Historical development of pension scheme in Nigeria

Nigeria being a former colony of Britain, it’s been argued, received a pension tradition into her public sector that is entirely modelled after the British structure.

The Country’s pension scheme had started in 1951 when the colonial British administration established a scheme through an instrument called Pension Ordinance. It, however, had a retroactive effective from 1946 and applied only to Untied Kingdom officials posted to Nigeria.

In Nigeria such enabling legislations include the pension increase Decree No. 42, 1975:

(a) Military Pension Act Cap (Chapter or No.) 119.

(b) Pensions Act Cap (Chapter or No) 147.

(d) Pension (special pensions) Act 1961 (chapter or no) 1961 no. 15.

(e) Widows and orphans pension Act Cap 220.

(f) Pensions (Statutory Corporation Service) Act 1961 no. 61.

(g) Pension (Transferred Services) Act 1965 no. 28.

(h) Special Constables Decree 1966 no. 7.

(i) Police Pension Decree 1966 no. 60.

(j) Pensions (Federal Fire Service etc) Decree 1966 no. 74.

(k) Pensions gratuities (war service) Decree 1966 no. 49.

(l) Transferred offices and pension liability 1971 no. 8.

(m) Military pensions (Amendments) Decree 1975 no. 13 by Mohammed, head of the Federal Military Government, Commander-in-Chief of the Armed Forces FRON 20/12/75.

(n) The Pensions Act of 1979 Decree No. 102, which awarded and united all pensions, acts.

(o) The Public services the recommendation review 1974.

(p) The armed forces pension act no. 103 of 1974.

(q) The pension rights judges Act no. 5 of 1985 and

(r) The amendment Act no. 51 of 1988, 29 of 1991 and 62 of 1991.

The whole of the ordinance acts and Decree is capped up in the Decree No. 102 of 1979, which took effect from April 1, 1974. It consolidated all enactments on pensions and in corporate pension and gratuities seals devised for public officers by the Udorji Public Service Review Concision in 1974.

In the same way, Pension Act No. 103 of 1979 like its counterpart Decree No. 102, of 1979, on the other hand, dealt with pension benefits, liabilities and seals devised for the agreed forces.

Features of the past pension schemes

In the past, civil servants bore no direct responsibility, by way of payroll tax, for the provision of pension; instead pension benefits were paid through budgetary allocations to be kept in the Consolidated Revenue Fund. Thus, in most cases, the amount released usually fell short of the actual appropriation for pension payment.

Another issue was that the past pension schemes suffered because politicians, eager to capture the votes of the electorates, were in the habit of offering fabulous pension increases that they either knew they were not going to pay or which may fall on regimes other than theirs. And due to the fact that the pension account was not distanced from political control, politicians usually dip hands into pension funds to cushion up temporary fiscal shocks.

It is also claimed that pension debts in the public sector mount, in part, because of the failure of some state governments to provide their counterpart funds necessary to make up the amount provided by the federal government, in situations where the affected pensioners worked for both federal and state governments.

Both the way a record of pensioners in the public sector is kept and the procedure for payment of pension created avoidable problems. In some establishments, no accurate record of actual pensioners exists. Corruption breeds more in the absence of facts and figures. Therefore pension costs in the public sector were inflated through insertion of fictitious names on the list of pensioners.

Another weakness found in the public sector system concerns the less than dignifying manner with which the senior citizens were treated. One observes how weak and frail-looking elderly citizens are compulsorily required to travel long distances to the point of pension payment.

Worse still, they are left, under inclement weather for long hours and sometimes for days, before collecting their stipends. Some pensioners were claimed to have died while standing in a queue waiting to receive pension benefits. This shows poverty of ideas or unwillingness to deploy ideas in the way pension payment should be handled.

Introduction of pension reform in Nigeria

Before the enactment of the Pension Reform Act 2004, which establishes a contributory pension scheme for all employees in Nigeria, the country had operated a Defined Benefit (DB) pension scheme, which was largely unfunded and non-contributory.

The Scheme led to massive accumulation of pension debt and became unsustainable largely due to lack of adequate and timely budgetary provisions, as well as increases in salaries and pensions. The administration of the scheme was very weak, inefficient, less transparent and cumbersome, leading to bureaucracy and highly liable to corrupt practices.

Due to lack of reliable records of pensioners, huge amount of resources on what became yearly verification exercises were expended which did not result into the timely and efficient payment of pension.

In the private sector, on the other hand, many employees were not covered by the pension schemes put in place by their employers and many of these schemes were not funded. Besides, where the schemes were funded, the management of the pension funds was full of malpractices between the fund managers and the trustees of the pension funds.

In view of the fact that the past pension schemes in the country were bedevilled by multifarious problems, this sad scenario necessitated a re-think of pension administration in Nigeria by the administration of President Olusegun Obasanjo.

Accordingly, the administration initiated a pension reform in order to address and eliminate the problems associated with pension schemes in the country. The outcome of the reform was the enactment into law of the Pension Reform Act 2004.

Thus, the Federal Government in June 2004 introduced a system that is sustainable and has the capacity to achieve the ultimate goal of providing a stable, predictable and adequate source of retirement income for each worker in the country.

The Pension Reform Act 2004 ushered in a Contributory Pension Scheme (CPS) that is fully funded, privately managed and based on individual accounts for both the public and private sector employees in Nigeria. The Act also established the National Pension Commission (PenCom) as the sole regulator and supervisor of all pension matters in the country.

One can therefore say without fear of contradiction that the administration of pension in Nigeria has no doubt been enhanced with the passage of the Pension Reform Act 2004. Not only has the Act provided a platform for a more effective, efficient and transparent administration of pensions in the Federal Public Service and the private sector, but it has also generated a pool of long term investible funds that already had positive impact on the growth of the nation’s economy.