PROBLEM OF PENSION ADMINISTRATION IN NIGERIA: (A CASE STUDY OF THE UNIVERSITY OF NIGERIA, NSUKKA 1990-2006)

Chapter 1

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Pension administration in Nigeria has been saddled with many problems, both in the public service and private sector. The public service operates an unfunded De ned Benefit Scheme and the payment of retirement benefits are budgeted annually. The annual budgetary allocation for pension has been one of the most vulnerable items in budget implementation in view of resource constraints. Indeed, even where budgetary provisions are made, inadequate and untimely release of funds culminate in delays and accumulation of arrears.

However, current huge arrears of pension payments are only the symptom of a much deeper crisis. As the scheme is not funded, opportunity for the accumulation of investible funds is lacking. Even where funds were accumulated under some parastatals schemes, restrictive investment policies and practices sometimes limited the capacity of such funds to grow.

Also, political instability and unstable labour policies in the past had endangered massive premature retirements thus creating an unstable pensioner to active worker ratio. In addition, 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 projection of society and government as uncaring to the plight of its senior citizens. Such pecuniary problems of the former Pension Scheme in the country have resulted in insecurity and contributed to high level corruption in the active workforce. It is important to mention that an estimated outstanding pension liabilities across the country of approximately N2 trillion cannot be sustained within the De ned Bene ts Pension Scheme. Hence the need for a reformation of the Pension Scheme which culminated in the 2004 Pension Reform Act in Nigeria.

However, the Act has been enacted without much sensitization of the worker who the law directly a ects, before the passage of the Bill by the National Assembly, whose members were supposed to represent the interest of the whole Nigerian people.

According to Bob Ojuju, Vanguard, Lagos, January 2, 2005, some important highlights of the previous Pension Act 1990, repealed by the present
Act include:

1. It lacked contributory provision from the employees in the public service.

2. Where an employee puts in 5 years of service, he becomes quali ed for gratuity payable in lump sum of money at once on retirement, to enable him rehabilitate himself and family.

3. After 10 years of service in the Public Sector, an employee becomes quali ed for both gratuity and pension where such employee retires voluntarily, he is paid his gratuity en bloc and then starts to receive his monthly pension upon attaining 45 years old. However, where the employee is compulsorily retired before attaining 45 years of age, he starts receiving his pension immediately in addition to the paid gratuity in lump sum.

The service in Public Sector is limited to 35 years of service or 60 years of age whichever comes earlier. This is what is known as contract of service or employment covered with statutory favour in the public sector. In other words, this is what provides for job security in the public sector.

The next of kin of an employee who dies in the service is paid gratuity and a 5 year pension (at once due to the employee as at the date he died (ie deceased benefit).

Nigeria for the past two decades has grappled with the problem of how retirement benefits of workers in the civil and public services could be paid.

The past Pension Schemes were fraught with so much irregularities and graft that left contributors questioning the rationale for the scheme, where many could not easily access their entitlements upon retirement. There were reported cases where many retired workers died from heart attacks and long-term illnesses, on discovering that all their life savings were gone and their benefits were not forthcoming.

The previous Pension Scheme had a lot of shortcomings, which brought hardship and sufferings to beneficiaries. A good number of them had to wait for several years to get their pensions.

Indeed, the last pension arrangement su ered from lack of adequate funding and this culminated in huge outstanding liabilities of retirement benefits.

The pension reform Act signed into law in June 2004, introduced reforms in the structure of pension administration in Nigeria. The law makes it mandatory for all employees of the federal government and workers in the private sector, where the total number of employees is five (5) or more, to join the contributory pension scheme.

The Act required that only licensed Pension Fund Administrators (PFA) manage Pension Funds, while the Pension Fund assets can only be held by licensed Pension Fund Custodians (PFC). The Act also establishes the National Pension Commission popularly known as (PENCOM) to regulate, supervise and ensure e ective administration of pension a airs in Nigeria.

1.2 STATEMENT OF THE PROBLEM

Pension administration has been saddled with a lot of problems in Nigeria over the years. The old Pension Scheme has been unfunded and grossly mismanaged, and this consequently brought a lot of untold hardships and sufferings to pensioners. Hence, retirement benefits in form of pensions and gratuities were not paid to retired workers as and when due. This scenario resulted in accumulation of huge retirement benefits which were owed to retirees. Subsequently, many of the bene ciaries had to wait for several months and in some cases many years as in the case of the University of Nigeria for the payment of their gratuity and annuity. The overall consequence is that many retired workers died out of frustrations, and lack of funds to maintain their lives, especially in old age when they could no longer engage in any meaningful job. Many existing pension administrators could no longer live up to expectation as the hope of many pensioners was dashed. In order to bring this problem to the barest minimum, the federal government in 2004, passed a bill to reform the entire system of pension administration in Nigeria, but still, the method, mode and system of pension administration have not been improved. It is against this background that the following problems of pension administration would be discussed.

1.3 RESEARCH QUESTIONS

A number of research problems have been found to be relevant to this study, and may be summarised as follows:

1. What is the concept of pension administration in Nigeria?

2. What are the causes of delay in the administration of pension and gratuity in Nigeria?

3. Are there regulations guiding the administration of pension and gratuity in Nigeria?

4. What are the impact of the delay on the retired workers, especially in the University of Nigeria?

5. What remedy has the new pension scheme provided to the identi ed problems of pension administration in Nigeria?

1.4 Objectives of the study

The main objectives of this study include the following:

1. To ascertain the reasons for delays in the payment of pensions and gratuity of retired workers in the University of Nigeria.

2. To nd out the major institutional structures that made the old pension system not very e ective in the University of Nigeria.

3. To examine the impact of the delays in the payment of pensions and gratuities of retired workers University of Nigeria.

4. To nd out the problems associated with the previous pension administrators in the University of Nigeria.

5. To highlight the benefits of the contributory pension scheme to pension administration in University of Nigeria.

1.5 Hypotheses

The following hypotheses have been developed to guide the conduct of the study:

1. The death of many retirees has been due to the delay in the administration of Pension and gratuity in Nigeria.

2. Ineffective implementation of Pension regulations/laws in Nigeria has resulted in the reckless behaviours of the pension administrators

3. The new Pension administration o ers a better future for retirees in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

It is expected that this study will make some useful contributions in the held of knowledge. Some of the contributions are outlined below.

1. The study will lead to improvements in the administration of pensions and gratuities in Nigeria.

2. The governments would be better informed on the ways of achieving better performance in the administration of pensions and gratuities Nigeria.

3. It will provide solutions to the problem of the institutional structure inherent in the system.

4. It will enhance the performance of pension managers and all those involved in pension administration in Nigeria.

5. It will serve as a guide in solving the long-term problems of pension administration in the University of Nigeria and in the public service generally.

6. It will provide useful data base for future research in the area of pension administration in Nigeria.

1.7 SCOPE AND LIMITATION OF THE STUDY

This work was limited to University of Nigeria as a Case Study within the time frame ranging from 1990 { 2006. A lot of factors posed some limitations to the work.

As a student and worker, there was a lot of time constraints to carrying out this research. A lot of time had to be sacrificed during office hours to look for pensioners and attend their meetings in order to distribute the questionnaire.

Even when the retirees were found, the researcher was faced with the problem of convincing most of them to the questionnaire, as many of them were very reluctant and in some cases blatantly refused to accept the questionnaire. It was such a di cult exercise that few hands were engaged to assist in the administering and collation of information collected. It was however, a worthwhile venture.

In other cases, many of the retirees refused to sign in the questionnaire due to ignorance, anger and transfer of aggression as a result of ill-treatment meted to them since their retirement.

Another problem encountered by the researcher was the problem of locating many of the retirees who had relocated to their villages and to other urban areas. Many of them had died due to hardships and sufferings especially during the period 1998 to 2004 when they had to stay several months without their pensions and many years without payments of their gratuities.

Such deceased retirees could not be reached to collect information from them; and this further reduced the available sample size for the study.