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PENSION SCHEME MANAGEMENT IN THE NIGERIAN PUBLIC SECTOR

Project Topic: Pension Scheme Management in the Nigerian Public Sector


CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Prior to the emergence of the present pension regime, pension scheme management was largely in a state of flux. Most schemes were either underfunded or unfunded. There was weak and inefficient pension management in both the private and public sectors of the economy. Most workers in the private sector were not covered by any form of retirement benefits and cases of embezzlement of pension fund in the public sector as a result of inefficient management of pension scheme were rife. The fundamental objective of every pension scheme is to guarantee benefit to workers on retirement. The actualization of this important function is determined to a large extent on the level of efficiency put in place in the management of pension scheme. According to Ugbaja (2005:8), a well funded pension scheme helps to spread the cost of benefits evenly overtime and eliminate the difficulties of economic misfortune. This is achievable if the pension fund scheme is well managed. The introduction of pension scheme into the Nigerian public sector dates back to 1951. The then colonial administration in its bid to make public service work more appealing or desirable, the scheme was made retroactive from 1946. This indicates that, though, the ordinance was passed in 1951, the benefits were extended back to 1946. This significant act, marked the beginning of major attraction for employment in the public service. According to Ebegbunam (1998:12), a pension scheme consist of plans, procedures, legal and administrative process of acquiring and setting aside of funds to accumulate in order to meet the social obligation of care which employers owe their employees on retirement or their dependents should the employee dies before retirement. Prior to the coming into force of the pension Act, 2004, the funding of a pension scheme was a basic obligation employers owed their employees. This ensured the variability and sustainability of any retirement benefit scheme. However, the funding of a pension scheme can be contributory or non contributory. In the former, both the employer and the employee provide the fund through joint contribution. In the latter, only the employer or the employee provides the fund. Before 2004, the non-contributory pension scheme was in operation. This is a Defined Benefits Scheme in which the government had 100 percent responsibility for pension liabilities, Ojo (2004:11). Meribole (2006:3), remarked that with the dwindling fortune of the nation’s economy, the increasing burden of pension payment in the public sector weighed heavily on government. Overtime, the burden was further compounded by the massive disengagement and retirement of Federal Public Servants under the public service reform. Ojo (2004:11), in his account, observed that due to the absence of pension fund prior to 2004, set aside, to receive regular contributions, no investment could be made so as to yield returns that would boost the financial resources needed for prompt and regular payment of retirement benefits. Consequently, the Federal Government, having realized these challenges, as daunting as they are, had taken various steps in order to ameliorate the situation. These steps includes setting up of various pension committees that looked into the pension arrangement with a view to coming up with viable framework that would mitigate the situation and reposition the scheme for better performance and efficient management. Agu (2004:5), in his observation of reports of the committees, opined among other things, that Government could no longer cope with financing pension scheme alone in the face of other challenging economic demands. Government, therefore, proposed and introduced a contributory pension scheme to replace the Pay-As-You-Go or non-contributory scheme. The need for this reform was to entrench an effective administration in the management of pension scheme in Nigeria public sector which has become imperative as various government have failed in this regard, and also to ensure prompt payment of retirement benefits to retiring public servants in the Nigerian public sector. The institutionalization of the Pension Reform Act 2004, was made to carter for the overall management and custody of pension assets. The Act provides, certain categories of existing schemes to apply to the National Pension Commission (PenCom) for continuation, though they are still required to be managed in accordance with the Act. The new scheme is a Defined Contributory Scheme in which monthly funded contributions are made by employee and employer. The Funded Contributions are held by a Pension Fund Custodian (PFC), and managed by and administered on the contributor’s behalf by a Pension Fund Administrator (PFA) of the employee’s choice. Essentially, there are differences between the new scheme and previous pension arrangements. Under the Contributory Pension Scheme (CPS), employer and employee make funded contributions into a Retirement Savings Account (RSA) for the exclusive benefit of the employee or his legal beneficiaries. However, the Defined Benefit Scheme in the public sector were largely unfunded, or where they were funded in the private sector or in parastatals, the management of such funds were not handled professionally. This most times, results in the default in payment of retirement benefits, misappropriation, or outright embezzlement which has become the norm in the management of pension scheme in the Nigerian Public Sector. It is against this background that this study seeks to ascertain the extent of inefficiency in pension scheme management in the Nigerian Public Sector with a view to identifying these problems and its attendant prospects.

1.2       STATEMENT OF PROBLEM

Since the introduction of the Contributory Pension Scheme in the Nigerian public sector in 1998 and the inception of the 2004 reform, it has been evidenced that the Nigerian government has failed in its obligation in fulfilling the ultimate aim of establishing the scheme; such as: inability of government and its agencies to ensure prompt payment of retirement benefits to its retiring employees as and when due; inability of government to implementing of policies that would enhance efficiency in the management of the scheme; lack of genuine commitment towards stemming the growth of pension liabilities in the sector; inability to ensure that personnel indicted of misappropriation of pension fund are duely prosecuted; ensuring judicious monitoring and utilization of pension funds; lack of government’s commitment in mandating its regulatory body to ensure the enforcement of laid down policies that would compel its instruments such as PFA’s and PAC’s to perform efficiently; recruitment and use of unqualified staff in handling pension related duties in the Nigerian public sector and establishment of viable framework for collection and analysis of data relating to retiring employees. The above mentioned problems and more, however, necessitated the need for this research study.

1.3       OBJECTIVE OF THE STUDY

The objectives of the study are;

  1. To examine the level of inefficiency in the management of pension scheme in the Nigerian Public Sector.
  2. To ascertain the extent of problems domiciled in the management of pension scheme in the Nigerian Public Sector.
  3. To examine the prospects of establishing an enduring Pension Scheme Management in the Nigerian Public Sector.

1.4       RESEARCH QUESTIONS

The following questions are addressed in this study;

  1. What is the level of inefficiency in the management of pension scheme in the Nigerian Public Sector?
  2. What are the problems encountered in the pension scheme management in the Nigerian public sector?
  3. To what extent will judicious implementation of policies through the relevant regulatory bodies achieve a prospective pension scheme management in the Nigerian Public Sector?

1.5       HYPOTHESIS

The following Hypothesis were tested;

  1. Ho: There are no significant level of inefficiency identified in the management of pension scheme  in the Nigerian Public Sector. Hi:       There are significant level of inefficiency identified in the management of pension scheme in the Nigerian Public Sector.
  2. Ho: There are no lingering problems encountered in the management of pension scheme in the Nigerian Public Sector.

Hi:       There are lingering problems encountered in the management of pension scheme in the Nigerian public Sector.

3.  Ho:     There are no relationship between judicious implementation of policies and a prospective pension scheme management in the Nigerian public sector.

H1:       There are relationship between judicious implementation of policies and a Prospective pension scheme management in the Nigerian public sector.

1.6       SIGNIFICANCE OF THE STUDY

This study is significant in the sense that it brings to bear clearer understanding of trends and happenings in the Pension industry due to the continuous outcry by Pensioners in the Nigerian Public Sector. The study is timely especially today following controversies trailing the management of pension fund in terms of the rate of embezzlement. The research will thus help clear the air as regards the current Pension Reform Act of 2014 which will benefit both the economy and reduce the incidence of inefficient management of pension fund. The study will also be of immense help to prospective researchers who may use it as a guide for further research in related topic in the future. It is believed that the study, through its reports findings, conclusion and recommendations will be of significance to regulatory authorities, Employers and Employees in the Nigerian Public Sector.

1.7       SCOPE OF THE STUDY

The scope of this study covers the introduction of the contributory Pension Scheme in the Nigerian Public Sector, the level of inefficiency in its management, as well as its associated problems and prospects.

1.8       LIMITATION OF THE STUDY

The researcher being faced with other demanding academic obligations and course work could not allocate adequate time frame necessary for this research study. Therefore, TIME was a serious challenge to the researcher. Also, the topic under consideration, being a recent phenomenon in the management of public sector organization; there was scarcity of relevant information on the subject matter. This was so, because, most authors before now, are yet to do much work on it and this, however, contributed to the minute material available to the researcher. Besides, lack of adequate finance posed a serious challenge to the researcher as it militated against the sourcing and obtaining of relevant materials necessary for the research study on good time.

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Project Topic: Pension Scheme Management in the Nigerian Public Sector

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