Pension in Nigeria has a lot of issues, but it also has some good prospects. In this article, we review pension management in Nigeria, regulations, problems, and prospects. This article is useful for both policy implementation and for research purposes.
The Nigeria pension scheme date back to 1951 when the British colonial masters introduced a scheme called the Pension Ordinance to provide post-retirement security to the British working in the country. Since then, it has been a tradition for the Nigerian government to enact laws that cater to the post-retirement security of the workers in the country.
The Nigeria pension scheme is modeled after the British structure because the country was formerly a British colony. After independence, the Nigerian government paid little attention to the pension industry in the country for more than three decades.
Overview Of The Nigeria Pension Scheme
After the first enactment of the first pension legislation by the colonial masters in 1951 (though its retrospective effect started on January 1, 1949), the Nigerian government established the National Provident Fund in 1961. This scheme was the first formal social protection scheme that caters to the private sector employees in the country because the former only caters to the workers in the public sector.
And in 1979, the Pension Decree 102 was enacted to repeal all pension laws from January 1, 1949. The new pension scheme spelled out conditions for payments of pension, withdrawal from the former scheme, and the forfeiture of pension rights among others. Unfortunately, the 1979 scheme was plagued with widespread corruption and improper monitoring of the pension payment process. There were even complaints of diversion of pension funds by the pension officials. This led to the establishment of the Nigerian Social Insurance Trust Fund.
The Nigerian Social Insurance Trust Fund was introduced on July 1, 1994, under the Nigerian Social Trust Fund Act of 1993. This new scheme laid special emphasis on enhancing the social protection of private-sector employees. The scheme obligated all private employers of more than five employees to remit a contribution of 10% (3.5% by the employee and 6.5% by the employers) from their monthly emolument to the trust fund. The Nigerian Social Insurance Trust Fund was established in response to the requirements of the International Labor Organization Convention of 1952 which compelled all member countries to establish a social security program for its citizens.
Regrettably, this scheme also suffered several challenges because there was the absence of a regulatory body to monitor the deduction and administration of funds. Some employers were even unable to meet up with the 6.5% monthly contribution, which made the scheme suffer from underfunding.
A new sun shone upon the Nigerian pension industry in 2004 when the Pension Reform Act was enacted to cater to the pension needs of both public and private sector employees in the country. The new legislation repealed the 1993 Nigerian Social Insurance Trust Fund Act. It mandated the employers, and employees in the public and private sector to remit 7.5% of monthly emolument to the Pension Fund Custodian.
The 2004 Pension Reform Act established a contributory pension scheme. It is fully funded and allows private companies to manage the pension of the citizens. It also established the National Pension Commission (PENCOM) to regulate and monitor the deduction, administration, custody of pension funds as well as ensuring prompt payment of entitlements to beneficiaries. The commission does this by regulating and supervising the activities of the Pension Fund Administrators (PFAs) and the Pension Fund Custodians (PCAs). The former are licensed private companies that manage and invest the pensions of citizens, while the latter keeps the pension assets on behalf of the contributors.
Another Pension Reform Act was enacted in 2014 to repeal that of 2004. The 2014 scheme is similar to that of 2004 as it retained most of the legislation in the 2004 act. It is also contributory, fully funded, and privately managed. But in this scheme, the employers are obliged to contribute 10% and the employees contribute 8% of monthly emolument. Besides, the contribution of monthly emoluments under this scheme is exempted except benefit under voluntary contributions. The 2014 Pension Reform Act also allows for a broader means of investment of the pension funds.
Management And Regulation Of Pension In Nigeria.
The management of pension in Nigeria before 2004 is frustrating as there was no proper management or even regulation of the pension industry. Pension activities were managed by three bodies; the Security Exchanged Commission (SEC), the National Insurance Commission (NAICOM), and the Joint Tax Board (JTB). The first is responsible for giving license to the pension fund managers, the second gives license to and regulates the activities of insurance companies, while the last monitored all private sector schemes. Even with these management and regulatory bodies, the pension activities in the country were still exasperating.
The pay as you go (PAYG) was the system in operation then which even made it more annoying as there were usually delays in the remitting of entitlements of the beneficiaries, and at times, there was non-remission to beneficiaries because of the corruption present in the industry. During this period, the pensioners form a very long unending queue to collect their pension.
The Pension Reform Act of 2004 brought a stupendous change in the pension industry in Nigeria, ditto, to the 2014 act, as it introduced a contributory, fully funded, and privately managed scheme to the pension activities in the country. The legislation allows each worker in the country to have a Retirement Savings Account (RSA) with any of the licensed Pension Fund Administrators (PFAs). There is also flexibility in the scheme as an employee can change his/ her job while still retaining the retirement savings account. He/ she is only needed to provide information on the account to the new employer.
The 2004 and 2014 pension reform act also allows for proper regulations of pension activities in the country by the National Pension Commission. And it also carefully stipulated the duties of the Pension Fund Administrators, and the Pension Funds Custodians to properly supervise their activities.
Problems Of Pension In Nigeria
Corrupting, and has been the major problem plaguing the pension sector of the country from day one. Before the reform act in 2004, pension officials embezzle pension funds meant for the citizens. This negative practice of the pension officials is still affecting the payment of pensions of those exempted from the contributory pension scheme. There have also been reports of failure of private employers to remit their contribution to employee pension accounts despite the 2% penalty stipulated by the law on remitted funds.
The lack of participation of the informal sector in the country is also affecting the vision of the pension commission of large coverage. The unwillingness and doubt by some workers to register with the pension fund administrators are also marring the activities of pension in the country.
Prospects Of Pension In Nigeria
Ten years from now, if the government can see to the challenges affecting the pension industry in Nigeria, and provide reasonable and enforceable solutions, the pension industry will record at least 50% of the Nigerian population as retirement savings account owners. Since the pension reform act in 2004, the number of retirement saving accounts has grown significantly. And this is due to the flexibility of the scheme.Buy and Sell Bitcoin in Nigeria - Register for free on Luno
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