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Chapter I: Introduction


1.1.      Background to the study        –           –   –           –           –           –           1


1.2.      Statement of the Problem       –                     –           –           –           9


1.3.       Research Questions    –           –              –           –           –           –           11


1.4.      Objectives of the Studies        –       –           –           –           –           –           12


1.5.      Significance of the Study       –        –           –           –           –           –           12


1.6.      Scope and Limitations of the Study   – –           –           –           –           14


Chapter II: Literature Review         –             –           –           –           16


2.1. Introduction         –           –               –           –           –           –           –           16


2.2. Concept of pension          –                  –           –           –           –           17


2.3. Conceptual framework of pension reforms           –            –           19


2.4. Selected countries and their pension scheme arrangement –           25


2.5. Historical background of pension scheme in Nigeria    –           30


2.6. The old pension scheme administration   – –           –          33


2.7. The effect of old pension scheme administration on the active workers’ and pensioners’ welfare –                          –           –           37


 2.8. Enactment of the pension reform Act 2004             –                  40


2.9. Highlights of the Pension Reform Act 2004       – –          –           –          46


2.10. Comparison between the old and new pension scheme           58


2.11. Comparison of Chilean and Nigerian mandatory pension system 60


2.12. The impact of the implementation of pension Reform Act 2004 on the pensioner’s welfare   –           –           –           –           –           –                       61


Achievements of the pension reform act 2004     –        –           61

Challenges in the implementation of the Pension Reform Act 2004        –           63

Benefits of Pension Reform Act 2004     –      –           –           –           69

           2.13. Gap in Literature          –         –           –           –           –           73      


           2.14. Theoretical Framework                   –           –           –           76


2.15. Hypotheses       –           –      –           –           –           –           –           83


2.16. Operationalization of key concepts in the hypotheses   –                       84


Chapter III: Study Area and Research Procedure                –           –           87


3.0. Introduction       –           –           –       –           –           –           –           87


3.1. Study Area         –                 –           –           –           –           87


3.2. Research Design                –           –           –                       88


3.3. Population sample size and Sampling Procedure             –           88


            i. Population of the study       –                –          –           –          –           88


           ii. Sample Size –           –           –               –           –          –           89


          iii. Sampling Technique       –     89                                                 


3.4. Sources and Methods of Data Collection    –           –           –           –          90


            i. Sources of Data Collection              –             –           –           –           90


            ii. Methods of Data Collection               –           –           –           –           91


 3.5. Reliability and Validity of Instruments     –           –           –           –           91


            i. Reliability of Instruments   –           –           –          91            


           ii. Validity of Instruments              –           –           –           –          92            


3.6. Method of Data Presentation and Analysis      –           –           –           92


Chapter IV: Data Presentation, Analysis and Findings –           –           93


4.0. Introduction         –           –              –           –           –           –           –           93


4.1. Presentation and data analysis                –           –           –           93


4.2. Findings   –           –           –           –           –           –           –           –           97


Chapter V: Discussion of findings                     –           –           –                       98


5.0. Introduction       –           –           –           –          –           –           –           98


5.1. Findings  of hypothesis one        –            –           –           –           –           98


5.2. Findings of hypothesis two        –          –           –           –           –           99


5.3. Findings of hypothesis three      –           –           –           –           –           100


5.4. Implications of the findings             –           –           –           –           101


Chapter VI: Summary, Recommendation and Conclusion-     103


6.0. Introduction       –           –       –           –           –           –           –           103


6.1. Summary   –        –           –        –           –           –           –           –           103


6.2. Conclusion          –                –           –           –           –                       106


6.3. Recommendation           –        –           –           –           –           –           107


 References    –           –           –  –           –           –           –           –           –           110


   Appendixes              –                      –           –           –           –           –          117


List of Tables


2.1. The World Bank’s Pension Conceptual Framework     –    –           19


2.2. Comparison between the Old and New Pension Schemes     –          57


2.3. Comparison of Chilean and Nigerian Mandatory Pension System      59


3.1. Population Distribution of Pensioners of Old and New Pension Schemes and Serving Workers in Unizik        –  –           –           88


3.2. Sample Frame for Pensioners of Old and New Pension Schemes and Serving Workers in Unizik                –           –           –           –           89


4.1. The impact of old pension scheme on pensioner’s welfare       -93


4.2. Implementation of the pension reform Act 2004 and enhancement of pensioners’ welfare            –           –           –           –           –           –           94


4.3. The effectiveness and efficiency of the institutional framework for pension Reform Act 2004 in delivering pensioners’ welfare  –   –           95


4.4. Chi-square analysis of hypothesis one       –           –           –           –           96


4.5. Chi-square analysis of hypothesis two              –           –           –           96


4.6. Chi-square analysis of hypothesis three       –           –           –           97


List of Figures


2.1 Schematic Representation of Pension Reform Act 2004    –           74


2.2 A Unified Pension Model           –           –          –           –           –           77


2.3 Diagrammatic Representation of Riggs Prismatic Theory   –    81


List of Abbreviation


PAYG          – Pay-As-You-Go


PENCOM    – Pension Commission


PFA             – Pension Fund Administrator


PFC             – Pension Fund Custodian


CPFA          – Closed Pension Fund Administrator


PTAD          – Pension Transitional Arrangement Department


NAICOM    – National Insurance Commission


DCPS           – Defined Contributory Pension Scheme


DBPS           – Defined Benefit Pension Scheme


EFCC           – Economic and Financial Crime Commission


NSITF          – Nigeria Social Insurance Trust Fund


 RSA            – Retirement Savings Account


CPS              – Contributory Pension Scheme


NEEDS        – National Economic Empowerment and Development Strategies


MDGs          – Millennium Development Goals


PCs              – Personal Computers


ILO              – International Labour Organization


IMF              – International Monetary Fund


PRTT           – Pension Reform Task Force Team


  PRA 2004    – Pension Reform Act 2004


  SOEs            – State Owned Enterprises


   RBBRF       – Retirement Benefits Bond Redemption Fund


 NECA          – Nigeria Employers Consultative Assembly  


 NUP             – National Union of Pensioners


NDC             – Notionally Defined Contribution


BOT              – Board of Trustees


SEC              – Securities and Exchange Commission


JTB                – Joint Tax Board


TUC              – Trade Union Congress


NLC              – Nigerian Labour Congress


 IDTs             – International Development Targets


NPF               – National Provident Fund


Unizik            – Nnamdi Azikiwe University


ASUTECH    –  Anambra State University of Technology


SPSS               – Statistical Package for Social Sciences


ANOVA        – Analysis of Variance




 The thrust of this study is to examine the impact of the implementation of the Pension Reform Act 2004 with particular reference to Nnamdi Azikiwe University, Awka from 2004 – 2012. The primary objective was to systematically study the Pension Reform Act 2004 and to find out its effectiveness and efficiency in enhancing pensioners’ welfare. To achieve this objective the researcher stated three research questions and three hypotheses for which a structured questionnaire containing thirty seven (37) question items was constructed. The responses to the question items constituted the data for the study. The data extracted from the questionnaire were presented and analyzed from which the following findings were made: Majority of the respondents agreed that the problems of the Old Pension Scheme negatively affected the pensioners’ welfare; the respondents agreed that theimplementation of the Pension Reform Act 2004 has not significantly enhanced the pensioners’ welfare; the respondents agreed that the institutional framework for the implementation of the Pension Reform Act 2004 is not significantly effective and efficient in delivering pensioners’ welfare in Nnamdi Azikiwe University. Based on the findings, the following major recommendations were made: Public enlightenment mechanism for the beneficiaries and the public about the operations of the new pension scheme should be instituted; Pension Fund Administrators should ensure that they have a credible and competent workforce that will guarantee the issuance of accurate statement of account regularly. Any employer who fails to account accurately for his employees’ contributions should be adequately sanctioned as provided by law to serve as deterrent for others. There is urgent need for regular training and development for human resource managers and others, etc. The researcher hereby recommends further research on possible amendments on the gray areas in the Pension Reform Act 2004 and the impact of the reform on the private sector’s employees and pensioners.








It is in the nature of man to pass through a life cycle (childhood, youth and adulthood/old age), except in an occasion when this cycle is cut short by premature death. In like manner, the working lives of employees move continuously towards a certain direction that is from employment, to growth, to retirement (or can be terminated either by death or disability). Since man is naturally born to grow and become old – the stage when it is usually too difficult to work and earn a living – planning for retirement/old age becomes expedient. The extent an individual is committed to this cause during his active productive years makes a difference in the quality of life he enjoys at his old age and longevity.


As people grow old they work, produce, and earn less and therefore need a secure source of income to see them through their lifetime. To this extent societies and governments have developed mechanisms to provide income security for their older citizens as part of the social safety net for reducing poverty. No doubt, these arrangements should be a source of concern for everyone – rich as well as poor, young as well as old – because the arrangements adopted can either help or hinder economic growth (World Bank, 1994). 


Pension has been a common global discourse in the contemporary literature. The past decade has brought recognition of the centrality of pension systems to the economic stability of nations and the quality of life and longevity of their workers after retiring from active service (Holzmann and Hinz, 2005). This notwithstanding, there has been an emergence of what Barr (2006) called ‘a pension crisis’ caused by high and rising pension costs which has created worries. In fact, the global trend is a total paradigm shift towards definite and fully funded contributory schemes. In most countries pension plans are defined benefit plans financed on a Pay-As-You-Go (PAYG) basis, through pay roll taxes that can be adjusted periodically to ensure that revenues are sufficient to meet current pension obligation (Dalang, 2006).


            The World Bank, in 1994 published a path-breaking seminal book on pension reform entitled, “Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth” (Orszag and Stiglitz, 1999). The Bank delivered its new ideas on pension systems in this landmark report which became the reference point for the Bank’s approach to pension reforms. It advocated a move away from pay-as-you-go financing which has dominated pension provision in both rich and poor countries. The report backed compulsory funded pensions, and paid for by workers saving part of their earnings in retirement accounts. Since1994 the Bank has been involved in pension reform in more than 80 countries, and provided financial support for countries to grow. According to the Bank, the main objectives of pension systems are: poverty alleviation, consumption smoothing from one’s work life into retirement and the broad goal of social protection. Consequently, reforms along these lines have been carried out mainly in Latin America and the post-Soviet “transition countries”. Chile was the first to embark on the reform as early as 1981. In all, twelve countries in Latin America have passed laws introducing mandatory savings; ten have implemented them. In Europe and Central Asia, fourteen countries have decided to introduce individual accounts whilst ten actually made the change (Dalang, 2006; Holzmann and Hinz, 2005).


After a critical assessment of the various pension schemes of the various countries, the World Bank on 21st February, 2005, released a new report titled “Old Age Income Support in the 21st Century”: An International Perspective on Pension Systems and Reform”. The report emphasized the need for change as most pension schemes in the world do not deliver on their social objectives. Pension schemes create distortions, impose marginalization, old age poverty, post retirement sufferings and ultimately lead to untimely death. Above all, they distort market economies and are financially unsustainable because they are expensive to run and the process fraudulent even by those mandated to administer the pensions (Asuquo, Akpan and Tapang, 2012).


In an attempt to reposition pensions, the report stated that any pension reform should consider:


The informal sector which incidentally makes up for more than half of the labour force

Catering for people who will be poor throughout their lives, and

Those that will be physically challenged

In 1996, the International Development Targets (IDTs) were set to improve economic well-being, social and human development and ensure environmental sustainability and regeneration in readiness for the fight against poverty in the emerging Millennium. In September, 2000, 149 world leaders adopted the United Nations Millennium Development Declarations which its fundamental values bind countries to do more in the realm of human development. Part of the mandate was to ‘halve the proportion of people whose income is less than one dollar a day and who suffer from hunger’. Emerging from the Millennium Development Declarations are Millennium Development Goals (MDGs), which are a set of specific, qualified and time-bound targets on the various dimensions of human development – income, poverty, hunger, health, education, gender, equality, and environmental sustainability. Their importance for the global community is exemplified by their increasingly becoming the driving force for development policy internationally, the means for productive life for the billions plus people living in extreme poverty as a way to secure a peaceful world for all (UN, 2013; NEEDS, 2004).


Income security in old age is a worldwide problem, but its manifestations differ in different parts of the world. In Africa and parts of Asia, the old make up a small part of the population – and have long been cared for by extended family arrangements, mutual aid societies, and other informal mechanisms. Formal arrangements that involve the market or the government are rudimentary. But as urbanization, mobility, wars and famine weaken extended family and communal ties, informal systems feel the strain. That stain is felt most where proportion of the population that is old is growing rapidly, in consequence of medical improvements and declining fertility (Word Bank, 1994). Agreeably, in Nigeria, old people were cared for through the extended family system. The aged had the opportunity to live with the children and younger relatives who provided him with his needs.


            Today, the story is different because the society is dynamic. There has been dislocation in the societies set up brought about by rural-urban migration of youth and young people in search of white collar jobs. The demographic changes have affected the traditional parent-offspring relationship. They now live in very distant locations apart from one another. Western civilization made it possible for people to seek for paid employment in urban cities which sometimes are far away from their villages. The evolution of paid employment precipitated the concept of pension. The idea is that since workers spend the whole of their productive lives working for their employers, they (employers) in turn should, of necessity, make adequate plan for the up-keep of their workers after they retire from active service.


            Pension, simply put, connotes a form of official obligation in any employment relationship. It is a legal and economic obligation in which employers of labour are mandated to fulfill in her contractual relationship with employees. It is a form of employers’ benevolence towards employees (Pitch and Wood, 1979) quoted in Inyokwe (2013). Pension plans are usually established by a legal document called a trust deed with the declaration that the funds would be administered in accordance with the rules spelt out in the document. Employers offer pension benefits to attract, retain and reward employees. Employees, on the other hand, rely on retirement benefits as a form of financial security in their less productive years (Babatunde, 2012).


             Pension industry in Nigeria has witnessed reforms over the years with the prevalence of crisis. Employees and employers do not usually realize the necessity for planning adequately ahead for their retirement and retirement of their employees, respectively because the concept of pension is alien to them. This explains why most private sectors had no pension schemes for their employees and as such the workers who retired from such private sector organizations had no retirement benefits. Even where the scheme existed it was poorly organized. The same poor attitude to pension schemes was prevalent in the public sector where governments saw pension scheme as altruistic and public civil servants in pension management handled it unethically, hence, the preponderance of crisis (accumulation of huge pension liabilities, large scale misappropriation of pension funds, etc.) in the pension industry before the enactment of Pension Reform Act 2004.


            The first pension law in Nigeria was the Pension Ordinance of 1951. It was later transformed into Pension Act 1958. This was the first attempt by the colonial administration to provide for the full pension rights of the colonial administrators. However, some limited right was granted to the Nigerian workers in the civil service at the discretion of the colonial Governor General. This was followed by National Provident Fund (NPF) scheme established in 1961 by an Act of Parliament 1961. The NPF was changed to Nigeria Social Insurance Trust Fund (NSITF) in 1993 via a decree No.73 of 1993. The effective date was from July, 1994. This Act was broader based than NPF. This was the first legislation enacted to take care of pension matters in the private organizations. Thereafter, the Pension Act No.102 of 1979, the Police and other Government Agencies’ Pension Act No.75 of 1987, and Local government Edict which precipitated the establishment of Local Government Staff Pension Board of 1987 (Fapofunda, 2013; Odia and Okoye, 2012; Barrow, 2008; Akhiojemi, 2004; Balogun, 2004).


However, there were several government circulars and regulations issued to alter their provisions and implementation. For example, mandatory retirement at the age of 60 years or 35 years of service, whichever comes earlier, in 1988, and in 1992, the qualifying period for gratuity was reduced from 10 years to 5 years and that of pension from 15 years to 10 years (Barrow, 2008) cited in Gunu and TSADO (2012).


            The government operated a pay-as-you-go pension system. The pension administration in the public sector was largely Defined Benefit (DB) pension scheme which was neither funded nor contributory. The pay-as-you-go (PAYG) scheme was mandatory to the public sector but optional in the private sector. The scheme was characterized by massive accumulation of pension debt which made the scheme unsustainable due to lack of adequate and timely budgetary provisions as well as increases in salaries and pensions. There were also demographic shifts due to rising life expectancies, pensioners live longer which added to the pension expenditure (Ahmad, 2006; Balogun, 2004).


            Besides, the administration of the scheme was very unrealistic, inefficient, less transparent and cumbersome. This precipitated bureaucratic bottle necks and corrupt practices. Huge amount of resources were expended in yearly verification exercises. This also failed to provide the desired prompt and efficient payment of pension. One of the dailies, in collaboration observed that:


…From the revelations, it had been a conduit for a bazaar of looting and fraud masterminded by serving civil servants against their colleagues who had left service. The 18-page report by the Abdulrahsed Maina stank with details of organized crime in government offices… had revealed that since 1976, N3.3 trillion had been deducted from the pensions fund nationwide without proper accountability… Shocking also was the fact that while the serving workers lined their pocket with the loot, an average of 50,000 pensioners had not been paid their pension since retirement in the past 42 years. (Sun, Monday, Nov. 5, 2012).


            In spite of huge revenue accruing from oil, successive regimes could not pay the salaries of working employees as and when due let alone pension entitlements. The looting and “scramble” for pension funds by the pension “chieftains” were so suffocating that President Olusegun Obasanjo, seemingly concerned about the near destitution of the pensioners, said:


Over the years, retirement in our societies has become synonymous with suffering as if ageing were a course rather than a blessing that it really is. Often pensioners are forgotten by their former employers who thus accentuates society’s attitude that rejects pensioners as spent shells. The culmination of this persistent neglect of pensioners has become a threat to national security and indignant pensioners are made more and more inclined to public protests and demonstrations (Adedapo, 2004).


As already stated, old pension crisis is a global problem but the Nigerian version is coloured with corruption and large scale embezzlement of pension funds. This is because abinitio the pension industry was not properly organized. There were poor supervision of pension fund administrators in the effective collection, management and disbursement of pension funds; the various governments were insincere about pension.  The aftermath of these developments and more led retirees to become more or less baggers (Toye, 2006).The administrators developed some unwholesome behaviours in the disbursement of pension funds. They organized unorthodox individual retirement scheme such as large scale fraud and collection of 10 percent kick back from pensioners as a condition for payment. These pension administrators constituted themselves into beasts/birds of prey to their former colleagues (pensioners).


It was against these myriad of problems that the Federal Government of Nigeria constituted various committees headed by Chief Ajibola Ogunsola and Mr. Fola Adebola at different times to look at the challenges of pension schemes in Nigeria and proffer solutions. Fola Adebola’s committee report was enacted into the Pension Reform Act 2004 and came into operation on 1st July, 2004 (Fapofunda, 2013; Balogun, 2004).


The reform was a part of the main policy pursued by the Obasanjo administration to address the Millennium Development Goals (MDGs) which is anchored on National Economic Empowerment and Development Strategies (NEEDS). The macroeconomic framework of NEEDS under ‘Empowering the people’ involves issues relating to health, education, environment, integrated rural development, safety nets, gender, and geopolitical balance as well as pension reforms. The achievement of the objectives of NEEDS’ programme rests on four key strategies, one of which is ‘implementing a social charter’. In order to harness the full potentials of the citizenry, NEEDS aims at alleviating poverty through ensuring functional, sound and qualitative health and educational systems, employment generation for the youth. This is the overarching ultimate goals of NEEDS. The previous pension scheme which was in crisis was then replaced with a Contributory Pension Scheme by (the Act) to give the retired citizens a better life after retirement (ArticleNG, 2013; NEEDS, 2004; Charles, Mordi, and Abwaku, nd.).


The Pension Reform Act 2004 (the Act) was therefore enacted to correct these abnormalities in the system. Based on these wrong attitudes, Obasanjo administration introduced a pension system that is, according to him, sustainable and has capability to achieve the ultimate goal of providing a stable, predictable and adequate source of retirement income for each worker in the country (Ahmad, 2012). The pension reform Act 2004 (the Act) was signed into law which gave birth to Contributory Pension Scheme (CPS) fully funded, privately managed, and based on individual account for both the public and private sector employees in Nigeria. The main objectives of the Act is to ensure that every person that worked in either the public or private sector in Nigeria receives his/her retirement benefits as and when due. The Act, among its various provisions, repealed the Pension Act 1990 and other Acts pertaining to pensions were either entirely repealed or amended (Adedapo). The Federal Government has found the global trend in paradigm shift in pension industry – Contributory Pension Scheme.  It is in realization of this fact that the researcher decided to conduct a study on the impact of the implementation of the Pension Reform Act 2004 (Contributory Pension Scheme) on the pensioners’ welfare in Nigeria with particular reference to Nnamdi Azikiwe University, Awka. The justification for the sample is that the University has operated old pension system (PAYG) and is currently operating the contributory pension scheme. The sample also possesses the same characteristics with other federal Universities.

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