Impact Of Pension And Gratuity On The Life Of Retirees (A Study Of Enugu State Pension Board)

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Impact Of Pension And Gratuity On The Life Of Retirees (A Study Of Enugu State Pension Board)


Abstract


The research Project titled “The broad objective of this research work is to the impact of pension and gratuity on the life of retirees with particular reference to Enugu State pension board. The researcher examined why Enugu State Pension Board do not pay pension regularly. Determined the effect of non implementation of gratuity on the retirees. Examined the reasons for poor retirement benefits and its economic effects on Nigeria economy. The scope of the study of this research work is Enugu State pension Board. The sources of data for this work is primary and secondary data with the sample size of 80. The population of this study was drawn from Enugu State pension Board. The instrument used for this research work is questionnaire comprising the statement of the problem and research hypothesis, method of data presentation of this work is analyzed with the use of sample table, pie-charts and percentages. Test analysis is used in this project work. The findings of this research work is that the fringe benefit (i.e retirement benefit) giving to the pensioners are meager compared to the responsibilities they have.


Chapter One


Introduction

1.1 Background of the Study

Pension systems are sensitive issues especially in low-income developing countries like Nigeria where most employees neither have any meaningful retirement benefits nor earn enough during their working lives to cater for their retirement period (Awosike, 2009). The lifestyle of many employees depend to a large extent on many factors, some of which include one’s culture, his preferences, level of resources, and the surrounding economic and social environmental factors. The subject of retirement has been attracting increasing attention in many organizations in Nigeria. According to Nwachukwu (2000) many factors account for this renewed emphasis: a) No employee is expected to work throughout his/her entire life on earth; arrangements must be made for old age. b) The life expectancy of many Nigerian workers has increased and a majority of them are expected to work until they retire. Even those who believe that death could come at anytime have the hope thattheir retirement benefits would be given to their next of kin. c) The extended family system, which in the past helped retirees, is gradually losing its impact to western culture and influence. d) There is increasing awareness and emphasis that people no matter the age should learn to be independent or self-supporting. e) The government has enacted laws encouraging employers to pay retirement benefits and gratuities to qualified retirees. Employees too are encouraged to contribute to pension plans, stock options or other forms of differed compensation contracts until retirement age. Due to the above scenario, employees and retirees are advocating and agitating for more enlightenment and education in planning for retirement life. Employers too are not left out as more and more qualified and productive manpower is demanding for greater security at work and financial benefits and pension after retiring. For employees, there is a fundamental desire to keep updating their skills and improving their productivity in order to earn more and be able to cater for the present and indeed the future, which is the period of retirement from regular paid employment.Western civilization made it possible for people to seek for paid employment in urban cities which sometimes are far away from their villages. The evolution of paid employment precipitated the concept of pension. The idea is that since workers spend the whole of their productive lives working for their employers, they (employers) in turn should, of necessity, make adequate plan for the up-keep of their workers after they retire from active service. Pension, simply put, connotes a form of official obligation in any employment relationship. It is a legal and economic obligation in which employers of labour are mandated to fulfill in her contractual relationship with employees. It is a form of employers’ benevolence towards employees (Pitch and Wood, 1979) quoted in Inyokwe (2013). Pension plans are usually established by a legal document called a trust deed with the declaration that the funds would be administered in accordance with the rules spelt out in the document. Employers offer pension benefits to attract, retain and reward employees. Employees, on the other hand, rely on retirement benefits as a form of financial security in their less productive years (Babatunde, 2012). 5 Pension industry in Nigeria has witnessed reforms over the years with the prevalence of crisis. Employees and employers do not usually realize the necessity for planning adequately ahead for their retirement and retirement of their employees, respectively because the concept of pension is alien to them. This explains why most private sectors had no pension schemes for their employees and as such the workers who retired from such private sector organizations had no retirement benefits. Even where the scheme existed it was poorly organized. The same poor attitude to pension schemes was prevalent in the public sector where governments saw pension scheme as altruistic and public civil servants in pension management handled it unethically, hence, the preponderance of crisis (accumulation of huge pension liabilities, large scale misappropriation of pension funds, etc.) in the pension industry before the enactment of Pension Reform Act 2004. The first pension law in Nigeria was the Pension Ordinance of 1951. It was later transformed into Pension Act 1958. This was the first attempt by the colonial administration to provide for the full pension rights of the colonial administrators. However, some limited right was granted to the Nigerian workers in the civil service at the discretion of the colonial Governor General. This was followed by National Provident Fund (NPF) scheme established in 1961 by an Act of Parliament 1961. The NPF was changed to Nigeria Social Insurance Trust Fund (NSITF) in 1993 via a decree No.73 of 1993. The effective date was from July, 1994. This Act was broader based than NPF. This was the first legislation enacted to take care of pension matters in the private organizations. Thereafter, the Pension Act No.102 of 1979, the Police and other Government Agencies’ Pension Act No.75 of 1987, and Local government Edict which precipitated the establishment of Local Government Staff Pension Board of 1987 (Fapofunda, 2013; Odia and Okoye, 2012; Barrow, 2008; Akhiojemi, 2004; Balogun, 2004).

Social security systems have become major elements of social development in the twentieth century, with particularly important effects on the well-being of older persons in our society. The past few years in Nigeria have witnessed concerted efforts by the various successive governments in the country at improving the living standards among the older category, particularly with similar shifts in pension reforms, its payments and the maturing of pension plans. Although, less markedly than in the more developed countries, social security has also played an important role in the development process of many Third World Nations (Nitsch and Schwarzer, 1995; Holmann and Hinz,2005; UN, 2007). Social security is the range of collective social protection measures designed to provide compensation for loss or reduction of income. It meant to affect financial hardships suffered by workers as a result of deprivation. Its primary objective is to ensure freedom from want by collective provision for those who, because of misfortune, are temporarily or permanently without sufficient resources for their subsistence. Social security is therefore, a basic social protection provided to vulnerable members of the society against deprivation and destitution. More recently however, governments in the developed as well as in developing countries have come to view changes in the regulation of laws of their social security systems as key factors in the reform of the State. This paper critically examines the case of pension reform in Nigeria, and specifically its Pension Reform Act, 2004, as an example of this type of reform, in particular, emphasizing those aspects that could, at least both in practice and theory influence the living conditions of the older persons in the country. Attempt was further made to analyse the early results of the 2004 Nigerian pension reform with a view to find out how effectively the scheme has been able to secure the retirees at their later year. In order to achieve this important objective of the paper, relevant literature were reviewed so as to findout about the general performance of the scheme and also determined the gray areas that requires urgent intervention. It may not be an easy task to measure the success of pension reform―whose effects are felt only in the long run―especially when it involves changes in the objectives that gave rise to the institution itself, and where previous experience is practically limited or nonexistent. Therefore, rather than presenting a conclusive analysis of the consequences of 2004 pension reforms on the household structure of older persons in Nigeria, the intention is to review the preliminary performance of the Act and further provide insights for future research concerned with the relationships between transformations in the pension systems and the well-being of the Nigeria retirees.


1.2 Statement of the Problem

Social security systems have become major elements of social development in the twentieth century, with particularly important effects on the well-being of older persons in our society. The past few years in Nigeria have witnessed concerted efforts by the various successive governments in the country at improving the living standards among the older category, particularly with similar shifts in pension reforms, its payments and the maturing of pension plans. Although, less markedly than in the more developed countries, social security has also played an important role in the development process of many Third World Nations (Nitsch and Schwarzer, 1995; Holmann and Hinz,2005; UN, 2007). Social security is the range of collective social protection measures designed to provide compensation for loss or reduction of income. It is in view of the above that the researcherintend to investigate the impact of pension and gratuity on the life of retiree in Nigeria


1.3 Objective of the Study

The main objective of the study is to ascertain the impact of pension and gratuity on the life of retiree. But to aid the completion of the study, the researcher intend to achieve the following specific objective;

  1. To ascertain the efficiency of the pension board prompt payment of pension
  2. To examine the standard of living of the retiree as a result of their social insurance scheme
  3. To examine the relationship between pension administration and the quality of retirement benefit
  4. To investigate the role of pension board in improving retirement benefit?

1.4 Research Question

The following are the research questions:

  1. Does Enugu State Pension Board pay pension regularly?
  2. Does retiree suffers after retirement because of non implementation of gratuity?
  3. What are the effects of poor retirement benefit on Nigerian economy?

1.5 Research Hypothesis

In this study, the researcher worked with the following hypothesis:

  1. Ho: Enugu State Pension Board do not pay pension regularly.
    H1: Enugu State Pension Board pays pension regularly.
  2. Ho: Retiree suffers after retirement because of non-implementation of gratuity.
    Hi: Retiree does not suffer after retirement because of non-implementation of gratuity.
  3. Ho: Retirement benefit is not even enough when they are paid.
    Hi: Retirement benefit is even enough when they are paid.

1.6 Significance of the Study

This work shall be of great benefit to the National Pension Commission as it will enable the Commission to review and update it existing guidelines on payment of retirees benefits and gratuity after retirement from active service. Pension fund administrators in Nigeria will also find this report dispensable as the report will enhance efficiency in the operation of pension fund administration in Nigeria. Other researchers will find the work useful as it is a base for future research work. Finally it will also contribute positively to the field of knowledge, especially the field which this research is directed.


1.7 Scope and Limitation of the Study

The scope of the study covers the impact of pension and gratuity on the life of retiree.The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities


1.7 Definition of Terms

Pension:

A pension is a fund into which a sum of money is added during an employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments

Gratuity:

A gratuity is a sum of money customarily given by a client or customer to a service worker, in addition to the basic price.

Retiree:

A person who has stopped working in regular paid employmentbecause of their age.

Pensioneer:

A pensioner is a person who collects a pension, most commonly because of retirement from the workforce. This is a term typically used in the United Kingdom (along with OAP), Ireland and Australia where someone of pensionable age


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the impact of pension and gratuity on the life of retiree.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of pension administration in Nigeria.


5.2 Summary

In response to the plight of older persons and their families as aggravated by the failure of the previous pension schemes to guarantee retirement income, the Nigeria government in 2004 introduced a new pension scheme known as defined contribution scheme in the country. With the enactment of the Pension Reform Act in June 2004, a new pension scheme came into force. This study analyses early results of the 2004 Nigerian pension reform. At the beginning of 2011, the internet survey of the new system of privately managed funded pension accounts covered around four million Nigerians in a country with a workforce of around 50 million people. Therefore, the paper found that, the reform has failed to contribute to basic social security in old age for the majority of Nigerians employed in the informal sector while the minority of covered workers are also likely to experience problems. The analysis of the early results of the Reformt indicates that, increased savings rates might not be desirable in a country characterized by large-scale poverty. Given the lack of basic social security in the present, forced saving for the future might not be rational or desirable either for individuals or for society at large. Using funded pensions to develop the Nigerian financial market to provide long-term funding for productive investment and higher growth in the future is an experiment rather than a precondition for development in the present.


5.3 Conclusion

The importance of pension provision will continue to grow as individuals begin to place less reliance on family to look after them in old age and begin to face the reality that they need to look after themselves by building a nest egg for the future. The success of the pension reforms largely depends on the sincerity, collaboration and commitment of all stake holders like government that sets out the regulatory framework; the regulator PENCOM; financial institutions who manage and administer contributions; individuals who pay and employers who must also contribute for their employees. Pension schemes aim at ensuring that public or the private sector retirees receive their retirement benefits as at and when due and assisting improvident individuals by ensuring that they save to cater for their livelihood during old age. Almost a decade after the reform scheme became effective; there is not much evidence to show that the scheme is leading the country in the desired direction. This will ginger and encourage more and more Nigerians to believe and look forward to a comfortable retirement. We are confident that the stories of pain and death associated with payment of pension and/or gratuities to retirees will be a thing of the past and be dealt a big blow. There should be significant pool of funds that would assure Nigerian workers of a happy retirement and at the same time the funds would contribute to the growth of the nation especially in pooling funds for investment (Bassey et al. 2008).


5.4 Recommendations

  1. The Nigerian government should encourage the option of having the banks where the salary accounts of employees are domiciled to make the pension deductions on monthly basis and have it remitted to the concerned pension fund administrators (PFA) i.e. employers should stop deducting the pension contribution at source. The review of this role is necessary because, it seems the number of defaulting firms is on the increase.
  2. There is need for public enlightenment campaigns on the merits of a contributory pension scheme with a view of introducing in the nearest future a way of mitigating some problems faced by retirees and pensioners in collecting their entitlements due to non remittances and improper documentations.
  3. On the part of the regulator, there is need to address issues like non-remittance of pension contributions by corporations. The issues that cause non-payment of pension and gratuities to older citizens should also be addressed.
  4. The 2004 Pension Reform Act should make provision for Nigerians living abroad who may want to contribute to the retirement scheme in Nigeria.

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