1.1      BACKGROUND OF THE STUDY

       Retires before the age of 50 years thereby accepting that employees could retire before attaining the age of 50, this kind of ambiguity could result in confusion. Retirement policy provides for the following)

Gratuity: In the Pension Reform Act, 2004 the right to a gratuity has been abolished. So retirees no longer receive single lump sum payment as gratuity in addition to pension which is a periodic payment, normally on monthly basis, for the remainder of the pensioner’s life. This is seen as being unfavourable to employees and discriminatory against poorer paid employees.

Contributory: This privatized and decentralized new pension scheme adopts the Chilean-style of pension scheme. The scheme provides for a compulsory contribution of 7.5% of workers' basic salary and 7.5% of same from employers as pension for workers after retirement.

However, while public sector workers contribute a minimum of 7.5% of their monthly emoluments, the Military contribute 2.5%. The public sector contributes 7.5% on behalf its workers and 12.5% in the case of the Military. Employers and employees in the private sector contribute a minimum of 7.5% each. An employer may elect to contribute on behalf of the employees such that the total contribution shall not be less than 15% of the monthly emolument of the employees. This implies that the level of contribution is not uniform.

Level and Remittance of Contributions:       An Employer is obliged to deduct and remit contributions to a Custodian within 7 days from the day the employee is paid his salary while the Custodian shall notify the PFA within 24 hours of the receipt of such contribution. There are already complaints by PFAs of non-remittance of pension deductions on the part of some employers. Contribution and retirement benefits are tax-exempt.

Again, Ahmed (2001) in the Summary of Proceedings of the National Workshop on Pension Reform reports that the studies which the Federal Government had commissioned to determine the level of contribution that could meet anticipated pension benefits report that 25% of gross emolument of all government employees needed to be set aside annually to meet existing and maturing gratuity and pension liabilities, for adequate funding of the public service scheme. However, the Pension Reform Act stipulates a total contribution rate of 15% of total emoluments. This level of contribution is seems low and inadequate.)

Voluntary Contributions:Section 9 (4) of the Pension Reform Act 2004 allows for voluntary contributions which gives opportunity for the self-employed and those working in informal sector organizations with less than 5 employees to open retirement savings accounts (RSA) with pension funds administrators (PFA) of their choice and make contributions.

However, for voluntary contributions, the tax relief is only applicable if the amount contributed or part thereof is not withdrawn before five years after the first voluntary contribution is made.

Individual Accounts:      An employee is required by law to open a ‘Retirement Savings Account’ in his/her name with a Pension Fund Administrator of his/her choice. This individual account belongs to the employee and remains with him/her for life even if he/she changes employer or Pension Fund Administrator. The employee may only withdraw from this account at the age of 50 or upon retirement thereafter.

An employee can withdraw a lump sum of 25% of the balance standing to the credit of his retirement savings account if he/she is less than 50 years at the time of retirement and he could not secure a new job after six months from leaving the last job. Similarly, a retiree can withdraw a lump sum if he/she is 50 years or aboveat the time of retirement and the amount remaining after the lump sum withdrawal shall be sufficient to fund programmed withdrawals. (Mediterranean Journal of Social Sciences Published by MCSER-CEMAS-Sapienza University of Rome Vol 4 No 2 May 2013 31)

CHAPTER 1

1.1BACKGROUND OF THE STUDY

In 2004, the Federal Government of Nigeria revolutionized pension management and administration in the country withthe enactment of the Pension Reform Act 2004. The Act assigned the administration, management, and custody ofpension 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 (1997) 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.

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.

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.

Retirement  policy  while in the public sector stipulates, the statutory retirement age is either 60 years or 35 years of service, whichever comes first, inthe 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 yearsThe research intends to investigate retirement policy and its problem of implementation in Nigeria public sector

1.2    STATEMENT OF THE PROBLEM

          The statement confronting this research is to appraise  retirement policy and the problem of its implementation in Nigeria. Following the formulation of the 2004 pension act reform, there has been misconception of Nigerian retirement policy and its implementation. The research intends to investigate retirement policy with a view to determining the problems confronting its implementation.

1.3   RESEARCH QUESTION

1.     What constitute the nature of retirement policy in Nigeria

2             What constitute the problem confronting its implementation

1.4  OBJECTIVE OF THE STUDY

1             To determine the nature of retirement policy in Nigeria

2             To determine the problems confronting its implementation

1.5       SIGNIFICANCE OF THE   STUDY

1     The study shall provide a vivid understanding of current   issues in Nigerian retirement policy

2            The study shall analyze the problems surrounding the implementation of Nigerian retirement policy with a view to better implement the content of the new retirement policy.

1.6      STATEMENT OF THE HYPOTHESIS

1      H0    Retirement policy is not effective in Nigeria

                H1            Retirement policy is effective in Nigeria

2      H0    The level of problem in implementing retirement policy is high

                H1   The level of problem in implementing retirement policy is low

3     H0    Retirement policy reform is not needed in Nigeria

                H1            Retirement policy reform is needed in Nigeria

1.7          SCOPE OF THE STUDY

              The study is focused on retirement policy and problem of implementation in Nigeria

1.8      DEFINITION OF TERMS

Retirement  policy:  while in the public sector stipulates, the statutory retirement age is either 60 years or 35 years of service, whichever comes first, inthe 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. Section 3(2) (c) however permits withdrawal from the retirement savings account by an employee who

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