A CONSIDERATION OF THE CONFRONTATION OF RETIREES IN ACCESSING PENSION FINANCE

Introduction

Pension schemes all over the world are confronted with a lot of challenges, which Nigeria is not an exception. In Nigeria, the non-contributory pension scheme faces a lot of administrative challenges since its introduction in1979. Before the adoption of the new pension scheme in 2004, Nigeria’s social security provision for the retired and aged was ill at ease. Most private sector establishments did not accord any priority to their retired workers after years of service. The newly introduced contributory pension scheme is seen as an important  social  security  system  that  could  address  both  structural  and institutional dysfunctions in the country’s social security obligations. Nigerian Pensioners  have  high expectations  on the new  Government to ensure  an effective implementation of pension regulations existing in the country. These expectations arise from the need to have sustainable standard of living in retirement  and  their benefits  paid  as at when  due. The different  pension regimes operating in Nigeria, Defined Benefit (DB) and Contributory Pension (CPS) Schemes, give rise to varying set of problems that limit the capacity of key stakeholders within the Nigerian pension industry to meet pensioners’ expectations.This article examines some salient issues about the scheme and people’s expectations of it by assessing its benefits and challenges.The pre- 2004 Pension Reform Act refers to Pension Act 102 (PAYG) was signed into law in 1979. The scheme was a failure in the public sector because those in the private  sector  introduced  a  contributory  scheme  that  empowered  them economically far above their counterparts in the public sector Nwalo. (2007). World  Bank(1994)  reports  that  the  system  failed  as  a  result  of  output contraction  and  rising  system  dependency  ratio-  the  ratio  between  the population of age 65 and above.  Literature Review and Theoretical Framework In the view of Ndebbio (2000), financial deepening means an increase in the supply of financial assets in the economy and therefore the sum of all the measures  of  financial  assets  gives  us  the  approximate  size  of  financial deepening. From this, it is suggested that the financial sector is the conduit through  which  financial  deepening  is  manifested.  The  Department  for International Development (DFID) (2004) defined the financial sector of an

Lafia Journal of Economics and Management Sciences Volume 3 Number 1, June 2018 301     economy  as the  wholesale, retail,  formal  and  informal  institutions in  an economy  offering  financial  services  to  consumers,  businesses  and  other financial institutions. It therefore broadly includes everything from banks, stock exchanges, insurers, credit unions, microfinance institutions and money holders. Through its contributory features, the funded scheme has the inherent potential  to  boost  savings.  OECD  (2005) has  observed  that  institutional investors,  in  particular  pension  funds,  mutual  funds  and  insurance  have enhanced their role as collectors of savings over the past few decades. It went on to conclude that this trend is likely to continue as retirement saving grows and the increased pension saving will augment the size of capital markets. The large pool of savings which constitutes pension funds must be channeled into portfolios for reasonable returns so that old-age liquidity of the retirees (former affiliates)  and hence their  old-age consumption  (welfare) can be assured. This requires a high degree of financial intermediation in the financial sector. Such a come-together of the deficit and surplus spending units is likely to result in more deepening of the financial system (Goldsmith, 1969; Ghani, 1992; Greenwood and Jovanovic, 1990). Ardic and Damar (2006) in their study of financial sector deepening and economic growth in Turkey captured financial depth as total bank deposits divided by Gross Domestic Product GDP. De Jesus Emidio (2007) utilized the ratio of bank deposits liabilities to nominal GDP to capture information on the extent of financial intermediation and  the  savings  level  in  the  economy  of  Mozambique.  McDonal  and Schumacher  (2007) in  their study of  financial  deepening in  sub-Saharan Africa saw financial depth as the ratio of GDP of bank credit to the private sector. Hasan et al (2007) in their study of institutional development, financial a deepening and economic growth in China, used two measures of financial deepening. One measure was based on banks alone; which was the ratio of total bank loans to GDP and the other was the non-bank sources; which was the ratio of equity and non-financial corporate debt (long term and short term corporate bonds) issuance to GDP. In essence, issuance of equity and corporate bonds represents the activities of the capital markets. Rousseau and Wachtel (2008) in their study of the impact if financial deepening on economic growth used three measures of financial development, namely;  the ratios to GDP of liquid liabilities (M3), liquid

Lafia Journal of Economics and Management Sciences Volume 3 Number 1, June 2018 302     liabilities less narrow money (M3 less M1) and credit allocated to the private sector. Lastly, Singh et al (2009) in their study of financial deepening in CFA France Zone captured financial depth as credit to the private sector in terms of GDP.  Pension System in Nigeria Over the years, Nigeria is faced  with a lot of challenges among which is pension  and gratuity  of  her workers.  Both  the private  and public  sector workers have been faced with this challenge. The public sector workers have suffered a lot under the Defined Benefit Scheme (DBS) and their private sector counterparts  have  been  pained  owing to  different pension  plans by  their respective employers. Retirement benefit paid to retired employees prior to 2004 Reform Act was gratuity and pension. Adegbayi (2005) views gratuity as the payment of a lump sum to an ex-employee at the period of retirement while pension is the payment of monthly stipend to a person who has retired from active employment or business engagement. The payment is sustained by way of deductions from past entitlements  or past earnings, which are  saved to provide retirement  benefits. Thus  as a tax  saving devise,  savings  toward pensions is quite encouraging. Equally, since pension saving is long term, it is also useful as a macroeconomic tool for national development by enabling money to be in circulation for long-term investment. As viewed by Ugwu (2006) in Amujiri (2009) there are four  main classification  of  pension  in Nigeria. These are retiring pension, compensatory pension, superannuating pension and compassionate allowance. It should also be noted that gratuity is a one-and-for-all lump sum of money paid to an employee on retirement. A retiring worker can be entitled to gratuity only or both gratuity and pension. It then  means  that a  worker  who  is  entitled to  pension  is  also  entitled to gratuity.)The history of Nigeria’s pension system dates back to the year 1951 when the first pension scheme was inaugurated in the country. According to Balogun (2006), Nigeria’s first ever legislative instrument on pension matters was the Pension Ordinance of 1951 which had a retroactive effect from 1st January,  1946.  The law  provided  public servants  with  both pension  and gratuity. The National Provident Fund (NPF) which was established in 1961, was  the  first  legislation  enacted  to  address  pension  matters  of  private organizations.

Lafia Journal of Economics and Management Sciences Volume 3 Number 1, June 2018 303     Pensions Decrees 102 and 103 (for the military) of 1979 were enacted with retroactive effect from April,  1974  (Ahmed,  2006). The  police and  other Government Agencies’ Pension Scheme were enacted under Pension Act No. 75 of 1987. This was followed by the Local Government Pension Edict which culminated into the establishment of the Local Government Staff Pension Board of 1987. In 1993, the National Social Insurance Trust Fund (NSITF) scheme was established by decree No. 73 of 1993 to replace the defunct NPF scheme with effect from 1st July, 1994 to cater for employees in the private sector of the economy against loss of employment income in old, invalidity or death. Before 2004, most public organizations operated a Defined Benefit (Pay-As-You-Go) scheme and final entitlements  were  based on  length of service and terminal emoluments. The defined benefit pension scheme in Nigeria was plagued by many problems among which were poor funding due to  inadequate  budgetary  allocations  [for  instance  shortage  of  budgetary release relative  to  benefits resulted into unprecedented  and unsustainable outstanding  pension  deficit  estimated  at  over  N2  trillion  before  2004 (Balogun, 2006), weak, inefficient and non-transparent administration. There was no authenticated list/data base on pensioners and about 14 documents were required to file for pension claims. Restrictive and sharp practices in the investment and management of pension funds exacerbated the problems of pension liabilities and over 300 parastatals’ schemes were bankrupt before the defined benefit scheme was finally jettisoned and replaced with the funded contributory benefit scheme in  July, 2004.  The new pension scheme was established for all employees of the Federal Public service, Federal Capital Territory and the  private sectors (including informal sector employees) in Nigeria. The major operators under the scheme are the National