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NWOSU CHUKWUBUZO JERRY PG/MBA/08/47498
ANALYSIS OF THE NEW CONTRIBUTORY PENSION SCHEME IN THE NIGERIA PUBLIC SECTOR: ISSUES, PROBLEMS AND
PROSPECTS
Management
A THESIS SUBMITTED TO THE DEPARTMENT OF MANAGEMENT, FACULTY OF
BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA ENUGU CAMPUS
Webmaster Digitally Signed by Webmaster’s Name
DN : CN = Webmaster’s name O= University of Nigeria, Nsukka
OU = Innovation Centre
2010
UNIVERSITY OF NIGERIA
ANALYSIS OF THE NEW CONTRIBUTORY
PENSION SCHEME IN THE NIGERIA PUBLIC SECTOR:
ISSUES, PROBLEMS AND PROSPECTS
NWOSU CHUKWUBUZO JERRY
PG/MBA/08/47498
DEPARTMENT OF MANAGEMENT
FACULTY OF BUSINESS ADMINSITRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
MARCH, 2010
CERTIFICATION
I Nwosu Chukeubuzo Jerr, a postgraduate students of the
Department of Management with Registration Number
PG/MBA/08/47498 has satisfactorily completed the
requirements of the course and research work for the award of
Masters Degree in (MBA) in Management, Faculty of Business
Administration
The work embodied in this project report is original and has
not been submitted in part of full for any Diploma or Degree of
this in any other university.
---------------------------------------- Nwosu Chukwubuzo Jerr
PG/MBA/08/47498
----------------------------------- ---------------------------- Prof. U.J.F. Ewurum Prof U.J.F Ewurum Supervisor Head of Department
DEDICATION
This project work is dedicated to Almighty God, author and
finisher our faith, our help in ages past. And to our late
Nationalists and good leaders who contributed in one way or
the other to the development of this nation.
ACKNOWLEDGEMENT
It is obvious that a project of this nature must definitely
require the contribution and support of other person.
Therefore I remain grateful in the course of the research.
My profound appreciation goes to my project supervisor Prof.
U.J.F Ewurum for his genuine advice and guidance that help
towards the accomplishment of this project. I am grateful to
the Head of Department of Management, Prof. U.J.F Ewurum
for his fatherly advice, and all the staff of department of
management.
I am sincerely grateful to my family members for their moral
and financial support and encouragement in the course of my
study. My special thanks go my lovely wife. Above all, I am
highly grateful to Almighty God, for providing me with the
knowledge and inspiration that is required for this project.
To God be the Glory.
ABSTRACT
The New Contributory Pension Scheme was introduced
against the backdrop of complexities and ineffectiveness of the
Pay-As-You-Go System and the need for Pension Reform in
Nigeria. Against this background, this study aims at
examining the need benefits and problems of the contributory
pension scheme as well as its management system.
Data were collected from both primary and secondary
sources. The major data collection instrument is the
questionnaire. The data are presented in tables as frequency
distribution. In the analysis, the techniques of percentage and
frequency are applied the major findings are summarized
thus;
1. The Pay-As-You-Go System of pension administration
was ineffective and complex
2. The New contributory pension scheme is effectively
funded through joint contribution.
3. The New pension scheme is regulated and supervised
PENCOM and management by PFAS and PACS.
4. The scheme is beneficial to both government and retirees
5. There are prospects for success of the scheme.
It is the existence of these factors that pose serious challenges
to the management of the new contributory pension scheme.
1.3 OBJECTIVES OF THE STUDY
The objectives of the study are:
1. To examine the rationale for the introduction of the
contributory pension scheme.
2. To examine how the new pension scheme is regulated
and supervised.
3. To find out how the scheme is funded.
4. To find out how the scheme is administered.
5. To highlight the problems and prospects of the scheme.
1.4 RESEARCH QUESTIONS
The following questions will be addressed in this study:
1. What is the rationale for the introduction of the new
contributory pension scheme?
2. How is the new pension scheme regulated and
supervised?
3. What are the sources of funds for the new contributory
pension scheme?
4. What are the problems and prospects of the new pension
scheme?
1.5 Formulation of hypotheses
1. There is no rationale for the introduction of the
contributory pension scheme.
2. There is no regulation and supervision of new pension
scheme
3. The sources of funds does not contribute effectively to
pension scheme.
4. There is no relationship between the problems and
prospects of the new pension scheme
1.6 SIGNIFICANCE OF THE STUDY
The significance of the study derives from its usefulness to
employers, workers, pension fund administrators and
custodians as well as PENCOM and students. This is as
follows:
1. Government
The perceived problems of the new pension scheme will be
highlighted in this study. And, it will provide such useful
information that will enable the government to take remedial
measures through its recommendations.
2. Corporate Bodies
Corporate bodies in the organized private sector as well as
local and state government of immense benefit. It will highlight
the benefit of contributory person schemes unknown to them.
This may carry enough appeal as to make them adopt the
scheme.
3. Workers
Many workers are still not well informed about the scheme
and its virtue. This study will provide adequate information
about this to workers and make then understand the scheme
and its benefits fully.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
In this chapter, the researcher presents and analyses the
data collected from the respondents.
Table 4.1 Questionnaire Administration
Questionnaires No %
a) Distributed 101 100
b) Returned 101 100
c) Not Returned - -
d) Discarded - -
e) Analysed 101 100
The table above shows that all the questionnaires
distributed were returned and analysed. This implies that
none was discarded.
Table 4.2 Sex Distribution of Respondents
Sex No %
a) Males 56 55.4
b) Females 45 55.6
Total 101 100
This shows that 55.4% of the respondents are males
while 44.6% are females. This implies that more males were
randomly selected for this study.
Table 4.3 Age Distribution of Respondents
Age Group (yrs) No %
a) Under 30 19 18.8
b) 30-40 30 29.7
c) 41-50 34 33.7
d) 51-60 18 17.8
Total 101 100
From the table above, it can be seen that 18.8% are
below 30 years old. 29.7% are within 30-40 years age range.
33.7% are within 41-50 years of age while 51-60 years age b
racket. This implies that a greater segment of the respondents
are within 30-50 age bracket.
Table 4.4 Marital Distribution of Respondents
Marital Status No %
a) Single 40 39.6
b) Married 49 48.5
c) Others 12 11.9
Total 101 100
The table shows that 39.6% are single while 48.5% are
married. Widows, widowers and divorcees constituted 11.9%.
This implies that most of the respondents are married.
Table 4.5 Educational Qualification of Respondents
Qualification No %
a) FSLC - -
b) WASC/GCE 18 17.8
c) NCE/OND 21 20.8
d) BSC/HND/Equiv 32 31.7
e) MSc/ MBA/Equiv. 18 17.8
f) Others 12 11.9
Total 101 100
From the table, it can be seen that 17.8% hold
WASC/GCE; 20.8% hold NCE/OND; 31% hold
BSc/ND/Equivalent qualification while 17.8% hold
MBA/MSc/Equivalent qualification. 11.9% hold professional
qualifications in accountancy, management and finance.
Table 4.6 Organization Distribution of Respondents
Sex No %
a) National Pension Commission 28 27.7
b) Pension Fund Administrators 38 37.6
c) Pension Assets Custodians 35 34.7
Total 101 100
From the table above it can be seen that 27.7%, 37.6%
and 34.7% are drawn from the National Pension Commission,
Pension Fund Administrators and Pension Assets Custodians
respectively. These are the three institutions responsible for
the management of the newly established contributory pension
scheme.
Table 4.7 Rationale for the new Contributory Pension
Scheme Options
Options No %
a) Inadequate funding of the old pension scheme 23 22.8
b) Complex procedures in processing pension
benefits.
12 11.9
c) Delays in paying pension benefits 18 17.8
d) Ignorance and apathy of pension fund trustees 6 5.9
e) Diversion and misappropriations 20 19.8
f) All of the above 22 21.8
Total 101 100
The table shows that 22.8, 11.9 and 17.8% indicate that
the rationale for the introduction of the new contributory
pension scheme is inadequate funding of the old pension
scheme, complex procedures in processing pension benefits
and delays in paying pension benefits respectively. 5.9 and
19.8% indicate that it is the ignorance and apathy of pension
fund trustees and diversion and misappropriation of pension
funds respectively. 21.8% indicate all of the above.
This implies that the introduction of the new contributory
pension scheme was necessitated by administrative and
management problems of the old pension scheme which made
it ineffective.
Table 4.8 Regulatory and Supervisory body for the Scheme
Options No %
a) National Pension Commission 101 100
b) Pension Fund Administrators - -
c) Pension Assets Custodians - -
Total 101 100
The table shows that all the respondents indicate that
the regulatory and supervisory body for the new contributory
pension scheme is the National Pension Commission
(PENCOM). This body was established by the Pension Act,
2004.
Table 4.9 Regulation and Supervision of the New
Contributory Pension Scheme
Options No %
a) The regulatory and supervisory body
establishes standards rules and
operational guidelines
14
13.9
b) The body approves and appoints PFAs
and PACs.
10
9.8
c) It enlightens the public about the new
pension scheme
5
4.9
d) It receives and investigates complaints
against PFAs and PACs
10
9.8
e) It sanctions all erring PFAs and PACs 9 8.9
f) All of the above 53 52.7
Total 101 100
On how the new pension scheme is regulated and
supervised 13.9, 9.8 and 4.9% indicate that the regulatory and
supervisory body establishes standards, rules and operational
guidelines; approves and appoints PFAs and PACs and
enlightens the public on the new pension scheme respectively.
9.8 and 8.9% indicate that the body receives and investigates
complaints against PFAs and PACs and sanctions erring PFAs
and PACS respectively. 52.7% indicate all of the above.
This implies that PENCOM regulates, monitors and
controls the activities of all registered PFAs and PACs and
ensures that their activities comply with the provisions of the
new Pension Act.
Table 4.10 Funding of the Scheme
Options No %
a) Contribution by Government - -
b) Contribution by workers - -
c) Joint contributions of government
and workers
101
100
Total 101 100
The table shows that all the respondents indicate that
the new pension scheme is funded through joint contributions
by the government and workers. This implies that government
is no more solely responsible for providing funds for pension of
pension benefits. Workers now contribute.
Table 4.11 Administrators of the Scheme
Options No %
a) Pension Fund Administrators 83 82.3
b) National Pensions Commission - -
c) Pension Assets Custodians 18 17.7
Total 101 100
From the table it can be seen that 82.3% indicate that
the new pension schemes is administered by pension fund
administrators while 17.7% indicate Pension Assets
Custodians. As a mater of fact, the administration of the new
pension scheme is the responsibility of the pension fund
administrators as specified by the new pension act. PFAs are
essentially insurance companies.
Table 4.12 Responsibilities of the PFAs.
Options No %
a) Computation of employees
retirement benefits
7
6.9
b) Opening of retirement savings
accounts for employees
9
8.9
c) Causing retirement benefits to be
paid into the account
8
7.9
d) Investing and managing pension
funds
- -
e) Maintaining books of accounts for
retirees
7
6.9
f) Providing customer services and
relevant information for employees
6
5.9
g) All of the above 56 55.6
Total 101 100
With respect to responsibilities of the Pension Fund
Administrators, the table shows that 6.9, 8.9 and 7.9%
indicate computation of employees retirement benefit, opening
of retirement savings accounts for employees and causing
retirement benefits to be paid into the account respectively.
6.9, 7.9 and 5.9% indicate investing and managing pension
funds, maintaining books of accounts and providing customer
services and relevant information for employees respectively.
55.6% indicate all the above as the role of PFAs.
This implies that the PFAs in the new contributory
pension scheme has taken over the role of the board of
trustees in the old pension scheme.
Table 4.13 Responsibilities of PACs
Options No %
a) Receipt of all remittances on behalf
of PFAs
16
15.8
b) Keeping in safe custody all funds
and assets
15
14.9
c) Effecting payments to beneficiaries 15 14.9
d) Rendition of reports and returns
on investment to PENCOM and
PFAz
13
12.9
e) All of the above 42 41.5
Total 101 100
In respect of responsibilities of PACs, the table shows
that 15.8 and 14.9% indicate receipt of all remittances on
behalf of the PFAs and keeping in safe custody the funds and
assets of the scheme respectively. 14.9 and 12.9% indicate
effecting payments to retirees and rendition of reports and
returns on investment to PENCOM and PFAs respectively.
41.5% indicate all the above.
This implies that PACs are bankers to the PFAs and
PENCOM.
Table 4.14 Benefits of the Scheme
Options No %
a) Reduction of Pension liability
burden for the government
13
12.9
b) Effective Funding of the Pension
scheme
12
11.9
c) Effective management of Pension
Fund
12
11.9
d) Timely Payment of Pension
benefits
10
9.9
e) All of the above 54 53.4
Total 101 100
On the benefits of the pension scheme, the tables shows
that 12.9 and 11.9% indicate reduction of pension liabilities
burden for the government and effective funding of the
pension scheme respectively. 11.9 and 9.9% indicate effective
management of pension fund and timely payment of pension
benefits respectively. 53.4% indicate all of the above.
This implies that both the government and
employees/retirees benefit from the new contributory Pension.
Table 4.15 Problems of the Scheme
Options No %
a) Delays in remitting deductions to
PFAs
28
27.7
b) Inadequate skilled personnel for
PFAs
10
9.9
c) Encroachment by old pension
scheme managers
9
8.9
d) Shallow capital market for
investing funds
33
32.7
e) All of the above 21 20.8
Total 101 100
From the table, it can be seen that 27.7% identify the
problem of the scheme as delays in remitting deductions to
PFAs. 9.9, 8.9 and 32.7% identify the problems as inadequate
skilled personnel for the PFAs, encroachment by old pension
scheme managers and shallow capital market for investing
funds. 20.8% identify all the above problems.
This implies that most of the respondents identify delays
in remitting deductions to PFAs and shallow capital market as
the most pronounced problems of the pension scheme.
It is alleged that establishments do not remit workers’
contributions deducted at source to the Pension Fund
Administrators. This, in turn, has caused some problems in
crediting the accounts of the contributors.
Besides, the PFA’s of not have adequate competent staff
to facilitate the processing of documents and crediting of
accounts as well as rendition of reports to PENCOM on time.
This has tempted old managers of this scheme to encroach in
the new scheme to perform one function or the other.
The new pension scheme is considered effective because it is
designed to have all funds unused immediately invested in the
capital market. But it is being expressed that the Nigerian
capital market is too shallow and does not have the capacity to
absorb all the funds being raised under the scheme. This
poses the danger of fund diversion and misappropriation by
fund managers.
On the prospects of the scheme the respondents highlights
the following:
- Increasing contributions by government and workers
- Viability of bonds issued to retirees.
- Improving Nigerian economy for investment.
- Increasing capacity building of the Pension Fund
Administrators
- Increasing emphasis on SERVICOM which will facilitate
service delivery in remitting deductions to PFAs by
government establishments.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
The following are the major findings of the study;
- The rationale for the new contributory pension scheme
include inadequate funding of the old pension scheme,
complex procedures in processing pension benefits,
delays in paying pension benefits, ignorance and apathy
of pension fund trustees and diversion and
misappropriation of pension funds.
- The National Pension Commission is the regulatory body.
Its regulatory and supervisory responsibilities include
establishing standards, rules and operational guidelines,
approving and appointing Pension Funds administrators
and custodians, receiving and investigating complaints
against PEAs and PACs and sanctioning erring PEAs and
PACs.
- The pension fund is financed through joint contributions
by the government and workers.
- The scheme is administered by the PEAs. The
responsibilities of the PEAs include computation of
retirement benefits, opening of Retirement Saving
account, causing retirement benefits to be paid to
retirees, investigating and managing pension funds,
maintaining books of account for retirees and providing
customer services and relevant information for
employees.
- PACs are the bankers of the scheme. Their
responsibilities include receiving all remittances from
government and its establishments on behalf of the PFAs,
keeping all funds and assets in safe custody, effecting
payments to retirees and rendition of reports/returns to
PENCOM and PFAs.
- The benefits of the new pension scheme include
reduction of pension liability for the government, effective
funding of the pension scheme, effective management of
pension scheme and timely payment of pension benefits.
- The inherent problems of the new pension scheme
include delays in remitting deductions to PFAs,
inadequate skilled personnel for PEAs, encroachment by
old pension scheme managers and shallow capital
market for investment of pension funds.
- The prospects of the new pension scheme include
increasing joint contributions, viability of issued bonds,
improving Nigerian economy for investment, increasing
capacity building of PFAs and increasing emphasis on
SERVICECOM.
5.2 CONCLUSION
The introduction of the new contributory pension was against
the backdrop of ineffective pension management in Nigeria.
The shifting of management of pension to private sector
institution makes for efficiency in the new scheme. The
rationale for the scheme is justified by the benefits of the
contributory pension scheme.
Joint contributions by workers and government guarantee
adequate funding of this scheme. Given the improving
investment and business environment in Nigeria and viability
of bonds issued to retirees, there is no doubt that there are
prospects for the success and effectiveness of the new
contributory pension scheme.
5.3 RECOMMENDATIONS
1. The Government and PENCOM should increase their
efforts to make the scheme by ensuring that all
contributions are promptly remitted to the PFAs.
2. The PFAs should intensify their capacity building effort if
they must cope with the scheme. More competent
professional managers should be employed while current
personnel should be given continuous training.
3. Adequate information communication technology should
be procured by all PEAs to facilitate processing and
computation of benefits of retirees.
4. PACs should make prompt payments to retirees as soon
as they receive information from PEAs. They should also
make monthly benefits regular and prompt.
5. Diversion and misappropriation of Pension Funds should
receive imprisonment terms without optiuons.
BIBLIOGRAPHY Amadi, S. (2006) “Benefits of the contributory Pension scheme” Service News. Nov/Dec. Amalu, K. (2005) “Gains In The New Pension Scheme” The Vanguard, Tue. Sept. 25. Awuzie, J. (2003) “Pension Regulations and Management in Nigeria” Business Times Mon. June 6. Dike, C. (2006) Understanding the New Contributory Pension Scheme. Enugu: Providence Press. Ebegbunam P. (1999) “Management of Pension Schemes in Nigeria” A Paper delivered at a training workshop for officers in Directorial Cadre in Lagos. Eke, R. (2003) “Agenda for Reform And Effective Pension Administration In Nigeria” Text of A Lecture Delivered At The 2nd Pensions National Sumit on Contributory Pension held in Enugu. Eze, D. (2003) “Rationale For the Contributory Pension Scheme” A Paper Delivered in a Seminar held for Public Servants held in Enugu. Meribole, B. (2006) “Workers Welfare with the New Contributory Pension Scheme” Service News. Nov/Dec. Nnadi, P. (2005:45) “Angenda for Pension Reform In Nigeria” The Source. October 16. Odion, F. (2004) Management of Pension Funds In The Public Sector; The Nigerian Perspective. Lagos: Hugotek Press. Oke, H. (2006) “Origin of Pension Scheme In Nigeria” The Vanguard Feb. 28. Ola, G. (2005:24) “Pension Reform; A Good Development “The Guardian. Inc. Sept. 10.
Oladele, M. (1999:32) “Keeping Refirees Alive Through Pension Reform: I” The Herald. July, 20. Omoragbon, B. (2000:10) quoted in Dike, C. (2006:13) Op. Cit. Ugbaja, C.O. (2004:46) “Need For Pension Reform In Nigeria” The Vanguard. Feb. 28. Uzoma, K. (2005:13) Public Service Reforms; the Case For Vension Administration And Management. Lagos: Intel.
Department of Management Faculty of Business Administration School of Post-Graduate Studies UNEC March, 2008.
Dear Respondent, I am a student in the above —named Institution carrying out a study on the new contributory Pension Scheme In The Nigerian Public Sector. I want you to study this questionnaire carefully and, then; respond to the questions in it. The study is being carried out for academic purpose. And so the information you provide will be treated with strict confidentiality. Thanks for your co-operation.
I am,
Yours faithfully
Okeke, V. N.
QUESTIONNAIRE
INSTRUCTION; Please, tick (I) in the box that indicates
your of answer. Otherwise, answer the question where
necessary.
Q1. Name-----------------------------------------------------------------------
Q2. Sex (a) Males [ ] (b) Females [ ]
Q3. Age (a) Under 30 years [ ] (b) 30-4oyears [ ]
(c) 41-50 years [ ] (d) 51 -60 years [ ]
Q4. Marital status (a) Single [ ] (b) Married [ ]
(c) Others specify [ ]
Q5. Indicate your educational qualification
(a) FSLC [ ] (b) WASC/GCE [ ]
(c) NCE/OND [ ] (d) B.Sc./HND/Equiv.
(e) M.Sc/MBA/EqLliv. [ ]
(f) Others (Specify) [
Q6. Indicate your establishment
(a) National Pension Commission [ ]
(b) Pension Fund Administrator [ ]
(c) Pension Assets Custodian [ ]
Q7. What is the rationale for the new contributory pension
scheme recently introduced?
(a) Inadequate funding of the old pension scheme [ ]
(b) Complex procedures in processing pension benefits [ ]
(c) Delays in paying pension benefits [ ]
(d) Ignorance and apathy of pension fund trustees [ ]
(e) Diversion and misappropriation of pension funds [ ]
(f) All of the above [ ]
Q8. Which of the following bodies regulates and supervises
the new contributory pension scheme?
(a) National pension commission [ ]
(b) Pension fund administrators [ ]
(c) Pension assets custodians [ ]
Q9. How is the new pension scheme regulated and
supervised?
(a) The regulatory body establishes standards, rules
and operational guidelines [ ]
(b) The body approves and appoints pension fund
administrators and custodians [ ]
(c) It enlightens the public on the new pension
scheme [ ]
(d) It receives and investigates complaints against PFAs
and PACs [ ]
(e) It sanctions erring PFAs and PACs [ ]
(f) All of the above [ ]
Q1O. How is the scheme funded?
(a) Contribution by government [ ]
(b) Contribution by employees [ ]
(c) Joint contribution by government and employees [ ]
Q11. Which of the underlisted bodies administers the scheme?
(a) National Pension Commission [ ]
(b) Pension fund administrators [ ]
(c) Pension assets custodians [ ]
Q12. What are the responsibilities of the pension fund
administrators?
(a) Computation of employees retirement benefits [ ]
(b) Opening of retirement savings accounts for
employees [ ]
(c) Causing retirement benefits to be paid into the
account [ ]
(d) Investing and managing pension funds [ ]
(e) Maintaining books of accounts for retirees {J
(f) Providing customer services and relevant information
for employees [ ]
(g) All of the above [ ]
Q13. What are the responsibilities of the pension assets
custodians?
(a) Receipt of all remittances on behalf of the PEAs [ ]
(b) Keeping custody of all funds and assets [ ]
(c) Effecting payments of benefits to retirees [ ]
(d) Rendition of reports and returns on investment to
PENCOM and PFAs
(e) All of the above [ ]
Q14. In your opinion, what are the benefits of the scheme?
(a) Reduction of pension liability burden for the
government [ ]
(b) Effective funding of pension scheme [ ]
(c) Effective management of pension fund [ ]
(d) Timely payment of pension benefits [ ]
(e) All of the above [ ]
Q15. Identify the current problems of the new pension
scheme?
(a) Delays in remitting deductions to PEAs [ ]
(b) Inadequate skilled personnel for PFAs [ j
(c) Encroachment by old pension scheme management [ ]
(d) Shallow capital market for investment of
pension funds [ ]
(e) All of the above [ ]
Q16. Highlight the prospects of the scheme?
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