ABSTRACT
The
research provides a conceptual and theoretical study of retirement policy and
the problem of implementation in Nigeria public sector. It analyzes retirement
policy in Nigeria public sector with a view to determining the effectiveness of
the policy, its deficiency and challenges and profering recommendations.
1.1 BACKGROUND OF
THE STUDY
Retires before the age of 50 years thereby
accepting that employees could retire before attaining the age of 50, this kind
of ambiguity could result in confusion. Retirement policy provides for the
following)
Gratuity: In the Pension Reform Act, 2004 the right to
a gratuity has been abolished. So retirees no longer receive single lump sum payment
as gratuity in addition to pension which is a periodic payment, normally on
monthly basis, for the remainder of the pensioner’s life. This is seen as being
unfavourable to employees and discriminatory against poorer paid employees.
Contributory: This privatized and decentralized new pension
scheme adopts the Chilean-style of pension scheme. The scheme provides for a
compulsory contribution of 7.5% of workers' basic salary and 7.5% of same from
employers as pension for workers after retirement.
However, while public sector workers
contribute a minimum of 7.5% of their monthly emoluments, the Military
contribute 2.5%. The public sector contributes 7.5% on behalf its workers and
12.5% in the case of the Military. Employers and employees in the private
sector contribute a minimum of 7.5% each. An employer may elect to contribute
on behalf of the employees such that the total contribution shall not be less
than 15% of the monthly emolument of the employees. This implies that the level
of contribution is not uniform.
Level and Remittance of Contributions: An
Employer is obliged to deduct and remit contributions to a Custodian within 7
days from the day the employee is paid his salary while the Custodian shall
notify the PFA within 24 hours of the receipt of such contribution. There are
already complaints by PFAs of non-remittance of pension deductions on the part
of some employers. Contribution and retirement benefits are tax-exempt.
Again, Ahmed (2001) in the Summary of Proceedings
of the National Workshop on Pension Reform reports that the studies which the
Federal Government had commissioned to determine the level of contribution that
could meet anticipated pension benefits report that 25% of gross emolument of
all government employees needed to be set aside annually to meet existing and
maturing gratuity and pension liabilities, for adequate funding of the public service
scheme. However, the Pension Reform Act stipulates a total contribution rate of
15% of total emoluments. This level of contribution is seems low and
inadequate.)
Voluntary Contributions:Section 9 (4) of the Pension Reform Act 2004
allows for voluntary contributions which gives opportunity for the self-employed
and those working in informal sector organizations with less than 5 employees
to open retirement savings accounts (RSA) with pension funds administrators
(PFA) of their choice and make contributions.
However, for voluntary contributions, the tax
relief is only applicable if the amount contributed or part thereof is not
withdrawn before five years after the first voluntary contribution is made.
Individual Accounts: An employee is
required by law to open a ‘Retirement Savings Account’ in his/her name with a
Pension Fund Administrator of his/her choice. This individual account belongs
to the employee and remains with him/her for life even if he/she changes
employer or Pension Fund Administrator. The employee may only withdraw from
this account at the age of 50 or upon retirement thereafter.
An employee can withdraw a lump sum of 25% of
the balance standing to the credit of his retirement savings account if he/she
is less than 50 years at the time of retirement and he could not secure a new job
after six months from leaving the last job. Similarly, a retiree can withdraw a
lump sum if he/she is 50 years or aboveat the time of retirement and the amount
remaining after the lump sum withdrawal shall be sufficient to fund programmed withdrawals.
(Mediterranean Journal of Social
Sciences Published by MCSER-CEMAS-Sapienza University of Rome Vol 4 No 2 May
2013 31)
CHAPTER 1
1.1BACKGROUND OF THE STUDY
In 2004, the Federal Government of Nigeria
revolutionized pension management and administration in the country withthe
enactment of the Pension Reform Act 2004. The Act assigned the administration,
management, and custody ofpension funds to private sector companies, the
Pension Fund Administrators (PFA) and the Pension Fund Custodians (PFC). The
Act further mandated the Nigeria Social Insurance Trust Fund (NSITF) to set up
its own Pension Fund Administrator (PFA) to compete with other PFAs in the
emerging pensions industry, and also to manage the accumulated pension funds of
current NSITF contributors for a transitional period of five years.
As earlier noted, prior to the Pension Reform Act 2004 (PRA), most
public organizations operated a Defined Benefit (pay-as-you-go) scheme in which
final entitlement was based on length of service and terminal emoluments. The system
failure gave birth to the new initiative, Pension Reform Act 2004 with a
Contributory Pension Scheme (CPS) to provide remedy. The Pension Subcommittee
of the Vision 2010 (1997) had suggested that (only the rich (countries) can successfully
operate an unfunded, non- contributory pension scheme. The Vision 2010
committee had set the objective of most Nigerians having access to a formal
social security programme and it argued that this could be achieved by establishing
a funded pension system backed by large-scale privatization.
The major objectives of the new scheme were to: ensure that every
person who has worked in either the public or private sector receives his
retirement benefits as and when due; assist improvident individuals by ensuring
that they save to cater for their livelihood during old age; establish a
uniform set of rules and regulations for the administration and payment of
retirement benefits in both the public and private sectors; and stem the growth
of outstanding pension liabilities.
The CPS is contributory, fully funded and based on individual
Retirement Savings Accounts (RSAs) that are privately managed by Pension Fund
Administrators (PFAs), while pension funds and assets are kept by Pension Fund Custodians
(PFCs). The Pension Reform Act 2004 decentralized and privatized pension
administration in the country.
The Act also
constituted the National Pension Commission (PENCOM) as a regulatory authority
to oversee and check the activities of the registered Pension Fund
Administrators (PFAs). The provisions of the act cover employees of the public service
of the federal government, and private sector organizations.
The move from the defined benefit schemes to defined contributory
schemes is now a global phenomenon following success stories like that of the
Chilean Pension Reform of 1981. There seems to be a paradigm shift from the defined
benefit schemes to funded schemes in developed and developing countries
resulting from factors like increasing pressure on the central budget to cover
deficits, lack of long-term sustainability due to internal demographic shifts,
failure to provide promised benefits etc. The funded pension scheme enhances
long-term national savings and capital accumulation, which, if well invested
can provide resources for both domestic and foreign investment.
Retirement policy
while in the public sector stipulates, the
statutory retirement age is either 60 years or 35 years of service, whichever
comes first, inthe private sector, retirement age varies between 55 and 60
years and the factor of 35 years of service is not applicable.
The Pension Reform Act 2004 has no clear
provisions on minimum retirement age but provides in [Section 3(1)] that no
person shall be entitled to make any withdrawal from their retirement savings
account before attaining the age of 50 yearsThe
research intends to investigate retirement policy and its problem of
implementation in Nigeria public sector
1.2 STATEMENT OF THE PROBLEM
The statement confronting this
research is to appraise retirement
policy and the problem of its implementation in Nigeria. Following the
formulation of the 2004 pension act reform, there has been misconception of
Nigerian retirement policy and its implementation. The research intends to
investigate retirement policy with a view to determining the problems
confronting its implementation.
1.3 RESEARCH
QUESTION
1. What
constitute the nature of retirement policy in Nigeria
2
What constitute the problem confronting its
implementation
1.4 OBJECTIVE
OF THE STUDY
1
To
determine the nature of retirement policy in Nigeria
2
To
determine the problems confronting its implementation
1.5 SIGNIFICANCE OF THE STUDY
1 The study shall provide a vivid understanding
of current issues in Nigerian
retirement policy
2
The
study shall analyze the problems surrounding the implementation of Nigerian
retirement policy with a view to better implement the content of the new
retirement policy.
1.6 STATEMENT OF THE HYPOTHESIS
1 H0 Retirement
policy is not effective in Nigeria
H1 Retirement
policy is effective in Nigeria
2 H0
The
level of problem in implementing retirement policy is high
H1 The
level of problem in implementing retirement policy is low
3 H0
Retirement policy reform is not
needed in Nigeria
H1 Retirement
policy reform is needed in Nigeria
1.7 SCOPE OF THE STUDY
The study is focused on retirement policy and problem of implementation
in Nigeria
1.8 DEFINITION
OF TERMS
Retirement policy: while in the public sector stipulates, the
statutory retirement age is either 60 years or 35 years of service, whichever
comes first, inthe private sector, retirement age varies between 55 and 60
years and the factor of 35 years of service is not applicable.
The Pension
Reform Act 2004 has no clear provisions on minimum retirement age but provides
in [Section 3(1)] that no person shall be entitled to make any withdrawal from
their retirement savings account before attaining the age of 50 years.