. So it means that as the use of the new
scheme which came into existence in 2004 progresses positively the
decrease of lack of fund or increase in the use of funds incidence
increases so and to the alternative hypothesis was accepted.
218
4.5.5 Testing the Fifth Hypothesis
The null hypotheses that the Pension Reform Act 2004 had not provided
checks and balances that would guarantee the safety of contributors’
funds was tested against the alternative hypotheses that it has provided
checks and balances that would guarantee the safety of contributors’
funds at 5% level of significance.
Table 4.11 Computational details of the fifth hypothesis
Responses
Frequency
f
Score X
Fx
(
)
(
)
f x-x
SA
49
A
301
U
6
D
7
SD
7
Total
370
5
245
4
1204
3
18
2
14
1
7
15
1488
Mean x
S2
å fx = 24.02
åf
0.793 24.74
3
47. 0.120 6.2 28. 63.8
059 4
42 56 428
6
4
28
Source: The Questionnaire administered
f x-x
2
= 47.05964 + 0.1204 + 6.2424 + 58.5628 + 63.8428 + 232.01
Sample var iance , S
2
å f (x - x
=
2
) = 232.01
n -1
S = 0.6287533
369
2
Sample S tan dard Deviation S =
S2
S = 0.6287533
S = 0.792939620.793
Z =
x-m
S vn
=
=
(
370 (4.02 - 3)
0.7929396
)
370 (1.02)
= 24.743487
0.7929396
Source: The observed frequencies are from the field work.
Z
219
From the table it was shown that the calculated Z value which is 24.743
to 3 decimal places was greater than the table Z value at 95% confidence
level which is 1.645, so the null hypotheses was rejected and the
alternative hypotheses was accepted.
4.6 MODEL SOLUTION
Table 4.12: The analysis of the dichotomous responses for generating
the primary data for the model solution
S/N Question
Yes in %
No
in %
Total in Total
Number.
1.
Are
retired
soldier’s 370
Number.
100
0
Number. in %
0
370
100
99.46 2
0.54 370
100
98.94 4
1.08 370
100
98.38 6
1.62 370
100
99.73 1
0.27 370
100
100
0
370
100
98.11 7
1.89 370
100
97.30 10
2.70 370
100
inputs of the model?
2.
Are
retired
public 368
servants inputs of the
model?
3.
Are retired private sector 366
workers inputs of the
model?
4.
Are
retired
staff
of 364
parastatals inputs in the
model?
5.
Are materials inputs of 369
the model?
6.
Are money an input of the 370
0
models?
7.
Is energy an input of the 363
model?
8.
Is time an input of the 360
model?
220
9.
Is knowledge an input of 358
96.76 12
3.24 370
100
98.78 1
0.22 370
100
100
0
100
the model?
10.
Is
the
pension
contributory 369
scheme
transformation
of
a
the
model?
11.
Are payment of statutory 370
0
370
and pension as at when
due and management and
proper funding, backed by
the Pension Act 2004 and
commitment
government
of
the
towards
implementation output of
the model?
Source: From the semi-structured interview conducted by the field
data collector.
Table 4.12 shows the responses to the dichotomous (yes or no) questions
in absolute numbers and in percentages. The 370 respondents were asked
whether retired soldiers, retired public servants, retired private sector
workers, retired workers of parastatals, materials, money, energy, time
and knowledge were inputs of the model, 370, 366, 363, 369, 370, 363,
363, 362, 358 respectively giving percentages of 100, 99.46, 98.92,
98.38, 99.73, 100, 98.11, 97.30 and 96.76 respectively said yes while 0,
4, 6, 1, 0, 7, 7, 10 and 12 out of 370 of them said no giving percentages of
0, 0.54, 1.08, 1,62, 0.27, 0, 1.89, 2.70 and 3.24 of them respectively.
221
The 370 respondents were asked whether the contributory pension
scheme was the transform of the model and 369 of them making 99.73%
said yes while 1 respondent making 0.27% said no. The 370 respondents
were asked if payment of pension and gratuity as and when due and
proper funding and management backed by the Pension Act 2004 and
commitment of government towards implementation, are outputs of the
model and 369 of them making 99.73% of them said yes and 1 of them
making 0.27% said no.
222
REFERENCES
Behling, J. H. (1984) Guidelines for Preparing Research Proposals. New
York: University Press of America.
Borg, W. R. (1983) Educational Research: An Introduction (4th Edition
ed.). New York: Longman.
Jomere, G. O., & Agbonifoh. (1999) Research Methodology in the Social
Sciences and Education. Benin City : Center Piece Consultants
Nigeria Limited.
Mills, G., & Walter, H. (2004) Technical Writing. New York: Holt
Rinehart and Winston.
O'Brien, J. A. (2004) Computers in Business Management: An
Introduction. New York: Holt, Rinehart and Winston.
Podsakoff, P. M., & Dalton, D. R. (1987) ''Research Methodology in
Organizational Studies''. Journal of Management , 11 (3).
223
CHAPTER FIVE
DISCUSSION OF THE RESEARCH FINDINGS
5.1
INTRODUCTION
Findings
It is pertinent to note that the interpretation of research findings
represents a key component in the research process. Due to this reason
results of research must be well spelt out so that it can be reasonable and
presented in such a way that it would be meaningful as well as
understood. In this direction, the results of the study were used to test the
hypotheses which have been presented in the previous chapter, while the
emerging findings were deduced with specific references to the stated
objectives.
In the last chapter the data presentation and analysis and model solutions
were done in which data was the representation of facts, observations and
occurrences (O’Brien, 2000:18). The data were presented by means of
tables, simple bar charts, histograms and pie charts to make them
amenable for further analysis. By analysis it was meant the act of noting
relationships and aggregating data on a variable with similar
characteristics and also splitting the units into their parts (Mills and
Walter, 2000:62).
The researcher has accepted the contention of Podsakoff and Dalton
(1987:18) that the factual information from the data was to be used as a
basis for reasoning, calculation and discussion. The factual information
from the data was also to be used as a basis for handling the discussion of
the
findings in this chapter and the summary of major findings,
224
conclusion, recommendations and suggestion for further research in the
next chapter.
5.2 DISCUSSION OF THE FINDINGS TO HIGHLIGHT POOR
MANAGEMENT AND ADMINISTRATIVE LAPSES AND
CHALLENGES IN THE PAY AS YOU GO SYSTEM
The PAYG system had the lapses that included long delay before the
retired soldiers were paid their pensions and gratuities, poor funding,
inept management, poor policy implementation, poor institutional
backup, and non-payment of up to 48 months arrears as at August 2002.
No wonder, Howard (2003: 29) wrote that:
“Here are Nigerians who have served their motherland with the
better part of their lives being deprived of their source of
livelihood. Consequently, many of them have been ejected out
of their rented apartments and are now being housed by either
friends or relatives, some are dying of illness which could have
been cured if they had been lucky to have their pension to pay
for medical treatment, many had no other choice than to
withdraw their children from school owing to lack of funds and
some of them are now on the streets begging for alms to feed
themselves”.
Loss of pension income by many retirees in general and the military
retirees in particular would result as Anyanwu and Oaikhenan (1989:23)
and (Iyoha, 2007: 13) put it, the lowering of the G.N.P. per capita over
time. This leads to a decrease in the economic growth and development
of Nigeria. No wonder World Bank (2005) puts the GDP (2003) in $
225
million for Canada, France, Germany, Italy, Japan, U.K., U.S. were
856523, 1,757, 613, 2,4013,160, 1,468, 314, 4,300,858, 1,794,878, and
10,748,547 respectively.
5.3 DISCUSSION OF THE FINDINGS TO ASCERTAIN THE
EXTENT TO WHICH MEMBERS OF THE ARMED FORCES
ARE WELL INFORMED ABOUT THE OPERATION OF THE
CONTRIBUTORY PENSION SCHEME
The finding that 350 out of the 370 respondents making 94.59% of them
either disagreed or strongly disagreed with the statement that members of
the armed forces are not well informed about the operation of the scheme
had a lot of implications.
However, the managers of the scheme still had some work to do to get 20
out of 370 of them making 5.41% of them to be aware of the operation of
the scheme. This could be done by continuing to highlight the deductions
in the pay slips and also by organizing seminars, workshops and
conferences on the new pension scheme especially for those close to
retirement.
5.4
DISCUSSION
WHETHER
OF
THE
THE
NEW
FINDINGS
PENSION
TO
DETERMINE
SCHEME
WOULD
ELIMINATE THE PROBLEM OF LONG DELAYS IN
PAYMENT ASSOCIATED WITH THE PAYG SYSTEM
The finding that 350 out of 370 of the respondents making 94.59% of
them either strongly agreed or agreed with the statement that incidences
of long delay in payment of pension associated with the Pay As You Go
system could be reduced. Paying the retired soldiers promptly would
increase their personal income and also increase the Gross National
226
Income and Gross National Product and by implication increase the
economic growth of the country which is the increase in the output of the
people of the nation within a specific period of time (Iyoha, 2007:22
/Anyanwu and Oaikhenan, 1989:24).
Paying the retired soldiers promptly would enable them pay school fees
for their children and dependants and this would contribute to an increase
in the literacy level of the nation and make for an increase in the human
development index of the country which is at present 0.466 while Norway
is number one with a H.D.I of 0.965 and Nigeria is in the low Human
Development index category and is ranked 151 (Jhinghan, 2007:8).Under
the new scheme, an appreciable percentage of funds will be invested in
the Nigerian economy. This will translate to economic development and
activities, job creation and poverty alleviation. Thus, the pensioner is
assured of his pension as and when due. It is the paucity of funds and lack
of long term investment in an economy that retards the fortunes of the
workforce and prevents access to funds as and when due.
5.5 DISCUSSION OF THE FINDING TO DETERMINE IF THE
CONTRIBUTORY PENSION SCHEME WILL REMOVE THE
INCIDENCE OF LACK OF FUNDS IN THE OLD SCHEME
The finding that 310 out of the 370 making 83.78% of them either
strongly agreed or agreed with the statement that the contributory pension
scheme has removed the incidence of lack of funds associated with the
Pay As You Go system has a lot of financing and investment
implications. The contributions are deducted immediately from the salary
of the employee and transferred to the relevant retirement savings
account. By so doing funds exist from the onset and payment will be
made as and when due.
227
It implied that the new scheme with its contributory nature had the
provision of both short term and long term funds needed to ensure the
smooth operation of the scheme. (Federal Republic of Nigeria, 2004:18 /
Osaze and Anao, 1989:44). It also implied that there was enough legal
backing provided by the Pension Reform Act of 2004 to ensure the
control of the disbursement of the funds (Federal Republic of Nigeria,
2004:12 / Osaze and Anao, 1989:34) So the two financial management
functions of financing by providing the short and long term funds and
investment by networking the disbursement of the funds are convered by
the Pension Act 2004.Also, since the new scheme brings the retirement
benefit of the Nigerian Soldier under his control, he is better off than
what was obtained in the past where he worked and had no certainty that
at retirement the funds will be available to him. With this, there will be
enhanced productivity in the country as soldiers will be conscious of the
fact that when they retire, they do not really have to worry about getting
their benefits. They are rest assured that monthly contribution is made
into their accounts which is under their control. The economy as a whole
will be significantly boosted by the new scheme as avenues are created
for long term funds necessary for investments in the economy.
5.6 DISCUSSION OF THE FINDING TO DETERMINE IF THE
PENSION ACT PROVIDES CHECKS AND BALANCES THAT
WOULD GUARANTEE THE SAFETY OF CONTRIBUTORS’
FUNDS
The finding that 350 out of the 370 respondents making 94.5% of the
respondents either strongly agreed or agreed with the statement that the
pension reform act provides checks and balances that would guarantee the
safety of the contributors’ funds implied that more than nine out of ten
228
respondents said so.The pension reform act stipulated that in the case of
the military relating to the monthly emolument, a minimum of 12½% by
the employer (Federal Republic of Nigeria, 2004: 4). However, as
stipulated by the Act and notwithstanding, an employer may agree or
elect to bear the full burden of the scheme, provided that in such a case
the employers’ contribution shall not be less than 15% of the monthly
emoluments of the employee.
One of the checks provided by act is that every employee shall maintain
an account referred to as the retirement savings account. Also, it is
stipulated that an employee may not move more than once a year or
transfer the retirement savings account from the pension fund
administrator to the other. Also the safety of the funds is enshrined in the
duties of PENCOM, Pension Fund Administrators and Custodians. To
provide additional checks and balances and safeguard investors’ fund, the
pension reform act established the pension fund administrators with
different functions from the pension fund custodians. The PFA manages
the pension funds and decides which kind of investments to make while
the PFC keeps custody of the pension contributions and assets. Therefore,
there is a defined role for each of them.
5.7 DISCUSSION OF FINDINGS FROM THE ORAL INTERVIEW
The respondents were asked what pension meant to the pensioners and
they replied that it was the amount of money paid regularly by the
government or a company to somebody who had retired from work. This
implied that the respondents saw pension as a means of getting some
personal income even after leaving normal work.
229
The respondents in response to the question of what was their assessment
of the pension reform, said that it was progressing well. They said the
Pension Reform Act 2004 has been enacted. They also stated that the
regulation given by the Pension Commission to the Pension Fund
Administrators and Custodians were all in place. So even with good
policy formulation by the Federal Government, proper implementation of
the new pension contributory scheme, backed by strong
policy and
strategy was necessary if good results were to continually to be obtained.
5.8
DISCUSSION OF FINDINGS
CYBERNETIC MODEL
FROM
THE
SYSTEMS
It was found that the inputs of the model were retired military personnel,
retired public servants, retired staff of parastatals and retired staff of the
private sector, materials, money, time, energy and knowledge. It was also
found that the transform was the new pension contributory scheme. The
outputs were payment of gratuity and pension as and when due, and
proper funding by the Pension Act 2004 and commitment by government
towards implementation.
It was found that feedback and control were also parts of the model. This
implied that for the proper functioning of the model towards
implementation the five parts: inputs, transform, output, feedback and
control were all important, (O’Brien, 2004:33). Moreover, the transform
of the new pension contributory scheme to move the inputs into outputs
puts the topic of the assessment of the contributory pension scheme in
context. Also the finding that the respondents assess the scheme as going
on well meant that the new scheme was better than the old noncontributory scheme with its myriad of problems.
230
5.9 DISCUSSION OF FINDINGS RELATED TO THE THEORIES
The finding that poor management and administrative lapses of the
PAYG system and the challenges were long delay in getting pension and
gratuities, poor funding, inept management, lack of awareness and poor
implementation in that order of magnitude has implications to the theory
of the management, financing and investment theory, theory of
management of retirement scheme, publicity theory and theory of strategy
implementation. The lapses can be handled by applying the theory. The
problem of long delay in getting pensions and gratuities can be solved by
the management of time. It is good to do everything on time. It is good to
save time and make time count in the new pension reform scheme.
The problem of poor funding can be solved by good financing and
investment of the pension funds. The contributory nature of the new
pension scheme ensures that both the employers and employees
contribute funds to the scheme to finance it. These funds need to be
controlled and properly utilized.
The problem of inept management can be solved by good management of
the retirement scheme. Pension provides income to individuals in their
retirement. In the contributory scheme, both the workers and the
employer contribute to the retirement scheme.
The problem of lack of awareness can be solved by publicity. It is
concerned with sharing ideas, meaning, or information to members of the
public. It involves giving information about the scheme.
The problem of poor implementation can be solved by good strategy
implementation. A strategy or a strategic plan is of no effect if it is not
231
properly implemented. The benefits of the strategic plan of the new
pension reform scheme cannot be got unless it is properly implemented.
5.10 MANAGEMENT IMPLICATIONS
Management as explained by Koontz et al (2008:9) is the provision of an
environment within organisations and groups so that the organisations
and groups and individuals within them would achieve their objectives by
utilizing both human and material resources.
Agbonifoh (2008:11)
defined environment as the variables and factors that impact on the
manager and the worker on their job. The Political, Economic, Social and
Technological (P.E.S.T) Environment model shows that the political,
economic, social and technological factors were all relevant in any
discussion on the environment.
An organization in the present model is regarded as a co-operative system
where individuals come together to achieve their objectives (Kritner and
Kimachi, 2004:77). The political model has described an organization as
an agent of domination as some individuals in the organization had more
authority, influence and so had control of the behaviour of other members
of the organization (Kritner and Kimachi, 2004:22). In organizations,
workers do their work as individuals and also in groups. A group is made
up of two or more people who come together to execute a task
(Nwachukwu, 1988:16). A team is a high performing group. It is
becoming an accepted principle in management that people work more
effectively as a team than when they work as individuals and this is why
there are now problem-solving groups, task performing groups and
decision making groups.
232
There are both individual and group or organizational objectives. An
objective is a short term aim at a point in the mission of the individual,
group or organization. An objective differs from a goal in the sense that a
goal is a long-term aim at a point in the mission of an individual, group or
organization (Osaze and Yomere, 2000:54).
In order to achieve an objective, the individual, group or organization
needs to utilize both human and material resources. A resource consists
of such inputs as men (human resource) (Banjoko, 2004:6). The human
resource is the totality of the people who are at work with their skills,
competences and potentialities. Materials are the raw items, parts,
stationary, inventory, semi-finished goods, finished goods, subassemblies etc to go into a production process before the outputs of goods
and services can be got. By money the totality of both the fixed and
working or circulating capitals, labour is an aspect of the human resource,
land can be acquired with money, capital is the money put into a business
by the owners and entrepreneur is the innovation put in any aspect of a
business enterprise. So land, labour, capital and entrepreneurship which
are also called the factors of production (Anyanwu and Oaikhenan, 1989 /
Iyoha, 2007).
The findings got from this research work have a lot of management
implications. The finding that the PAYG system had the lapse of long
delays before the retired soldiers were paid had time management
implications. Long delays implied waste of time and Shiekh (2002:34)
has observed that time is the most important, precious and non-renewable
resource that should be utilized instantly. If time is passed, it is gone and
gone forever.
233
The finding that poor funding was a lapse of the PAYG system had
financial management implications. It implied that the contributory
pension scheme had to have provisions for adequate financing facilities.
The first step was to take away the burden of complete financing by the
procurement of the short term and long term sources of funds solely from
the government and put it squarely in the shoulders of both the employers
and the employees so that the non-contributory nature of the PAYG
system that created the lapse of poor funding would be ameliorated by the
contributory nature of the new pension scheme. Also the second step was
to ensure the control of the expenditure of the funds by appropriate
investment procedures. This was also done by the new pension scheme
investment provisions of the Pension Act of 2004 (Federal Republic of
Nigeria, 2004:18).
The lapse of poor policy implication also had management implications.
Since policy is the guide to proper decision making there would be
repetitive wrong decision making. Since policy formulation is the
responsibility
of
the
top
management
selection
while
policy
implementation was the responsibility of the middle level management
selection, this would lead to a poor alignment between the two levels of
the management hierarchy (Nwachukwu, 1988:49)
The finding that 350 out of the 370 respondents making 94.59% of them
either agreed or strongly agreed that there was a high extent of awareness
of the members of Armed Forces of the contributory pension scheme
implied that enough publicity had been given to the scheme, no wonder
the Vanguard Newspaper has a very regular column known as Pension
and You. The present practice in which two years to the retirement the
234
workers due for retirement are sent to the National Pension Commission
for a short training also makes for more awareness.
The finding that more than 9 out of ten respondents either agreed or
strongly agreed that the new pension scheme would eliminate the
problems of long delays in payment associated with the PAYG system
implied that the new scheme would ensure more promptness in payment.
If time is wasted in payment the recipients suffer untold hardships. The
time they would have used for other ventures spend inefficiently and this
did not augur well for the image of the old scheme.
The findings show that most of the respondents either strongly agreed or
agreed that the new pension scheme would address the problem of
mismanagement of funds that characterized the old scheme. The new
pension scheme allowed for some planning to get the initial funds for the
scheme through the contributory nature of the scheme. It also allowed for
organizing by ensuring the duties of the National Pension Fund
Administrator and Custodians and they are properly staffed. Leadership
of the new scheme is invested on the National Pension Commission and
controlling is ensured through checks and balances.
The findings that more than nine out of ten respondents agreed or
strongly agreed that the Pension Reform Act provided checks and
balances implied that there was control. For example there is a provision
that an employer who failed to remit the contribution is liable to a penalty
which shall not be less than 2% of the entire contribution. Also there is a
provision for issuing bonds in the case of employees of the Public Service
and Federal Capital Territory where the scheme was unfunded. The bond
would be known as the Federal Government Retirement Bonds and the
235
amount so redeemed would be added to the retirement savings account
(Federal Republic of Nigeria, 2004:52).
The finding from the systems cybernetic model that the inputs of men,
materials, money, time, energy and knowledge implied that a lot of inputs
should be put in place for the new Pension scheme as transform to lead to
an output of the enhancement in timely pension and gratuity benefits of
retired soldiers in particular and other retired public and private workers
in general.
236
REFERENCES
Agbonifoh, B. A. (2008) "The Nature of Strategic Management". In B. A.
Agbonifoh (ed), Strategic Management Concepts, Principles and
Decisions. Benin City: Mindex Publishing COmpany.
Anyawu, J. C., & Oaikhenan, H. (1989) Macroeconic Theory. Onitsha:
Joanee Educational Publishers Limited.
Banjoko, S. A. (2004) Production and Operations Management. Lagos:
Saban Publishers.
Federal Republic of Nigeria. (2004) The Pension Reform Act (2004).
Abuja: Government Press.
Horward, P. S. (2003) Retirement Benefit Scheme in Nigeria. Lagos:
Unpublished Paper, Lagos Business School.
Iyoha, M. (2007) Modern Microeconomic Theory. Benin City: Mindex
Publishers Limited.
Koontz, A., O'Donnel, C., & Weihrich, H. (2000) Management.
Auckland: Mcgraw Hill.
Kreitner, R., & Kinicki, A. (2004) Organisationasl Behaviour. Boston:
Mcgraw Hill.
Mackenze, A. (2002) The Time Trip. New York: Amazon.
Nwachukwu, C. C. (1988) Management Theory and Practice. Onitsha :
Africana FEP Publishers.
O'Brien, J. A. (2004) Computers in Business Management: An
Introduction. New York: Holt, Rinehart and Winston.
Osaze, B. E., & R, A. A. (1989) Mangerial Finace. Benin City: Uniben
Press.
Sheik, A. M. (2006) Human Resources Development and Management.
Ram Nagar, New Delhi: S. Chand and Company Limited.
237
World Bank. (2005) The Macroeconomic Indicators of Some Countries.
Washington D.C.: World Bank.
CHAPTER SIX
SUMMARY OF MAJOR FINDINGS, CONCLUSION,
RECOMMENDATIONS, CONTRIBUTION TO KNOWLEDGE
AND FURTHER RESEARCH
6.1
INTRODUCTION
This
chapter
consists
of
summary
of
findings,
conclusion,
recommendations and areas for future research work.
6.2
SUMMARY OF MAJOR FINDINGS
The objectives of the study were:
1. To highlight the management and administrative lapses and
challenges of the Pay As You Go system in the Nigerian Armed
Forces.
2. To ascertain the extent to which members of the armed forces are
informed about the operation of the contributory pension scheme.
3. To determine if the new pension scheme would eliminate the
problems of long delay in payment identified with the PAYG
system.
4. To determine how to use the contributory pension scheme to
address the incidence of lack of funds inherent in the old pension
scheme.
5. To determine if the Pension Reform Act provides checks and
balances that would guarantee safety of contributors’ funds. It was
found that:
238
a. The management and administrative lapses of the Pay As You
Go system and the challenges were
long delay in getting
pensions and gratuities, poor funding, inept management, lack
of awareness, poor implementation in that order of magnitude.
b. The members of the Armed Forces are well informed to a large
extent through the pay slip information discussions in the mess,
newspaper information, seminars etc.
c. Yes, the new pension scheme would eliminate the problem of
the long delays in payment in the PAYG system as the Pension
Act 2004 is being better implemented with a better institutional
framework of the Pension Commission and Pension sections
housed in the Bursary and Payroll Department of the Public
sector organizations and also the contributory nature of the
scheme ensured the ready availability of funds.
d. Yes, the contributory Pension scheme would remove the
problem of lack of funds inherent in the old scheme because of
its contributory nature where both the employer and the
employee contribute to the scheme and there has been a
framework for the insurance and investment of the funds
collected and provisions for both financing and control of the
expenditure of the funds.
e. Yes, the Pension Reform Act 2004 provided the checks and
balances that would guarantee safety of the contributors fund
especially
with
the
establishment
of
Pension
Fund
Administrators different from the Pension Fund Custodians.
f. The use of the system cybernetic model in which 90% of the
370 respondents agreed that the inputs: men, materials, money,
time, energy and knowledge, and the transform of the Pension
Act of 2004 with the output of improved pension and retirement
239
management with feedback and control provide the appropriate
strategies to be adopted to further enhance the operation of the
contributory pension scheme as input, transform, output,
feedback and control strategies levels at both formulation and
implementation levels, no wonder.
6.3
CONCLUSION
The main objective of this study was to evaluate the impact of the
contributory pension on the members of the Nigerian Armed Forces. The
contributory pension scheme is a dawn for pension fund management in
Nigeria with obvious benefits for employers, employees, government and
the society as a whole. Therefore, the finding that the major management
and administrative lapses and challenges of the PAYG system were long
delays in getting pensions and gratuities, poor funding, inept
management, lack of awareness, poor implementation in that descending
hierarchy implied that time management, proper funding, good
management, creation of awareness through promotion and public
relations and correct implementation strategies were to be continually
formulated, implemented and fine-tuned. The Pension Act 2004 has
given the legal backing to the Pension Contributory Reform Scheme but
here and there the human factor reared its head to forestall hundred
percent proper implementation. It needed the will of the Pension Fund
managers at the Government Commission, Administrative and in house
Public and Private Institution and union levels to guarantee proper
continual implementation.
The finding that members of the Armed Forces were informed to a large
extent implied that the awareness strategies such as pay slip information,
discussions in the mess, newspaper information, seminars etc all need to
240
be continued and improved upon. Also disengagement programmes for
members of the Armed Forces one year before the time of retirement
needs to be continued. Information about the suffering of retired soldiers
in the PAYG system should continue to be disseminated.
The finding that the new Pension Scheme would eliminate the problem of
time delays in payment of the Pay As You Go scheme as the Pension Act
2004 is being better implemented with a better institutional framework of
National Pension Commission implied that the new pension scheme
would ensure timely payment of retirement benefits. Thus bringing
succor to the retired soldiers in particular and all pensioners in the public
and private sectors of the Nigerian economy in general. This timely
payment is ensured by the effective institutional framework ensured by
the Pension Act 2004 and the contributory nature of the scheme which
has ensured readily and steady availability of funds.
The finding that the Contributory Pension Scheme would remove the
problems of lack of funds inherent in the old scheme because of its
contributory nature where both the employer and the employees
contribute to the scheme and there is a framework for the insurance and
investment of the funds and provisions for the financing and control of
the funds implied that the management functions of planning, organizing,
staffing, leading and controlling have been taken care of in the new
scheme. Providing funds in advance through contribution is planning.
Deciding what the Pension Fund Administrations, Custodians and the
Pension Commission staff should do is organizing. Recruiting workers
for Pension Fund Administrators, Custodians and the Pension
Commission and even staff of the Pension Sections is staffing. Ensuring
that the Pension Commission influences the achievement of the Pension
241
Reform objectives is leading. Investing and insuring the funds is
controlling.
The finding that the Pension Act 2004 provided the checks and balances
that would guarantee safety of the funds implied that there was a
framework of monitoring and controlling cycle thus ensuring the safety of
Pension Funds.
The finding that 90% of the respondents in implementing the system
cybernetic model agreed that men, materials, money, time, energy and
knowledge were inputs and the transform of the Pension Act of 2004 and
the output of improved pension and retirement management with
feedback and control implied that the five improvements of the model
were important.
6.4
RECOMMENDATIONS
The results of this study have shown that poor management and
administrative lapses inhibited the success of the PAYG system. It was
also discovered that members of the armed forces were to a large extent
aware of the operation of the contributory pension scheme. In addition,
incidences of lack of funds, long delays in payment and lack of checks
and balances prevalent in the PAYG system were absent in the
contributory pension scheme. In this direction, the study makes the
following recommendations.
1. Government and the National Pension Commission must ensure
effective monitoring, supervision and enforcement of the
provisions of the pension Reform Act 2004 that introduced the
contributory pension scheme to avoid the problems identified with
the Pay As You Go system.
242
2. The managers of the new pension scheme should put in place
modalities of time management to handle management and
administrative lapses of long delays in settling pension’s matters.
3. The National Pension Commission must ensure that genuine
pension fund administrators and custodians are licensed to forestall
any fraudulent collaborative tendencies and to guarantee that
pension funds are in safe hands.
4. The management of the new pension scheme should continue to
sensitize the members of the armed forces to a large extent on the
positive dimensions of the contributory pension scheme through
pay slip information, discussions in the mess, newspaper and
television information and seminars and these should be backed by
policy.
5. The administrators and the managers of the new pension scheme
should continue to ensure the elimination of time delays inherent in
the Pay As You Go scheme and continue to ensure the better
implementation of the Pension Act of 2004 with a better
institutional framework and this should be backed by policies.
6. The administrators and managers of the contributory pension
scheme should continue to emphasize the removal of the problem
of lack of funds inherent in the old scheme by ensuring prompt
contribution of both the employers and employees to the scheme
and ensuring the proper investment, insurance and control of the
fund and this should be backed by policy.
243
7. The managers and administrators of the new pension scheme
should use the system’s cybernetic model of inputs of man,
materials, money, time, energy and knowledge to transform the
pension act of 2004 and produce an output of improved pension
and retirement management and this should be backed by policy.
6.5
CONTRIBUTION TO KNOWLEDGE
Benstein (1994:4); Deaning (1994:23); Griffen and Charles (1999:78);
Hurbreeht (1999:21); Melon (1963:5); McGril (2004:35); Williams
(1991:8), all wrote on Pension Schemes and Retirement issues. They
observed that:
i.
The cause of economic insecurity is the probable reduction of an
individuals earning power at an advanced age;
ii.
The economic right of living too long is, of course, the opposite of
the risk of premature death.
6.5.1 Excessive Longevity
One cause of economic insecurity is the probable reduction of an
individual’s earning power at an advanced age. The fact that the aged
continue to have needs for goods and services even if opportunities or
abilities to earn income no longer exist creates an important economic
risk (Herbert, Robert, Joseph and Robert, 2004:6).
The economic risk of living too long is, of course, the opposite of the risk
of premature death. This difference evidences itself in various ways in the
treatment of these two risks. The uncertainty as to the time of death
encourages more immediate attention on the part of individuals on the
need to make provision for this risk, as contrasted with the longer period
of time available to make provision for retirement needs and the natural
244
tendency to satisfy present needs and defer saving for future economic
needs. Also, the risk of longevity is much more expensive compared to
the risk of premature death. In the case of life insurance, the many (i.e.,
the survivors) contribute toward the benefit of the few (i.e., those that
die), thereby substantially reducing the cost of meeting the risk of
premature death, except at very high ages. By contrast, a principal sum
must be accumulated for each person reaching retirement age in order to
sustain a level of income throughout the period of retirement. Because the
average life expectancy is approximately fifteen years at age sixty-five, a
sizeable amount is needed at that age to maintain a reasonable standard of
living for an individual’s remaining years (Herbert et al, 2004:9).
In their country, the longevity risk is met through one or more of the
following means: personal savings (including individual insurance and
annuities), private pensions, and government-sponsored programs.
A
substantial and increasing proportion of this risk is being met by private
pensions and the USAID program.
6.5.2 Economic Problem of Old Age
Longevity, as indicated above, is a source of economic insecurity in that
an individual may outlive his financial capacity to maintain himself and
his dependants.
The extents to which an aged person will have the
financial capacity to meet self-maintenance costs and those of dependants
depends upon the standard of living desired during retirement years,
employment opportunities, and the prior provisions made to meet this
contingency (Herbert et al, 2004:16).
245
6.5.3 Standard of Living after Retirement
The assumption is usually made that the financial needs of an individual
decrease after retirement. To some extent, this assumption is valid. The
retired individual generally has no dependent children, and a home and its
furnishings generally have been acquired by retirement age. However, the
actual aggregate reduction in the financial needs of a person upon
retirement has probably been overstated. Social pressures discourage any
drastic change in one’s standard of living upon retirement. There is an
increasing tendency for retired persons to remain fairly active,
particularly in terms of civic, social, travel, and other recreational
activities. Furthermore, urbanization and its corollary, apartment living,
minimize the prospect of retired parents moving in with their children
(Herbert et al, 2004:45).
The authors are not suggesting that retired workers require income
benefits equal to their earnings levels immediately preceding retirement,
nor even the level of pre -retirement take-home pay. Presumably, at least
at the higher income levels, these individuals were allocating a portion of
their take-home pay to individual savings. However, it is suggested that
the reduction in standard of living after requirement is not very great;
more importantly, the trend in social thing seems to be in the direction of
not expecting retired workers to have to take much of a reduction in
standard of living after retirement. Therefore, it is questionable whether
one should assume any significant decrease in basic financial needs upon
retirement, at least for individuals in the low-and middle-income
categories (Herbert et al, 2004:11).
All the foregoing show what happened about Pension Schemes and
Retirement issues in the United States of America. The present study is a
246
slant as it handles the assessment of the contributory Pension scheme in
the Nigerian Armed Forces by the year 2009. The United States of
America has gone beyond the situation of Pension and Retirement matters
in Nigeria by having the old-Age, Survivors, Disability and Health
Insurance program and the state disability programs as far back as 1964.
The first to conduct a research on the contributory pension scheme
according to work, Tearning and Dodd (2002) were Deaton and
Weygandt in the year 1968 through 1973. Using a sample of 100 annual
accounts of enterprises in the US, they studied the extent of application of
and compliance with the regulations of the contributory pension scheme
among 8 firms. Using variables (such as the existence of pension plans
and employees covered, funding, policies, pension cost in relation to
income, changes in pension policy, and size of pension funds), they found
out that the application of the pension standard by firms in Us was very
weak. In the light of the foregoing, compliance with the pension
regulations even in the developed countries is weak (Revsine, Collins and
Johnson, 2002). This is different from the present work which deals with
the evaluation of the operation of the contributory scheme in the armed
forces of Nigeria.
In the same vein, but viewing the problem from international
perspectives, Clerk, Mansfield and Tickel (2000) report that strict
application of international accounting standards reveals significant net
pension liabilities among leading German corporations. They conclude
that the size of pension liabilities shown by the financial settlements of
most German firms affect their credit rating and share prices.
247
The present work also differs from the above as it emphasis was based on
the assessment of the contributory pension scheme in Nigeria, though to
the knowledge of the researcher, no known study has been conducted in
this area. What is clear is that the Nigerian Accounting Standard Board
(NASB), 1990 states that firms in Nigeria do not comply with accounting
standards.
Obi (2002: 9) in her research work on an appraisal of the retirement
policy in Nigeria has written as follows:
“In Nigeria, we adopt two types of retirement for workers,
namely – voluntary and compulsory retirement. A worker may
proceed for voluntary retirement when he has worked for 15
years, and he is below the age of 65 years whereas, in the case
of compulsory retirement he must put in 35 years of service or
attain the age of 60 years. This paper attempts to examine the
current retirement policy, identify its strengths and weaknesses,
and
proffer
suggestions
for
policy
reformulation
and
implementation”
This dissertation was also obviously different from Obi (2004) as they
were based on different Acts. Obi’s work was based on the Pay as You
Go system, a product of pension act 102 of 1979 while the present work is
an assessment of the contributory Pension Scheme based on the Pension
Reform Act 2004.
Moreover, Obi was making her recommendations
based on the Nigerian Retirement Policy as at 2002 while the present
work is focusing on the situation in the Nigerian Armed Forces to date.
Leopold, Harris and Waston (2003:12) wrote that retirement was a
concept not based on employer deficiency. The decision to retire is taken
248
by the employee involuntary situation and also by the employer in
disability situations or when an employee has committed an offence that
merited dismissal but the employer wished to take a lenient step to make
the worker to get the retirement benefits.
The present work is also a slant on the work of Leopold et al (2003:56) of
what happens to a retired staff in the United States of America while the
present work has assessed the contributory pension scheme in the
Nigerian Armed Forces.
Foot and Hook (2005: 165) wrote that:
“One of the benefits that employers can offer their employees is
preparation for retirement through some kind of formal preretirement programme. Moving from working life to retirement
requires a big adjustment, and can be achieved more
successfully with careful planning in terms of coping with a
changed financial situation as well as increased leisure time.
Financial advice on pensions is a complex and beyond the
scope of this text. It is sufficient to note that this is another area
that can be affected by changing legislation.
Employers can further consider programmes for keeping in touch with
people who have retired from employment with them. It can be a lowcost benefit to arrange occasional social gatherings.”
Foot and Hook (2005:33) are relevant to this study even when their
contributions have been different from the assessment of the Contributory
Pension Scheme of the Armed Forces in Nigeria. They have made some
valid points that would be as good as recommendations about the need
249
for planning for retirement which is the first function of the management
of pension and retirement schemes as if one does not plan the scheme
then one is planning to fail. Moreover the need to plan retirement
programmes and for employers to consider programmes for keeping in
touch with people who have retired has emphasized the need for post
retirement communication and feedback.
Noe (2005: 399) has observed that “pre-retirement socialization is the
process of helping employees to prepare eventual retirement.
Even though this research work is on the assessment of the contributory
pension scheme in the Armed Forces in Nigeria, Noe (2005:399) has
made a valid point that pre-retirement socialization or retirement planning
could help employees avoid being forced to return to work because of
poor financial planning, it has been noteworthy that the Pension Act of
2004 in Nigeria has made adequate policy formulation on financial
planning which if adequately implemented would solve the problem of
poor funding inherent in the Pay As You Go, non contributory Pension
Scheme formerly operated before 2004.
Dressler (2006: 237) has written that “Pensions provide income for
retirees and other factors”. Even though Dressler (2006:9) has explained
the differences between three types of pension plans: contributory versus
non contributory pension plan, qualified and non-qualified plans and
defined contribution versus defined benefit plans.
Though the
explanations have not been made specifically for the contributory pension
scheme of the Armed Forces of Nigeria but it has given a good
framework for the assessment of the Contributory Pension Scheme which
250
differed markedly from the non-contributory scheme as in the former
both the employee and the employer contributing 15% of the basic salary.
Contributory Pension Scheme also has a lot to do in these areas with the
sound legal framework supplied by the Pension Act or 2004. However,
this Research work differed from that of Ewurum et al (2009:14) in that it
was an empirical investigation of the project management lapses of nongovernmental organizations in Enugu State while the present study is an
assessment of the contributory pension scheme in the Nigerian Armed
Forces.
Oteh and Ogbuke (2009: 95) wrote that “Pension is designed to help
retired employees take care of their up keep during retirement.
The present work differed from that of Oteh and Ogbuke (2009:23) in
that: the objectives were different, while the objectives of the work of
Oteh and Ogbuke (2009) were to review the old pension schemes, to
highlight the effects of the new Pension Act 2004 and to identify the
challenges of the new pension scheme. Some of the objectives of this
work were to highlight the management and administrative lapses and
challenges in the Pay As You Go system, to ascertain the extent to which
the members of the armed forces are well informed about the operation of
the contributory pension scheme.
Also the research work of Oteh and Ogbuke (2009: 95 – 100) was based
on a theoretical review, the use of secondary data and content analysis
while the present research work was based on the use of a questionnaire
of 23 questions in a survey, an oral interview and a systems cybernetic
model.
251
Also the theoretical framework of Oteh and Ogbuke (2009: 97) stated that
functionalism is usually associated with the work of Emile Durkheim,
Talcott and Which Wilbort Moone and its basic assumption has to do
with the society being likened to an organism with different parts which
function to maintain the whole. The present dissertation had a systems
cybernetic model in which the parts were five in number: inputs,
transform, output, feedback and control which functioned to maintain the
whole.
So all in all, the two works differed in the objectives,
methodology, content and conclusion.
6.6
SUGGESTION FOR FURTHER RESEARCH
This study has provided an insight into the operation of the contributory
pension scheme in the Nigerian Armed Forces since its introduction in
2004.
Consequently, it opens a new vista of opportunities for scholars in
Nigeria and other parts of the world to conduct future research.
First, interested scholars are encouraged to further test empirically the
findings embodied in this study across the military units in the south
eastern and south southern regions of Nigeria. This will actually validate
and corroborate these results.
Secondly the scope of such a study should not be limited to the Nigerian
armed Forces alone, further studies should be carried out on the public
and private sector to make for a comprehensive analysis of the Nigerian
situation.
252
Lastly, further studies that could contribute to better operational
performance of the contributory pension scheme should be highly
desirable.
253
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APPENDIX I
Department of Management
Faculty of Business Administration
University of Nigeria, Enugu
Campus, Enugu
Dear Respondent
I am a postgraduate student of the above institution, currently on a
research study as part of the requirements for the award of a Ph.D.
(Management) degree. The attached questionnaire is concerned with the
study “Assessment of the contributory pension scheme in the Nigerian
Armed Forces”. The research objectives are to highlight the management
and administrative lapses and challenges in the PAYG system in the
military, to ascertain the extent to which members of the armed forces
are informed about the operation of the contributory pension scheme, to
determine if the new pension scheme would eliminate the problems of
long delay in payment identified with the PAYG system and to identify
how to use the contributory Pension scheme to address the incidence of
lack of funds inherent in the old pension scheme .
With due respects and humility, you have been selected as one of the
respondents for the study, and therefore request your sincere opinion and
responses to the attached questionnaire.
Please be assured that your responses in the questionnaire will be treated
in strict confidence and restricted to the purpose of this research only.
Thanks for your anticipated cooperation.
277
Yours Sincerely
Oparah, Frank Goodnews (Mr.).
APPENDIX II
SECTION A
PERSONAL DATA OF THE RESPONDENTS
1. Sex: Male [ ]
Female [ ]
2. Marital Status: Married [ ]
Single
[ ]
Divorced [ ]
Widowed [ ] Separated [ ]
3. Ages of Respondent: Below
25 years [ ] 26 - 35years [ ]
31 - 35years [ ] 36 - 40years [ ] 41-5years [ ]
51-
55years [ ] Above 56years [ ]
4. Highest Educational Qualification:
RSA [ ] Trade Certificate [
]
Diploma [ ]
OND [ ] HND [ ]
Second Degree [ ]
First Degree [ ]
Ph.D [ ]
5. Religion: Christianity [ ] Islam [ ] Other Religions
6. Number of years in the Military: Less than 5years
6-10years [ ] 11-15years [ ] 16-20years [ ] 21years above [ ]
7. Specialty in the Military: Operations [ ] Logistics [ ]
Administration [ ] Finance [ ]
278
SECTION B
KEY: (5) Strongly Agree (4) Agree (3) Neutral (2) Disagree (1) Strongly
Disagree:
Sensitizing the Military on the operation of the contributory pension
scheme and the benefits thereof.
5
1
2
3
4
5
6
7
8
The Military has not sensitized her
personnel on the contributory
pension scheme
Members of the armed forces are
not well informed about the
operation of the contributory
pension scheme
The military should have been
exempted from contributing to the
scheme considering the ultimate
price their job entails
Incidences of backlog of payment
of pension will cease with the
introduction of the contributory
pension scheme.
Government’s contribution to the
scheme should be increased to 20%
The failure of a PFA will not affect
the funds and assets kept by PFC
All those managing or keeping
custody of pension funds and assets
will be licensed and continually
regulated and supervised by the
National Pension Commission
therefore the safety of the funds are
guaranteed
A member of the armed forces who
retires on medical ground or
permanent disability is entitled to
withdraw from his RSA even
4
3
Likert Scale
2
1
279
though is below 50 years at such
retirement.
SECTION C
Key: (5) Strongly Agree (4) Agree (3) Neutral (2) Disagree (1) Strongly
Disagree:
Apprehensions about the successful operation of the contributory pension
scheme in relation to the problems of the PAYG system.
5
9
10
11
12
13
14
15
16
A Soldier who has been contributing to
the scheme and dies before his
retirement is not entitled to any
payment.
Incidences of long delay in payment of
pension associated with the pay as you
go system will be eliminated in the
contributory pension scheme.
The military is worried that the pension
administrators may not know what to
do with the large sum of money
accruing to it from the contributors.
The contributory pension scheme does
not encourage payment of gratuity to
members of the armed forces.
Soldiers who retire before the
stipulated age of retirement in the
military are not entitled to pension.
Those retired compulsory or
voluntarily in the armed forces are not
entitled to pension in the new scheme.
The new contributory pension scheme
would not be much different from the
previous pension scheme.
The old pension scheme failed because
4
3
Likert Scale
2
1
280
of corruption, mismanagement by those
entrusted with its management.
17 The new contributory pension scheme
will lead to a decrease in soldiers’
monthly emolument.
SECTION D
Key: (5) Strongly Agree (4) Agree (3) Neutral (2) Disagree (1) Strongly
Disagree:
Challenges facing the operation of the contributory pension scheme in the
Armed Forces.
Likert Scale
5
18
Some members of the armed forces
retired voluntarily at the introduction
of the
reform scheme for fear of losing
their pension and gratuity.
19
The contributory pension scheme
has performed well against any
performance objectives that have
been set.
20
Contributors
investment
should
portfolios
decide
for
their
contribution
21
The contributory pension scheme
has removed the incidence of lack of
funds associated with the PAYG
4
3
2
1
281
system.
22
The
new
pension
scheme
will
address the issue of mismanagement
that characterized the PAYG system.
23
The pension reform acts provides
checks and balances that would
guarantee the safety of contributors
funds.
282
APPENDIX III
ORAL INTERVIEW SCHEDULE
a. Were poor management and administrative lapses responsible for
the failure of the PAYG system in the military?
b. Are members of the Armed Forces adequately informed about the
operations of the contributory pension scheme?
c. Has the new pension scheme eliminated the problem of long delay
in payment of pensions associated with the PAYG system?
d. Has the contributory pension scheme removed the incidence of
lack of funds inherent in the old pension scheme?
e. Has the Pension Reform Act provided checks and balances that
would guarantee the safety of contributor’s funds.
283
APPENDIX IV
DICHOTOMOUS (YES OR NO) ORAL INTERVIEW SCHEDULE
1) Are retired soldiers inputs of the mode?
2) Are retired public servants inputs of the model?
3) Are retired private sector workers inputs of the model?
4) Are retired staff of parastatals inputs of the model?
5) Are materials inputs of the model?
6) Is energy an input of the model?
7) Is time an input of the model?
8) Is knowledge and input of the model?
9) Is the contributory pension scheme a transform of the model?
10)
Are payment of statutory and pension as at when due and
management and proper funding, backed by the Pension Act 2004
and commitment of the government towards implementation
outputs of the model?
284
APPENDIX V
PENSION REGISTRATION CERTIFICATE
STANBIC IBTC PENSION MANAGERS
GROUP CAPTAIN OPARAH
RESEARCH AND DEVELOPMENT CENTRE
NIGERIAN AIR FORCE BASE
KADUNA.
Employer Name: Nigerian Air Force Base, Kaduna
REGISTRATION DETAILS
PERSONAL DETAILS
SURNAME
FIRST NAME
OTHER NAME
OPARAH
FRANK
GOODNEWS
RSA DETAILS
RSA PIN
USER NAME
PASSCODE
PEN100519253520
10080039436
12356
PFC DETAILS
ACCOUNT NAME
ACCOUNT
BANK
NUMBER
ZPC/SIPML
601054805
Any branch of Zenith
PENSION
Bank Plc.
IMPORTANT INFORMATION
1. The Retirement Savings Account (RSA) details above are required to
enable you access your RSA over our secure internet and telephone
platforms.
285
2. Your username and passcode are very important and confidential and
should not be disclosed to anyone. If at any time you feel that your
passcode has been compromised, please change it immediately. You
may do so online at www.stanbicIBTCpension.com.
3. You are required to provide your RSA PIN as well as our Pension
Fund Custodian (PFC) account details to your employer for remittance
of your monthly contributions.
Please do not hesitate to contact us using the details below should you
need further clarification.
286
APPENDIX VI
MILITARY PENSIONS BOARD
URGENT REQUIREMENT FROM NATIONAL PENSION
COMMISSION UPDATE OF PERSONNEL PROFILE
Please urgently fill and return the form below on or before 23rd of
December, 2008
EMPLOYEE NUMBER
SURNAME
FIRST NAME
MIDDLE NAME
SEX
DATE
OF
BIRTH
(DD/MM/YYYY)
DATE OF FIRST APPT.
(By Fed. Govt) (DD/MM/YYYY)
DATE OF PRESENT
APPOINTMENT (in Armed
Forces)
CURRENT
DESIGNATION/RANK:
GL and STEP (as at July, 2004)
GL and STEP (as at October,
2004)
GL and STEP (as at October,
2005)
GL and STEP (as at October,
2006)
GL and STEP (as at October,
287
2007)
LAST DATE OF PROMOTION
(b/w July, 2004 and Dec., 2006)
GL and STEP (after Promotion)
GL and STEP as at October, 2008
PenCom PIN Number
(e.g. PEN10001000001)
PFA (e.g. SIGMA):
Please treat as extremely urgent.
288
APPENDIX VII
RANDOM NUMBERS