NWOSU CHUKWUBUZO JERRY
PG/MBA/08/47498
ANALYSIS OF THE NEW CONTRIBUTORY PENSION SCHEME
IN THE NIGERIA PUBLIC SECTOR: ISSUES, PROBLEMS AND
PROSPECTS
A THESIS SUBMITTED TO THE DEPARTMENT OF MANAGEMENT, FACULTY OF
BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA ENUGU CAMPUS
Management
UNIVERSITY OF NIGERIA
2010
Webmaster
Digitally Signed by Webmaster’s Name
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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
PG/MBA/08/47498
has
with
Registration
satisfactorily
Number
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
Supervisor
---------------------------Prof U.J.F Ewurum
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%
BSc/ND/Equivalent
hold
NCE/OND;
qualification
while
31%
hold
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 12
11.9
benefits.
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
%
14
13.9
10
9.8
5
4.9
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
a)
The regulatory and supervisory body
establishes
standards
rules
and
operational guidelines
b)
The body approves and appoints PFAs
and PACs.
c)
It enlightens the public about the new
pension scheme
d)
It receives and investigates complaints
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
a)
Computation
of
Opening
of
retirement
6.9
9
8.9
8
7.9
Causing retirement benefits to be
paid into the account
d)
7
savings
accounts for employees
c)
%
employees
retirement benefits
b)
No
Investing and managing pension -
-
funds
e)
Maintaining books of accounts for
retirees
f)
g)
7
6.9
relevant information for employees
6
5.9
All of the above
56
55.6
Total
101
100
Providing customer services and
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
%
16
15.8
15
14.9
c)
Effecting payments to beneficiaries 15
14.9
d)
Rendition of reports and returns
a)
Receipt of all remittances on behalf
of PFAs
b)
Keeping in safe custody all funds
and assets
on investment to PENCOM and 13
12.9
PFAz
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
a)
No
%
13
12.9
12
11.9
12
11.9
benefits
10
9.9
All of the above
54
53.4
Total
101
100
Reduction
of
Pension
liability
burden for the government
b)
Effective Funding of the Pension
scheme
c)
Effective management of Pension
Fund
d)
e)
Timely
Payment
of
Pension
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
a)
No
%
28
27.7
10
9.9
9
8.9
investing funds
33
32.7
All of the above
21
20.8
Total
101
100
Delays in remitting deductions to
PFAs
b)
Inadequate skilled personnel for
PFAs
c)
Encroachment
by
old
pension
scheme managers
d)
e)
Shallow
capital
market
for
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 [ ]
(c) 41-50 years [
]
(b) 30-4oyears [ ]
] (d) 51 -60 years [
]
Q4. Marital status (a) Single [ ] (b) Married [ ]
(c) Others specify [
]
Q5. Indicate your educational qualification
(a) FSLC [
]
(c) NCE/OND [
(b) WASC/GCE [
]
] (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)
(f)
Q1O.
]
It sanctions erring PFAs and PACs [
]
All of the above [ ]
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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