CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In 2004, the Federal Government of Nigeria revolutionized pension management and administration in the country with the enactment of the Pension Reform Act 2004. The Act assigned the administration, management, and custody of pension funds to private sector companies, the Pension Fund Administrators (PFA) and the Pension Fund Custodians (PFC). The Act further mandated the Nigeria Social Insurance Trust Fund (NSITF) to set up its own Pension Fund Administrator (PFA) to compete with other PFAs in the emerging pensions industry, and also to manage the accumulated pension funds of current NSITF contributors for a transitional period of five years. As earlier noted, prior to the Pension Reform Act 2004 (PRA), most public organizations operated a Defined Benefit (pay-as-you-go) scheme in which final entitlement was based on length of service and terminal emoluments. The system failure gave birth to the new initiative, Pension Reform Act 2004 with a Contributory Pension Scheme (CPS) to provide remedy. The Pension Subcommittee of the Vision 2010 had suggested that (only the rich (countries) can successfully operate an unfunded, non- contributory pension scheme. The Vision 2010 committee had set the objective of most Nigerians having access to a formal social security programme and it argued that this could be achieved by establishing a funded pension system backed by large-scale privatization (Denge, 2011).
The major objectives of the new scheme were to: ensure that every person who has worked in either the public or private sector receives his retirement benefits as and when due; assist improvident individuals by ensuring that they save to cater for their livelihood during old age; establish a uniform set of rules and regulations for the administration and payment of retirement benefits in both the public and private sectors; and stem the growth of outstanding pension liabilities. The CPS is contributory, fully funded and based on individual Retirement Savings Accounts (RSAs) that are privately managed by Pension Fund Administrators (PFAs), while pension funds and assets are kept by Pension Fund Custodians (PFCs). The Pension Reform Act 2004 decentralized and privatized pension administration in the country (White, 2016).
The Act also constituted the National Pension Commission (PENCOM) as a regulatory authority to oversee and check the activities of the registered Pension Fund Administrators (PFAs). The provisions of the act cover employees of the public service of the federal government, and private sector organizations.
The move from the defined benefit schemes to defined contributory schemes is now a global phenomenon following success stories like that of the Chilean Pension Reform of 1981. There seems to be a paradigm shift from the defined benefit schemes to funded schemes in developed and developing countries resulting from factors like increasing pressure on the central budget to cover deficits, lack of long-term sustainability due to internal demographic shifts, failure to provide promised benefits etc. The funded pension scheme enhances long-term national savings and capital accumulation, which, if well invested can provide resources for both domestic and foreign investment (John, 2012).
Retirement policy while in the public sector stipulates, the statutory retirement age is either 60 years or 35 years of service, whichever comes first, in the private sector, retirement age varies between 55 and 60 years and the factor of 35 years of service is not applicable. The Pension Reform Act 2004 has no clear provisions on minimum retirement age but provides in [Section 3(1)] that no person shall be entitled to make any withdrawal from their retirement savings account before attaining the age of 50 years. The research intends to investigate retirement policy and its problem of implementation in Nigeria public sector.