Isaac Arome Yusuf, Hamza Salami, Muhammad Ali
Department of Business Administration, Faculty of Management Science, Kogi State University, Anyigba - Nigeria
Department of Economics, Faculty of Social Science, Kogi State University, Anyigba - Nigeria
Abstract: This study is set out to examine the impact of Contributory Pension Scheme Reform and Administration of retirement benefits of pensioners of the selected Federal Ministries in Nigeria. Two hundred and fifty (250) questionnaires were distributed out of which hundred and twenty (120) are returned. The primary data collected were analyzed using the descriptive and ordinary least square (OLS) regression analysis. The findings revealed that the new scheme has reduced the delay and hardship associated with pension payment but there is still delay and hardship in pension administration. It revealed that majority of the pensioners are not yet satisfied with life after retirement and their pension income is not commensurate with current economic trend. The regression results showed that the new pension scheme has not reduced delay and hardship due to inadequate measures put in place to alleviate hardship, and also problem with the implementation process. It was revealed however that the contributors’
fund is now safe and there is less corruption in the scheme. The study recommended among others, the need for enlightenment of pensioners, more branches of the National Pension Commission (PENCOM), better capturing of pensioners, strengthening of the commission, compliance and accountability on the activities of pension administrators and PENCOM are all necessary in alleviating and reducing hardship pensioners usually face in collection of their retirement benefits in Nigeria.
Keywords: Contributory Pension Scheme, Pension Fund Administrators, Hardship and Delay in Pension benefits payment.
Introduction
Pension has become a topical issue, one that has engaged the commitment of government, attention of employers, and workers not only in Nigeria but also in many developing and emerging economies of Africa, Asia and Latin America. Ideally, governments and organisations need to identify a way of accommodating and adequately rewarding employees’
past efforts, through organised pension plans, so that it can achieve the goals of their existence (Rabelo, 2002). While, in some cases, the systems are designed to facilitate direct transfers from the government to those particular target groups (pensioners), the emphasis is on providing a mechanism whereby the individual might insure himself against the loss of future earnings. One major reason why qualified workers choose salaried employment in the Federal Ministries (public sector) is to be able to get financial assistance at old age when the limbs are feeble and cannot embark on a meaningful strenuous financial rewarding venture. Even in developed countries where reasonably secured financial market exists, government frequently
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either support pensions directly or mandate participation in pension plans by employers or private pension providers (Abdullazeez, 2015).
According to Abdullahi, 2016, Nigeria has had series of Pension regimes (Acts) all aimed at reducing poverty and providing income for the elderly at retirement. The first public sector pension scheme was the pension ordinance of 1951, with retroactive effect from January 1946.
The public service pension scheme was non-contributory which was unfunded and based on Pay As You Go (PAYG). The Nigeria Social Insurance Trust Fund (NSITF) was managing the pension scheme for the private sector. Pension decree 102 and 103 of 1979 were enacted with retroactive effect from April 1974. These decrees remained the operative laws on public service and military pension in Nigeria till June 2004. However, there were several government circulars and regulations issued to alter their provision and implementations. For example, in 1992 the qualifying period for gratuity and pensions were reduced from 10 years to 5 years and from 15 years to 10 years respectively. (Odia & Okoye 2012). In 1997, parastatals were allowed to have individual pension arrangement for their staff and appoint Board of Trustees (BOT) to administer their pension plans as specified in a student trust deed and rules prepared by the office of the Head of Service of the Federation. On the other hand, the first private sector Pension Scheme in Nigeria was set up for the employees of the Nigeria Breweries in 1954; this was followed by United African Company (UAC) in 1957 (Ahmad, 2006).
Nigeria Provident Fund (NPF) was the first formal social protection scheme in Nigeria established in 1961 for the non-pensionable private sector employees. It was largely a saving scheme where both employer and employee would contribute the sum of four naira (N4) each on monthly basis.
The Nigeria Social Insurance Trust Fund (NSITF) was established by Decree No. 73 of 1993 to provide enhanced social protection to private sector employees. The NSITF took over the assets of the (NPF) and commenced operations in July 1994. There were three regulators in the pension industry prior to the enactment of the Pension Reform Act 2004, namely: Securities and Exchange Commission (SEC), National Insurance Commission (NAICOM) and Joint Tax Board (JTB). The Pension Reform Act of 1st July, 2014 is the most recent legislation of the federal government at reforming the pension system in Nigeria. It established a uniform pension system for both the public and private sectors where single authority (National Pension Commission) regulates and oversees all pension matters in the country (Balogun, 2006).
The failure of the Pension Ordinance of 1951, Pension Decree 102,103 of 1979 and the Pension Reform Act of 2004 to provide the needed relief to the vulnerable ones at retirement led to the enactment of the Pension Reform Act 2014 by the National Assembly on 1st July, 2014. It repeals the Pension Reform Act No 2 of 2004, governs and regulates the administration of the Contributory Pension Scheme in Nigeria. The Act was fashioned after the Chilean Pension Fund Reforms and was designed to bring more certainty for the future by ensuring that Nigeria workers have more security at retirement, (Ayegba, James & Odoh, 2014). As such, the Pension Reform Act 2014 made provisions to improve efficiency and accountability in pension administration in the polity by placing much emphasis on protecting pension contributions. The Pension Reform Act 2014 established the contributory Pension Scheme for all employees in the public service of the Federation, Federal Capital Territory and the private sector of the economy. The Contributory Pension Scheme provided for a complete departure from the defined benefit pension scheme which is unfunded, non-contributory and based on Pay As You Go (PAYG) to a scheme which is fully funded, contributory and uniform in application. The new Act made it mandatory for workers to contribute eight percent (8%) of their monthly
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emolument into a Retirement savings account, while their employers are to support them with ten percent (10%) totalling 18 percent. Thus, a minimum of 18 percent of the monthly emoluments would be credited into the Retirement Savings Account (RSA) of the employee.
The Pension Reform Act 2014 also established the National Pension Commission (PENCOM) that regulates, supervises, and oversees all pension matters in Nigeria. There are also the Pension Fund Administrators (PFAs), which are limited liability companies duly licensed by PENCOM as special purpose vehicles to carry out pension business only. The Pension Fund Administrators open retirement savings account for employees, manage the person’s fund as the commission may from time to time prescribe, maintain books of accounts on all transactions relating to the pension fund under their management and Pension Fund Custodians (PFCs) appointed by Pension Fund Administrators (PFAs). They are responsible for the warehousing of the pension fund assets. The employer sends the contributions directly to the custodian, who notifies the Pension Fund Administrators of the receipt of the contribution and the Pension Fund Administrators subsequently credits the Retirement Savings Account of the employee.
The custodian would execute transactions and undertake activities relating to the administration of Pension Fund investments upon instruction by the Pension Fund Administrator (PFA) (Pencom, 2014). Pension reform which is now common world over is still one of the greatest challenges of Nigeria government in spite of the various changes. In light of this, the study examines the impact of Contributory Pension Scheme on administration of retirement benefits of pensioners of selected Federal Ministries in Nigeria and also to know whether contributory pension scheme has been to ameliorate the delay and hardship in payment of pensioners in Nigeria. It is against this background that this paper is set out to examine the impact of Contributory Pension Scheme Reform and Administration of retirement benefits of pensioners of the selected Federal Ministries in Nigeria.
Literature Review Conceptual Review
Contributory pension scheme means a situation where employees and employers contribute a certain percentage of the monthly salaries to fund the pension of the employee ( Pencom, 2004).
This was started in Chile after their pension reforms had passed through three stated. The contributory pension scheme which was the third in the evolution of their social security scheme began in 1980. In Nigeria, the new trend in Pension benefits has shifted towards a Contributory Pension Scheme, which was started in Chile in 1981 and which of course is the third stage of social security system in Chile. Nigeria, for instance opted for a complete paradigm shift to a contributory pension scheme, while some countries like Argentina maintain a mixture of both defined benefit and defined contribution scheme. The contributory pension scheme provided for a complete departure from the defined benefit pension scheme which is unfunded, non-contributory and based on Pay As You Go (PAYG) to a scheme which is fully funded, contributory and uniform in application. The new Act made it mandatory for workers to contribute eight percent (8%) of their monthly emolument into a Retirement Savings Account, while their employers are to support them with ten percent (10%) totalling 18 percent (pencom, 2014). Thus, a minimum of 18 percent of the monthly emoluments would be credited into the Retirement Savings Account (RSA) of the employee.
Empirical Review
Edogbanya (2013) conducted a research on the assessment of Contributory Pension scheme to Nigerian economic development, the result of correlation analysis using T-test revealed that contributory pension scheme has significant impact on the gross domestic product (GDP) while the result of ANOVA revealed that risk prevalent has positive effect on the pension fund
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management. The study recommended that the pension administrators should invest in less risky portfolio to enhance prompt payment of pension to retirees.
In view of the above, Odia & Okoye (2012) compared the old pension act and the new pension act in a comparative analysis using descriptive statistics. The study finds that the new pension act started on a better note compared to the old pension act in terms of mobilization, participation and funds accumulation. The study simply recommended for continued awareness and mobilization for a successful pension scheme.
Faruk (2012) conducted a study on the contributory pension scheme on welfare of retirees from selected federal establishments in Nigeria. Data were collected through questionnaire, interview and non-participant observation. The data were analyzed using chi-square alongside tables and percentages. The study discovered that contributory pension scheme has partially addressed timely payment of benefits. It has also instilled some discipline in the savings habit of the federal public service. In addition, it was also discovered that, there is no complete adherence to rules by pension funds administrators (PFAs) and finally fluctuations in the stock market exacerbates pensioners’ fear about the scheme. It is obvious that, contributory pension scheme is investigated in relation to its effects on the welfare of retirees and inferences were made. However, looking at the contributory pension scheme and the retiree’s welfare in the federal establishments makes it necessary for another research that will cover state public services studying the implementation of contributory pension scheme with a particular reference to compliance, funding and the implementation and timely payment of retirement benefits variables.
Olarenwaju (2011) examined the Pension Act of 2004 and the well–being of retirees in Nigeria using descriptive statistics. The study relied on the Marxian theory to analyze the descriptive data that was collected through structured questionnaires administered to retirees in Nigeria. It was gathered that while operators in the private sectors have started benefitting from the scheme, the public operators are yet to benefit as bureaucracy in government especially the delay in releasing counterpart funding from government has deprived many retirees from accessing their benefit after retirement.
Fapohunda (2013) conducted a study on the pension system and retirement planning in Nigeria.
The study concludes that, there is not much evidence to show that, the pension scheme (CPS) is leading Nigerians to the desired direction. Numerous scandals have trailed the pension scheme and a lot still needs to be done with regards to effective management of the scheme.
This study is criticized on the fact that, the study uses data obtained from official publications and data obtained from the internet.
Aja (2014) study an evaluation of the CPS administration in Nigeria, within a 10-year scope (2004-2013). The study used a sample of 381 participants. Data were analyzed using chi-square tool at 5% level of significance and 0.05 degree of freedom. SPSS was used to test the hypotheses. The result shows a high level of satisfaction with the time of pension payment, and the extent of pension coverage is still very low. This study evaluated the administration of CPS operating at the federal establishments neglecting the scheme operating at the state and local levels.
Ahmad & Oyadiran (2013) focused their study on examining the impact of the 2004 pension policy on the welfare of Nigerian civil servants. The main aim of the study is to examine the impact of the new pension policy and how it improves the living standard of the retired and
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serving civil servants in Nigeria in some selected federal ministries. Data for the research were collected through questionnaire using random sampling technique on 1500 respondents from the five ministries in Abuja. The analysis was carried out using simple percentage. The findings indicate that, the implementation of the new pension scheme significantly improves the welfare of the civil servants, but does not address the problem of corruption and inadequate budgetary allocation and therefore, the scheme is not effective in overcoming the problems of retirees in Nigeria.
Ahmed, Abayomi & Nureni (2016) in their study, the effects of contributory pension scheme on employees’ productivity: evidence from Lagos State Government, using the simple random sampling method on a sample size of one hundred and twenty (120) respondents who were administered the questionnaire. The data was analyzed using the statistical package for social sciences (spss) version 21. The result of the analysis reveals that there is significant relationship between adequate retirement package and employees’ productivity and that it has a positive impact on the organization efficiency. It recommended that stakeholders should be involved in the review of the scheme so as to streamline it and to adequately supervise operators’ / clients sensitization programs.
Kalu & Nicholas (2015), in their study of the Impact of Contributory Pension Scheme on employee savings and investment in Nigeria using Anambra State public workers as a case study, a cross sectional primary data was sourced through a structured questionnaire administered on three hundred and eighty-seven (387) respondents. The analysis revealed that majority of the respondents prefers to save outside any pension scheme implying that they are participating because it is compulsory. It also shows that most employees are not aware of their employers’ contribution to their contributory pension scheme. It concludes that among others the Nigerian government should create more awareness and enlightenment campaign on workers’ contributory pension geared towards retirement.
Adeniji, Akinwumi & Falola (2017) in their study on administration of retirement benefits in Nigeria, periscoping the effects of retirees; they investigated the impact of financial performance on the value of Jordanian industrial firms, which are registered in Amman Financial Market (AFM). The sample of the study consists of (40) firms available on the AFM’s website. They represent 71.4% of the Jordanian industrial firms, during the period (2006-2015). Regression is used to test the study’s hypotheses. Tobin’s Q and operational efficiency indicators are used to measure financial performance (Gross profit and the operating expenses). The study reveals that there is a statistically significant impact of financial performance on the firms ‘values. The study recommends that the firms’ management, stakeholders and investors should concern with using appropriate indicators to analyze financial performance that are developed by the researchers such as the operating efficiency indicators, in addition to TQ index. This is because measuring performance is important for forecasting firm’s value, and helps stakeholders in making appropriate decisions.
Theoretical Framework
Theoretical framework is not a description of theories existing in a field, rather it is an application of a relevant theory to guide a research work (Chukwuemeka, 2006). In view of this study, David Easton’s system theory was the theoretical tool used to give this work a foundation. The proponents of systems theory are David Easton, Talcott Parson, and Gabriel Almond. Systems theory as a tool of analysis has been applied in the study of events by social scientists.
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Systems theory is a theoretical framework for analysing the interplay of socio-economic variables in an organisation in the face of changing and challenging circumstances within and outside the organisational boundary. Systems theory views phenomena as parts of whole.
Easton introduced four concepts in order to explain his system theory:
i. The conversion process, ii. The environment, iii. The input channel, and iv. The feedback process.
The theory explains the interdependence of the system like the Contributory Pension Scheme Reform and Administration of Retirement benefits in that any dysfunction of the parts affects the whole. There have been long lingering agitations in the Public Sector resulting from the demands of workers not only for better remuneration but improvement on their retirement benefits. The actions of employers or the management to these demands have varied at different times with various implications. Easton (1965) states that, “the main features that distinguish the political system from other system is that interactions within it are oriented towards the authoritative allocation of values for a society”. And whenever the management fails to allocate values that will address any negative situation, there is always a conflict and more especially in the dimension of retirement benefit/pension scheme administration. The theory categorized the functional structures of the political system into input-making functions and the output making functions.
Therefore, this analytical method utilises the input, output approach to explain how political system responds to the wishes and demands of the employees. Inputs are demands made on government by the employees. They could be resource allocation, improved conditions of services, and improved retirement benefits among others. Outputs are decisions or policies of government as responses to the demands of the employees. The output or decision could be positive or negative. The nature of the output could lead to equilibrium or disequilibrium of the system. If outputs are positive and favourable to the employees, they will in turn be obliged to give a total commitment and support to government.
Methodology Research Design
Owing to the nature of this research work, the descriptive and regression analysis were applied to the data collected from primary sources.
Population of the Study
The population from which the respondents for this study were drawn is from 665 pensioners cutting across the three Federal Ministries under study.
Table1: Population Schedule
S/NO FEDERAL MINISTRIES NO OF POPULATION
1. Federal Ministry of Health 200
2. Federal Ministry of Education 250
3. Federal Ministry of Water Resources 215
TOTAL 665
Source: http://www.nigerianstat.gov.ng/report/362
Sampling Technique and Sample Size
The sampling technique for this research work is simple random sampling. Having taken the population of the study to be (665), the researcher employed a formulae propounded by Taro
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Yamane to determine her sample size and the number of the question to be administered to the selected sample.
n =
Where n = the desired sample size N = the Population i.e. 665 persons 1 = mathematical constant
e = Errors of limits at 5% (0.05) Substitute:
N=
=
= 249.8
= 250 approximately
Since the sample size (n) is two hundred and fifty (250) persons it means that a total number of 250 questionnaires will be administered to the selected sample.
Data Analysis Technique
For the purpose of this research, the analysis of responses of retirees under the new pension scheme as captured in the questionnaire in which the respondents were subjected to descriptive analysis. The responses that relate to the objectives of the study were further coded and fed into the SPSS version 21 software. The responses were then subjected to descriptive analysis, followed by inferential/regression analysis in order to test the validity of the hypotheses of the study. In the analysis, mean score value along-side standard deviation was used to analyze the data collected, and the cut off mean point is approximately 3.00. The procedure for arriving at the cut off mean point is as follows. We assign a value of 4 to Strongly Agree, 3 to Agree, 2 to Disagree, 1 to Strongly Disagree, and 0 undecided. These were the code for the responses of each respondent regarding the questions asked in the questionnaire particularly those questions relating to the objectives.
The inferential statistical analysis used is the Ordinary Least Squares (OLS) multiple regression technique in view of the multiplicity of factors that could result in delay and hardship experienced by pensioners in the course of their assessing their pension benefits under the new scheme. Thus, in the OLS technique their response regarding delay and hardship is the dependent variable. The predictor or explanatory variables are; responses of respondents regarding the pension reform on whether: it has alleviated hardship, result in safety of contributors’ fund, there is still corrupt practice under the new scheme, and whether there is proper implementation of the reform.
The variables mentioned above were captured in the questionnaire and coded after being filled by the respondents in line with the categorization in each (i.e. options provided in each variable), in the questionnaires distributed using Likert scale. Then the data obtained from the coding were fed into the SPSS software. This formed the basis for regression analysis to obtain the relationship among the variables. The multiple regression OLS technique is deemed appropriate as it captures the multiplicity of variables affecting the new pension scheme thereby causing delay and hardship; and it has been used in estimating not only the direction but the
1 Ne2
N +
2 ) 05 . 0 ( 665 1
665 +
6625 . 2
665
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extent/degree of influence of the explanatory variables on the dependent variable. The results were then discussed.
The relevant diagnostic statistics examined from the OLS technique include the nature of coefficients of the explanatory or independent variables as well as their corresponding p-values, the F-value and the coefficient of determination (R2), and the Durbin-Watson (DW) statistic.
While the rate at which each explanatory variable influences the dependent variable (in isolation of others) is explained by the corresponding coefficient, the p-value ascertains the statistical significance of the individual coefficient. The F-value ascertains the adequacy of the model. R-square takes into account the proportion of total changes in the dependent variable that are jointly explained by the explanatory variables, and adjusted R-square takes into account the loss of degree of freedom as more explanatory variables are introduced into the model. The R-square and F-statistic reveal whether the parameters of the model are jointly statistically significant. Further included is the Durbin-Watson (DW) statistic which reveals the presence or otherwise of autocorrelation in the regression i.e. whether there is relationship between the explanatory variable(s) and the error term which is not supposed to be as it would violate the basic assumption of the OLS model. The closer to 2 is the DW, the less likely the presence of autocorrelation.
Model Specification
The model used in the study is a multiple regression model and it is adapted from work of Nwanne (2015). It is used to examine the nature and extent of influence of the predictor variables (the responses on factors that result in delay and hardship in pension payment under the new scheme) on the dependent variable (response regarding delay and hardship). The multiple regression model is specified as follows:
DHPB = β0 + β1PRAH + β2SAFE+ β3CORR+ β4IMPR +u………(1) Where:
DHPB = Responses of respondents on delays and hardship in payment of pension benefits.
PRAH = Responses on whether pension reform has alleviated hardship SAFE = Responses on safety of contributor’s fund
CORR = Responses on whether there is still corrupt practices under the new scheme
IMPR = Responses on proper implementation of the reform Ut = Error Term
β0 = Intercept
β1,β2,β3,and β4 = Coefficients of the explanatory Variables The a priori expectations are:
β0>0, β1>0, β2>0, β3>0, β4>0
The expectations means that the explanatory variables are expected to exert positive influence on the dependent variable.
Data Presentation and Analysis
The study is based on descriptive and inferential analysis which is presented as follows.
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Descriptive Statistics on Variables Used for Regression
Table 2: Contributory Pension Scheme Reform and Administration of Retirement Benefits of Pensioners in Federal Ministries in Nigeria.
Code Statement:
(Variable Name) SA (4) A
(3) SD (2) D
(1) UD (0)
Total
%
Mean SD Remark s DHPB There is still delay
and hardship in payment of pension benefits
15 (13%)
55 (46%)
10 (8%)
35 (29%)
5 (4%)
120 (100)
2.54 0.96 Accepted
PRAH The pension reform Act has alleviated the delay and hardship in payment of retirement benefits of pensioners
10 (8%)
65 (54%)
15 (13%)
30 (25%)
0 (0%)
120 (100)
2.58 0.82 Accepted
SAFE The new Pension Reform Act 2014 has provided checks balances that guarantee the safety of contributor’s fund
15 (13%)
70 (58%)
10 (8%)
25 (21%)
0 (0%)
120 (100)
2.75 0.78 Accepted
CORR There is still corrupt practices under the New Pension Scheme
20 (17%)
55 (46%)
10 (8%)
35 (29%)
0 (0%)
120 (100)
2.70 0.84 Accepted
IMPR The Retirement
Benefits of
Pensioners is properly implemented
20 (17%)
71 (59%)
0 (0%)
19 (16%)
10 (8%)
120 (100)
2.76 1.01 Accepted
Source: Field Survey 2019
Table 2 shows the response rate on the contributory pension scheme reform and administration of retirement benefits of pensioners of federal ministries in Nigeria. It presents the responses of respondents regarding the variables used in the regression. As it can be seen, the result indicates that there is still delay and pensioners still face some form of hardship in payment of their pension benefits under the new pension reform given the mean statistics of (M=2.54 which approximates to 3 and corresponding to the code for “agree”). Furthermore, the respondents also agreed that the new pension reform has alleviated the delay and hardship in payment of retirement benefits supported with mean and t-statistics value of (M=2.58 and t-stat=8.01).
Also,the respondents agreed that the new pension reform has provided checks and balance that guarantee the safety of contributor’s fund with it is negative effect on delay and hardship pensioners face in collection of their retirement benefits and this is also supported with a mean and t-statistics value of (M=2.75; t-stat=-2.32)
In addition, the respondents also agreed that there still corrupt practices under the new pension scheme and this is supported with a mean and t-statistic value of (M=2.70; t-stat =-10.05).
Lastly, the respondents also agreed that the retirement benefits of pensioners is properly implemented to reduce the hardship and delay do faced by pensioner in payment of their benefits and this is evident by a mean and t-statistic value of (M=2.76; t-stat =0.95).