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CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The pension reform act has become a socio-economic and political issue that has engaged the attention of government, employers and workers not only in Nigeria, but also in many developing countries of Africa, Asia and Latin America. Before the enacted and established- Olusegun-Obasanjo- led- pension reform of June 25th, 2004, Nigerian operated a defined benefit (DB) pension Scheme, which was largely unfunded and non-contributory. The system was also characterized as “pay-as-you-go” (PAYG) scheme since retires were to be supported, not by their previous contributions, but by annual budgetary provisions. Thus, the bane of this new Olusegun Obasanjo reformed pension scheme, was to review the inefficient, ineffective and fraughting existing problems, merged with insecurity some of these problems were desertion of unfunded state run pension system which caused anguish, want and penurial existence for pensioner in their old age.

i.         Problem of the harmonization of the public and private pension system and

ii.        Confusion as to the institutional regulator of the scheme

iii.       Problem of determining the law as that governs the management, control administration and investment of pension funds and

iv         Bad record keeping in private and public offices making it impossible to access and quantify the contribution of individual employee and endemic corruption.

Fashoyin,(1994)

Therefore, in effect of this, the Olusegun Obasanjo-led-government incorporated the need at reversing the situation through developing a system that is sustenance and proned to providing the ultimate goal and capacity in ensuring stable source of retirement savings for each participants. With this face in June, 2004 of the pension Reform Act, 2004, a new pension was replace as against the previous DB Scheme(Defined Benefit).

The new Scheme in-place of DB(Defined Benefit), was the DEFINED CONTRIBUTION (DC) Scheme, which was contributory in nature, and mandatory on employers and workers (in the public and private sector organizations with 5 or more employees) to contribute 7.5% each of the emoluments of the employee into a retirement savings account (RSA). However, for the military, the contribution rate is 2.5% with the government contributing 12.5%. This system has a number of features making it an increasingly vital component of the pension systems of many countries not only in the Organization of Economic Corporation and Development (OECD)countries, but also amongst the developing countries, particularly in Asia and Latin America.

However, the current reforms are necessary in order to correct and repeat the old pension Act 1990. According to Ibrahim ,(2004) who is a member of the national pension’s reforms commission, the rationale for the pension reform includes:-

i.         Weak and inefficient administration of the old pension Schemes.

ii.        Unsustainable outstanding pension liabilities estimated at N2billion and   

iii.       Unregulated pension Scheme with highly diversified arrangement.

The current reform and necessary in order to bring sanity to a system that was glaringly unable to cope with the challenges of the country’s pension system. When faced with a situation of this kind, there are often two policy options introduction of half-hearted measures that might have some appeal, but which may address the symptom rather than the cause of the problem; or the adoption of reforms that address the essential factors behind the underlying weaknesses of the previous Scheme and adopt measures for which experience of other countries and their own domestic imperatives points towards a huge potential for success, if only there is the determination to pursue them. Of course, the government decided to adopt the latter option. The government to President Olusegun Obasanjo has the determination to pursue them and make a success out of the current arrangement. Understanding and support of everybody, not least an important stakeholder like this body, is required for the success of the Scheme, more importantly to ensure retirees receive their benefit as at when due.

The issue of Pension came to the fore in the early 19th century, when the French and British government made special provisions for superannuated public servants. In 1981, Denmark launched cash transfer programs through a means – tested scheme for people over the age of 60. In Germany, a small flat pension financed by a tax on the tobacco monopoly was paid to workers at age of 65. This type of pensions connected benefits to workers contribution and they assisted in financing the scheme. (Portland Trust, 2007).

 In Nigerian public service sector, pension came on board with the enactment of Pensions Ordinance during the British colonial era in 1959 with retrospective effect from January 1, 1946. Until 2004, the pension scheme that was in operation in Nigerian public sector was based on the Pay – As You – Go (PAYG) system which was bedeviled by the activities of corrupt personnel in pensions administration.. The pension reform Act 2004 introduced contributory pension scheme within built security measures to guard again the vices associated with the old pension scheme. The guide lines and regulatory policy instruments an issued to licensed independent operator by the supervisory agency is to ensure that interest of the contributors are protected. This will guarantee payment of pension rights to retires as and when due. This article highlights insecurity of funds, lack of regulatory and supervisory agency, weak administration, corruption, mismanagement of pension funds, insufficient budgetary allocations and untimely release of inadequate fund for payment of pension obligations, which culminated in huge unsettled pension bills as main characteristics of the old unfunded defined pension scheme in Nigeria. However, the study tends to examine the impact of pension reform on organizational performance in the public sector.

1.2       Statement of the Problem

Regardless of the new scheme established to revamp the nation’s old pension scheme, there are challenges that must be unraveled to make the new system function. Experiences of other countries seems to suggest that a strong regulatory and over sight body is required in order to deal with the major constraints that could truncate the success of the Scheme. If unregulated, private pension institutions could in their bid to compete against each other and maximize profit, pursue promotional; expenses that could make the Scheme costly. Literature however reveals that:

i.        A weak regulatory environment could jeopardize the success of the Scheme especially when private pension institution embark on high-risk investment Schemes that could escalate the risk of bank-ruptcy.

ii.       The weak regulatory system promotes difficulties for the Scheme in coping with macro-economic fluctuation especially during inflation and downsizing.

iii.       Despite it’s reforms, there is still the existence of irregular pension payment that has led to the impairment and untimely death of retirees on-cue or clamor for their entitlements.

When weighed against the enormous potential benefits of the new Scheme, these challenges are well worth facing with all the DC Scheme (Direct Contribution). Therefore curbing these anomalies requires an effective and re-engineered National pension commission (NPC) whose mandate is to provide overall regulatory and oversight functions on all issues concerning pensions in Nigeria. Hence, this study is conducted to investigate the impact of pension reform on organizational performance in the public sector.

1.3       Objectives of the Study

The main objective of this study is to investigate the impact of pension reform on organizational performance in the public sector.

Specific objectives include;

i.                    To examine if retirement benefit is received as at when due

ii.                  To ascertain and affirm it’s implementative  cause of saving

iii.                To know if employees needs has been successfully catered for from the Scheme

iv.                To affirm it’s feasibility and how true its being practiced        

v.                  To know if it’s been properly administered in it’s payment and monitored via it’s uniform rules, regulations and standards set for the public service of the federation, federal capital and private sector

vi.                To know the extent at which the new pension reform scheme been benefitted enjoyed and felt.

vii.              To ascertain how effective or otherwise has been the activities of the PFC(Pension Fund Custodian), PFA (Pension Fund Administration) and NPC ( National Pension Commission)

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