Challenges Faced By Retirees In Accessing Pension Funds

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Challenges Faced By Retirees In Accessing Pension Funds


Abstract


This study assessed challenges faced by retirees in accessing pension fund in Nigeria: It was conducted in Abeokuta South LGA. More specifically, the study examined procedures used in processing Pension Benefits in PSPF and challenges faced by retirees when accessing pension benefits from social insurance funds. It further, assessed the impact of challenges of the social security fund to the retirees and other stakeholders. This is the case study design which used mixed method, namely, the qualitative and quantitative researches. Interview, questionnaires, non-participant observation and documentary review were employed as the instruments for the data gathering. The findings revealed there are procedures that have to be followed. Before retirement one gives notification to employer six months before receiving retirement benefits. As regard, retirement benefits, a lump sum is given once after retirement and second part of the pension is that which the employees are receiving after every month.

The findings also revealed most of the complaints were the inadequacy of benefits, delays in payments, lack of update information about the schemes and the amount of individual contributions made, estimated benefits statements and incomplete contribution records. Furthermore, findings disclosed that for instance many teachers’ retirees are virtually forced to live very precarious lives and they cannot meet their basic needs due to the delays in pensions and falling in household incomes. Based on the findings, it is recommended that the Social Security Fund should regulate the relationship between the contributions made by the members to PSPF before retirement to be proportional to the benefit they receive after retirement.


Chapter One


Introduction

1.1 Background of the Study

Retirement is a phase of life that every employee must reach whether prepared for or not. It is the point in time when an employee chooses to leave his or her employment permanently (which could be voluntary or involuntary), and generally coincides with the employee’s eligibility to collect retirement resources ranging from social security to company pensions, etc. It is an inevitable stage in someone’s life be it in the private or public service, it is a period in time whereby one’s effort in an organization and role as a paid worker ceases, (Agoro, 2009; Ahmed, 2007; Bassey & Asinya, 2008).

The Concept of pension could be said to be as old as man and his working environment. Even in primitive time man was inclined to put aside something in cash or in kind, but mostly in kind to take care of the rainy day. The rainy day also included old age. In modern times it is generally conceived as the sum of money paid regularly by employers to former employees who have retired from their service usually as a result of attaining a fixed age limit in service or due to other reasons like sickness, widowhood or disableness (Nyong & Duze, 2011).

World-wide, even in the most advanced economies of the world, like the United State of America (USA), United Kingdom (UK), and France, Pension administration and issues related to the treatment of the aged and the infirmed pose very deep and disturbing problems (Ahmad & Oyediran, 2013). The difference as observed by Kolawole (2003) between advanced societies and ours however is the sense that, the power of imagination, creative thinking and planning are brought to bear on complex social problems.

Workers generally whether those in the public or private sectors are expected to live comfortable life devoid of any form of dependency after their successful retirement from active service. Rabelo (2002) cited in Sule and Ezegwu (2009) argues that, the working lives of employees move continuously towards a certain direction i.e. from employment to growth to retirement. Some are fortunate to save enough money to take them through the retirement period or ―the rainy day‖ while a majority leave the service with little or no savings at all. Ideally, the governments and organizations need to identify a way of accommodating and adequately rewarding employees‘ past efforts through organized pension plans, so that, they can achieve the goals of their existence. This is often achieved through different retirement policies which include the defined Benefit (pay-as-you-go) scheme, the National provident fund scheme and the contributory pension scheme that is expected to be fully funded (Sule & Ezegwu, 2009).

The idea of pensions and its significance was supported by divergent schools of thought. These schools of thought according to Kantudu (2005) are: the contributory school of thought, non-contributory school of thought and the hybrid school of thought. The first school of thought, emphasizing on contribution is advocated by most accounting standards setting bodies as well as by scholars such as Campbell and Fieldstein (2001). The school of thought argued that should the employees contribute a certain percentage to the plan; the employee will be able to receive the entire or part of the benefits at retirement or in case of termination of appointment or dismissal. This is based on the principle of operational efficiency in computation and funding. According to Kantudu (2005) the second school of thought (the non-contributory) was.also advocated by some Accounting Standards setting bodies and scholars like McGill (1984) and Byrne (2003). According to this school of thought, employers alone should fund the pension asset. The belief of this school was that, the singular funding made by the sponsor encourages and attracts more qualified and dedicated employees into the organization. Under this arrangement, the benefit is defined by a formula and pension at retirement is paid either as a lump sum amount or as a life annuity. The third school of thought is the Hybrid School of Thought. According to this school, Pension funds are defined as a collective pension plans that benefit from some (but varying) risk sharing between participants and with the sponsors and usually offer guarantees and conditional indexation.

During retirement, a retiree public officerusually receives certain benefits in the form of gratuity and pension. Gratuity is the sum total lump paid to a worker on existing from the service either through withdrawal or retirement, while pension is the sum of annuity paid periodically, usually monthly to a public servant who disengages from service after attaining a specified age limit usually 60 years or 35 years of active service, (Ezeani, 2001; Ebosele, 2001). In other words, gratuity and pension are post-employment benefits. These benefits are designed to prevent a sudden sharp drop in the financial capacity and living standard of the worker as would happen with the stoppage of his monthly salary and allowances after disengagement. The lump sum or gratuity he is paid is meant to enable the retiree finance any post-retirement endeavour of his choice while the pension replaces the monthly salary the retiree gets while he was still in active serve, (Babasola, 2000).

In this way, the retiree having spent a substantial part of his productive life working to earn a living, can in his old age (that is, at retirement) sustain and maintain a standard of living comparable to what he was used to while in active service. It is based on this that most progressive government enact laws to back up their policies on employment, retirement and pension in both the public and private sectors of the economy. To Casey (2011) and Taiwo (2014), pensions as a form of social security against old-age poverty and other uncertainties have attracted great interest virtually everywhere in the world, both in developed, developing and under-developed countries. Therefore, this study focuses on the challenges faced by retirees in accessing pension funds in Ogun state, a case study of Abeokuta south LGA.


1.2 Statement of the Problem

One of the greatest challenges that face typical employees throughout their working life is life after retirement. Retirement concerns emotional, psychological, as well as financial challenges that workers have to prepare well ahead of time. The fact that retirement happens at old age, health is also an important consideration. In planning towards retirement however, most workers in the past that did not plan ahead of their retirement have many times blamed themselves for short-sighted vision. Today, with the failures experienced in the public sector pension schemes, there is a major paradigm shift amongst workers as how to manage their lives in retirement.

Some of the issues affecting the proper operations of the pension scheme includes: lack of accountability and transparency in the management of the contributed funds, fraud and irregularities, lack of annual auditing and publication of annual audit reports of the Trustees, illegal dissolution of the Trustees and the appointment of unqualified staff in the management Board of the Trustees contrary to the provisions of the Nigeria pension and gratuity law 2006.

Pension programmes, especially those that are publicly financed and administered, have become an issue of concern to economists, policymakers and the general public. This is not only because such programmes are central to the well-being of pensioners and the elderly, but also because the majority of pension programmes are not actuarially balanced (that is they are not financially stable) and as such, they are run at deficits, thus making the present values of their future liabilities to be enormous. In some countries, especially those that are economically advanced, pensions are usually extended to other categories of people apart from retirees, such as widows, orphans, disabled people (in the form of disability pensions), and the elderly or the aged. These problems necessitates the need to carry out a study on the challenges faced by retirees in accessing pension funds in Ogun state, a case study of Abeokuta south LGA.


1.3 Objectives of the Study

The general objective of this study is to examine the challenges faced by retirees in accessing pension funds in Ogun state, a case study of Abeokuta south LGA. The specific objectives include the following:

  1. To find out if retirees in Abeokuta south LGA have issues in accessing their pension funds.
  2. To ascertain the roles of the government in the challenges faced by retirees in accessing pension funds in Abeokuta south LGA.
  3. To determine the level of funding of contributory pension scheme significantly affected the payment of retirement benefits in Abeokuta south LGA.
  4. To examine the extent to which compliance with the Contributory Pension Scheme law affects the payment of retirement benefits in Abeokuta south LGA.
  5. To investigate the influence of corruption on the challenges faced by retirees in accessing pension funds in Abeokuta south LGA.

1.4 Research Question

To achieve the objectives of the study, the researcher was guided by the following set of questions;

  1. Do retirees in Abeokuta south LGA have issues in accessing their pension funds ?
  2. What are the roles of the government in the challenges faced by retirees in accessing pension funds in Abeokuta south LGA.?
  3. What is the level of funding of contributory pension scheme significantly affected the payment of retirement benefits in Abeokuta south LGA?
  4. What is the extent to which compliance with the Contributory Pension Scheme law affects the payment of retirement benefits in Abeokuta south LGA.?
  5. What is the influence of corruption on the challenges faced by retirees in accessing pension funds in Abeokuta south LGA?

1.5 Significance of the Study

Significantly, the study provides a deeper imminent to the policymakers and other employers on the practical ways of dealing with retiring employees. Since the study assessed the nature of the social security system and the challenges encountered by the Government in curbing problems facing efforts towards provision of adequate social security services to retiring employees, the policy makers are in a better position to understand the real situation regarding social security system for retiring employees and find out proper ways to ensure the effectiveness in provision of social security fund to retiring employees.

Secondly, it serves as a guide to the Government, employers and agencies dealing with social security system at large as to what key issues of concern are related to challenges, measures and poor provision of social security fund to retiring employees.

Thirdly, the study contributes to further research undertakings on the issue related to social security system. The findings of this study provided a point of reference by those who wish to conduct any study on Social Security system with reference to challenges and strategies used to curb the identified challenges both inside and outside the country.

Also, the study informed the social security agencies on the need to transform their
Social Security systems to enable them to cover vulnerable groups in the countries.


1.6 Scope / Limitation of the Study

First, the study involved both theoretical data from scholarly writings, and empirical data from the field. Secondly, it confined itself to a sample of retired civil servants in ogun state. The major focus of the study was to examine the challenges faced by retirees in accessing formal social security benefits in Nigeria: the case of pensioners in Abeokuta south LGA.

The study is likely to be limited by the budget constraint and time consuming, based on the reality that most of the respondents were retired persons and were found so scattered that was rather boring for the researcher to go to each of the respondents for data collection.


Chapter Five


Summary, Conclusions and Recommendations

5.1 Introduction

This study assesses challenges faced by retirees in accessing Pension fund in Nigeria: It was conducted in Abeokuta South LGA. More specifically, it examined procedures followed in processing Pension Benefits in PSPF and challenges faced by retirees when accessing pension benefits from social security funds. Finally, it assessed the impact of these challenges to the retirees and other stakeholders. This chapter presents the summary of the findings and conclusions, recommendations and areas for future research.


5.2 Summary of Findings

5.2.1 Procedures Followed in Processing Pension Benefits

In general, key-findings of this study revealed that, in Nigeria, for a long time, the social security sector lacked co-ordination at national level as each Fund reported to different Ministries with differing operational rules and procedures. As regards PSPF, there are procedures that have to be followed before one gives notification to employer six months before receives retirement benefits. As regarding, retirement benefits, a lump sum is given once after the retirement and the second part of the pension is received by the retiree after every one month.

5.2.2 Challenges Faced By Pensioners in Accessing Pension Benefits

The study revealed that the considerable challenges face Nigeria public pension system. Most of the complaints revolve around the inadequacy of benefits, delays in payments, lack of update information about the schemes and the amount of individual contributions made and estimated benefits statements. Also, contribution records are sometimes incomplete.

5.2.3 Impact of the Social Security Fund Challenges to the Retirees and other Stakeholders

The findings showed that because of the social security fund challenges, many teachers are virtually forced to live very precarious lives and they cannot meet their basic needs due to the delays in pensions and shall decrease in household incomes. Some of the teachers retired twelve months ago, but they are yet to receive their pension. Two thirds of the respondents said that they approached retirement with shock, psychological distress and disbelief considering themselves as not yet ready to let go of what was an important part of their lives i.e. their jobs. Retirement presents most retirees with a substantial sense of loss. Some of the respondents found themselves in psychological distress as they were financially deprived while they were still having financial responsibilities such as paying school fees for their children or taking care of other members of the family while they had meager pension.


5.3 Conclusion

Following these findings, it can be concluded that PSPF uses several operational rules and procedures that are followed before one gives notification to employer six months before retiring and receiving retirement benefits. As regards, retirement benefits, a lump sum is given once after retirement and the second part of the pension is received after every one month. Considerable challenges face Nigeria public pension system including complaints of inadequacy of benefits, delays in payments, to mention just a few. Due to the social security fund challenges, many teachers cannot meet their basic needs because they are financially deprived while they are still having financial responsibility such as paying school fees for their children or taking care of other members of the family while they had meager pension.


5.4 Recommendation

(a) Sustainability of the Computerized Projects for Record-Keeping

PSPF should ensure the sustainability of the use of computerized systems to easily track, identify, capture, processing members’ payment and keep members records.

(b) Overcoming Challenges

Although there are several challenges facing the Fund and the customers, PSPF should turn those challenges into business opportunities and develop strategies to overcome them and render better services to the members.

(c) Policies and Regulatory Frameworks

PSPF should develop and review on regular basic various policies, rules, regulations and standards governing the Fund.

(d) Awareness creation

For the purpose of creating more awareness and a wider acceptability of the Scheme, the Fund should continue to provide education to the general public on the importance of social security and the advantages of being a member of PSPF.

5.4.2 To Employers
  • The employers should regulate the relationship between the contributions made by the members to PSPF before retirement to be proportional to the benefit they receive after retirement.
  • The employers should revisit the amount of pension it pays to its retirees especially those who stopped working before 2006. The pension increased should reflect the economic depreciation. Furthermore, pension should be paid on time by removing unnecessary procedures in processing and claiming the retirement benefits.
    Employers should remit promptly the contributions they deduct from their employees’ salaries to PSPF.

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Frequently Asked Questions


What are the challenges of global retirement and Pensions?

In the end, the task of delivering retirement benefits can only be borne by three or potentially four parties: the state, the employer (and their shareholders), individuals (and their families) or third parties. Third parties have moved in and out of the retirement liability market.

What is the challenge of providing for retirement?

Providing for retirement is a challenge for society and not just individuals or corporations. National and intra-national government bodies are in a key position to decide on the right balance in providing retirement benefits. Often this pushes the challenge on to corporates.

How does pension cost and risk impact your business?

Companies still cited pension cost and risk as a major challenge to their business, as they did in our 2014 survey. This impacts the business adversely on the fronts of financial reporting, M&A activity, dividend payments and debt. 

Why are retirement outcomes from corporate defined benefit plans failing?

The closure of corporate defined benefit pension plans has exposed individual pension outcomes to investment markets, demographic changes and interest rates. Retirement outcomes from DC plans are failing. Asking people to save more is critical, but it cannot be all of the solution.

What challenges do companies face when it comes to pensions?

Companies still cited pension cost and risk as a major challenge to their business, as they did in our 2014 survey. This impacts the business adversely on the fronts of financial reporting, M&A activity, dividend payments and debt.

What is PWC doing about global retirement and Pensions challenges?

Foreword To collect insights into this topical matter, PwC’s global retirement consulting practice conducted a dialogue with multinational companies with significant pension liability footprint around the world.

How does pension cost and risk impact your business?

Companies still cited pension cost and risk as a major challenge to their business, as they did in our 2014 survey. This impacts the business adversely on the fronts of financial reporting, M&A activity, dividend payments and debt. 

What are the biggest challenges facing Canadian pension fund managers today?

Along with James Davis, Chief Investment Officer at OPTrust, and Louis Beaulieu, Director, Risk Management at Desjardins Group Pension Plan, Jean Michel discussed issues facing Canadian pension fund managers, trends in terms of portfolio construction, liquidity, innovation and human resources.

What are the biggest retirement planning challenges?

People are living longer thanks to advances in medical treatments and preventive medicine. Many also focus on healthy lifestyle physically and emotionally. But living longer creates one of the biggest retirement planning challenges.

Are You having trouble adjusting to retirement?

While some difficulties adjusting to retirement can be linked to how much you enjoyed your job (it’s less of a wrench to give up a job you hated), there are steps you can take to cope with the common challenges of retirement.

Can retirement cause anxiety and stress?

While retiring can be a reward for years of hard work, it can also trigger stress, anxiety, and depression. These tips can help you cope with the challenges, find new purpose, and thrive in your retirement. Why is retirement so stressful?

Are there any unexpected demands on Your Retirement Funds?

As you approach your retirement planning, and as you partner with your financial planner, you’ll discover a number of unexpected demands on your retirement funds. These unwelcome ‘surprises’ are simply realities of life in our modern times.

What are the risks of a pension plan?

Pension Risks. Although having access to a pension has many benefits, no retirement plan is without risks. Unlike with a 401(k) plan or IRA, you have no say in how your company invests the pension fund. If the manager of your pension fund makes bad investment decisions, that could potentially result in insufficient funds.

How does a company’s pension plan affect its budgeting?

U.S. federal law dictates that corporations must make minimum cash contributions to pensions that are structured as defined benefit portfolios. This directly impacts a company’s budgeting as well as its access to cash, which can influence the direction in which a business grows or shrinks.

Why are pensions so expensive for employers?

Seeing as pensions are much more expensive for employers than most alternatives, it’s in your employer’s interest to minimize costs. In the case of public pensions, there’s also the risk that the state or municipality will encounter economic issues and declare bankruptcy, which could result in a reduction of benefits for pension-plan participants.

What happens if my company invests too much in my pension?

Unlike a 401 (k) plan or IRA, you have no say in how your company invests the money in your pension fund. If the manager of the fund makes bad investment decisions, that could potentially result in insufficient funds for the overall pension. This would presumably lead to a reduction of your benefits without warning.

How do defined-benefit pension plans affect a company’s profits?

Companies offering a defined-benefit pension plan must predict the amount of money that they will need to meet their obligations to retirees. From an employer’s perspective, defined-benefit plans are an ongoing liability. Funding for the plans must come from corporate earnings, and this has a direct impact on profits.

What happened to traditional defined benefit pension plans?

The percentage of workers covered by a traditional defined benefit (DB) pension plan that pays a lifetime annuity, often based on years of service and final salary, has been steadily declining over the past 25 years.

What happens when an employer terminates a defined benefit plan?

Similarly, many employees were left in a bind when their employers terminated defined-benefit plans or downsized their staff, giving the workers a one-time, lump-sum payout instead of a steady income stream. When it comes to a financially secure retirement, you need to fend for yourself.

Does future retirement income security need defined benefit pensions?

Future retirement income security needs defined benefit pensions. Washington, DC: Center for American Progress (March). [ GAO] Government Accountability Office. 2008. Defined benefit pensions: Plan freezes affect millions of participants and may pose retirement income challenges. 

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