Impact Of Pension Reform On Organizational Performance In The Public Sector

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Project and Seminar material for Public Administration


Abstract


This research work tends to examine the impact of pension reform on organizational performance in the public sector with special reference to Lagos State Ministry of Education. Descriptive design was implored for the research design. The research findings revealed essentially that;Government has not worked out the modalities properly on the separation from the erstwhile old scheme from the new one. The reform agenda depends on government’s yearly budgetary allocations, which also depends on who is in control of the machinery of government and the revenue conditions of the Federal government.

The obvious escalating expenditure of government in other areas such as education, agriculture, health and administration that compete with pension expenditure, government cannot be trusted to solely pay pension. Both empirical study and oral interview conducted however, found that the contributory pension scheme (CPS) has positive potentials over the defined benefits pension scheme (DBPS). The study recommended thatGovernment should try as much as possible to increase her contributory part to fifteen percent(15%), while the employee should contribute five (5%) only, reason been that employees should be assisted in the provision of individual socio-economic needs while in active services.


Table Of Contents


Preliminary Page(s)

  • Title page
  • Certification page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Background to the Study
  • 1.2 Statement of the problem
  • 1.3 Objective of the study
  • 1.4 Hypotheses
  • 1.5 Significance of the study
  • 1.6 Scope of the study
  • 1.7 Limitations of the study
  • 1.8 Definition of terms

Chapter Two

2.0 Review of related literature

  • 2.1 Development of pension reform in Nigeria
  • 2.2 Olusegun Obasanjo Pension reform Act, 2004
  • 2.3 Crisis in Pension Management
  • 2.4 Pension Reform Objective
  • 2.5 Mechanics of the Reform
  • 2.6 Pay off of the Benefits
  • 2.7 Challenges of the Reform
  • 2.8 Theoretical framework

Chapter Three

3.0 Research Methodology

  • 3.1 Research Design
  • 3.2 Research Method
  • 3.3 Method and sources of data collection
  • 3.4 Population of the study
  • 3.5 Distribution of questionnaire Instrument
  • 3.6 Determination of Sample Size

Chapter Four

4.0 Data Presentation, Analysis and Discussion of Result

  • 4.1 Data Presentation
  • 4.2 Test of Hypotheses

Chapter Five

5.0 Summary of Findings, Conclusion and Recommendations

  • 5.1 Summary of Findings
  • 5.2 Conclusion
  • 5.3 Recommendations
  • References
  • Appendix

Chapter One


1.0 Introduction

1.1 Background To The Study

The pension reform act has become a socio-economic and political issue that has engaged the attention of government, employers and workers not only in Nigeria, but also in many developing countries of Africa, Asia and Latin America.

Before the enacted and established- Olusegun-Obasanjo- led- pension reform of June 25th, 2004, Nigerian operated a defined benefit (DB) pension Scheme, which was largely unfunded and non-contributory. The system was also characterized as “pay-as-you-go” (PAYG) scheme since retires were to be supported, not by their previous contributions, but by annual budgetary provisions.

Thus, the bane of this new Olusegun Obasanjo reformed pension scheme, was to review the inefficient, ineffective and fraughting existing problems, merged with insecurity some of these problems were desertion of unfunded state run pension system which caused anguish, want and penurial existence for pensioner in their old age.

  1. Problem of the harmonization of the public and private pension system and
  2. Confusion as to the institutional regulator of the scheme
  3. Problem of determining the law as that governs the management, control administration and investment of pension funds and
  4. Bad record keeping in private and public offices making it impossible to access and quantify the contribution of individual employee and endemic corruption.Fashoyin,(1994)

Therefore, in effect of this, the Olusegun Obasanjo-led-government incorporated the need at reversing the situation through developing a system that is sustenance and proned to providing the ultimate goal and capacity in ensuring stable source of retirement savings for each participant.

With this face in June, 2004 of the pension Reform Act, 2004, a new pension was replaced as against the previous DB Scheme (Defined Benefit).

The new Scheme in-place of DB(Defined Benefit), was the DEFINED CONTRIBUTION (DC) Scheme, which was contributory in nature, and mandatory on employers and workers (in the public and private sector organizations with 5 or more employees) to contribute 7.5% each of the emoluments of the employee into a retirement savings account (RSA). However, for the military, the contribution rate is 2.5% with the government contributing 12.5%.

This system has a number of features making it an increasingly vital component of the pension systems of many countries not only in the Organization of Economic Corporation and Development (OECD)countries, but also amongst the developing countries, particularly in Asia and Latin America.

However, the current reforms are necessary in order to correct and repeat the old pension Act 1990. According to Ibrahim ,(2004) who is a member of the national pension’s reforms commission, the rationale for the pension reform includes:-

  1. Weak and inefficient administration of the old pension Schemes.
  2. Unsustainable outstanding pension liabilities estimated at N2billion and
  3. Unregulated pension Scheme with highly diversified arrangement.

The current reform and necessary in order to bring sanity to a system that was glaringly unable to cope with the challenges of the country’s pension system. When faced with a situation of this kind, there are often two policy options introduction of half-hearted measures that might have some appeal, but which may address the symptom rather than the cause of the problem; or the adoption of reforms that address the essential factors behind the underlying weaknesses of the previous Scheme and adopt measures for which experience of other countries and their own domestic imperatives points towards a huge potential for success, if only there is the determination to pursue them. Of course, the government decided to adopt the latter option. The government to President Olusegun Obasanjo has the determination to pursue them and make a success out of the current arrangement. Understanding and support of everybody, not least an important stakeholder like this body, is required for the success of the Scheme, more importantly to ensure retirees receive their benefit as at when due.


1.2 Statement Of The Problem

Regardless of the new scheme established to revamp the nation’s old pension scheme, there are challenges that must be unraveled to make the new system function. Experiences of other countries seems to suggest that a strong regulatory and over sight body is required in order to deal with the major constraints that could truncate the success of the Scheme. If unregulated, private pension institutions could in their bid to compete against each other and maximize profit, pursue promotional; expenses that could make the Scheme costly. Literature however reveals that:

  1. A weak regulatory environment could jeopardize the success of the Scheme especially when private pension institution embarks on high-risk investment Schemes that could escalate the risk of bankruptcy.
  2. The weak regulatory system promotes difficulties for the Scheme in coping with macro-economic fluctuation especially during inflation and downsizing.
  3. Despite its reforms, there is still the existence of irregular pension payment that has led to the impairment and untimely death of retirees on-cue or clamor for their entitlements.

When weighed against the enormous potential benefits of the new Scheme, these challenges are well worth facing with all the DC Scheme (Direct Contribution). Therefore curbing these anomalies requires an effective and re-engineered National pension commission (NPC) whose mandate is to provide overall regulatory and oversight functions on all issues concerning pensions in Nigeria.


1.3 Objective Of The Study

The holistic objective of this research is to access the practice of pension reforms in Lagos state ministry of Education, with reference to its pensions.

The specific objectives are as below:

  1. To ascertain if the periodic contributions and their investment are left to the whims and caprices of employers.
  2. To determine the rate of pension contributions were adequate to provide the needed benefits of would-be retiree.
  3. To ascertain if late and non-payment of pension entitlements leads to wide spread complaints and death among retirees.
  4. To ascertain if the incidence of transition gap and the funding system of the scheme do not affect adequate and early payment of pension entitlement.

1.4 Hypotheses

Hypotheses are guide for the researcher on the line of his study. They tend to serve as assumed answers to the principal questions raised in the study. The correctness of which shall be assessed in the course of the study.
For the purpose of this study, the following hypotheses were tested:

Hypotheses one
  • Ho: The periodic pension contributions and their investment are not left to the whims and caprices of employers.
  • H1: The periodic pension contributions and their investment are left to the whims and caprices of employers.
Hypotheses two
  • Ho: The rate of pension contributions were not adequate to provide the needed benefits of a would-be retiree.
  • H1: The rate of pension contributions were adequate to provide the needed benefits of a would-be retiree.
Hypotheses three
  • Ho: late and non-payment of pension entitlements do not lead to wide-spread complaints and death among retirees.
  • H1: late and non-payment of pension entitlements lead to wide-spread complaints and death among retirees.
Hypotheses four
  • Ho: The incidence of transition gap and the funding system of the scheme do not affect adequate and early payment of pension entitlement.
  • H1: The incidence of transition gap and the funding system of the scheme affect adequate and early payment of pension entitlement.

1.5 Significance Of The Study

  1. The study is important because the outcome will enable the researcher to know how effective and practicable the new pension reform (DC) (Direct Contribution) has been in Lagos State ministry of education.
  2. The outcome will unveil varieties of the ascribed and stated pension fund administration used by the ministry
  3. It will assist the researcher to understand how workers can allocate their retirement savings and diversity their investment over a range of investment instrument
  4. The result will assist in facilitating on how retirement savings account can be maintained by each employee.
  5. It will assist the researcher in ascertaining how proper-maintenance of the Retirement Savings Account (RSA) tend to generate massive long-term fund that could be available for investment.
  6. The outcome will address how government stands to benefit on extent to which fiscal discipline can be imposed in the budgetary process to how pension obligations is can be accurately determined.
  7. It will assist the researcher to know the parameters on how current weak regulatory systems can be remedified as against its back drop relating to inflation and downsizing via recession
  8. Finally, the outcome will enable the researcher to identify and enquire other sources and modalities through which its current weak regulatory system can be curbed.

1.6 Scope Of The Study

The study examines the state of pension Reforms in the public sector, with special focus on the Lagos State Ministry of Education, Alausa, Ikeja, Lagos State. In reference to the impact of the National Pensions Commission, towards ensuring compliance and sanity in coping and tackling the challenges of the nation’s pension plagues. The target respondents aimed for the study are majorly public servants from the top, middle and lower staff of the organization.


1.7 Limitation Of The Study

The 10 limiting factors encountered in the course of this study were:

  1. Limited time to the assigned research and response giving
  2. Distance
  3. Stress and it is vigor
  4. Traffic barriers
  5. Poor participation on the part of the workers due to busy schedules or task delegated to be immediately attended to.
  6. Collection of incomplete data in-contradiction to the initial numbers distorted
  7. Limited time
  8. Lack of co-operation from respondents
  9. Financial constraints and
  10. Secrecy to sensitive question due to fear of uncertainty

1.8 Definition Of Terms

It is very important and reasonable for the researcher to allow readers of this work to know the contextual meaning of some key words therein to avoid misinterpretation of such words. Below are some of such words;

(a) The National Pension Commission (NPC):

It is a Commission created by the Federal Republic of Nigeria to regulate, supervise and ensure effective pension regime in Nigeria.

(b) Pension Fund Administrators (PFA):

The pension Act provided for the licensing of Pension Fund Administrators. There are limited liability companies with a minimum paid up capital of one hundred and fifty million naira (N150,000,000.00), which have the professional capacity to open retirement account for workers to invest and manage the pension funds in fixed income securities and other instruments as the commission may from time to time prescribed.

(c) Pension Assets Custodians (PAC):

The Act also provides for a separation of the roles of custodianship of pension fund assets from their investments. They are for warehousing of the pension fund assets. The employer sends the contributions directly to the custodian who notifies the PFA of such receipt. PFA thereupon credits the retirement Savings Account of the employer. The custodian executes transactions and undertakes other activities with respect to the administration of fund investments as may be directed by PFA.

(d) Administration:

Administration consists of getting things done through organization. According to Simon, Smithbong, and Thompson, in its broadest sense, administration can be defined as the activities of group cooperating to accomplish common goals, (Sharma and Sadana, 1989). According to Adebayo (1981), administration is the organization and direction of persons in order to accomplish a specific goal. In other wards, two can not work together, unless they agree.

(e) Reform:

Reform simply means to make or become better by the removal of faults and errors (Reader’s Digest Oxford Complete word finder, 1993: 1987). However, reform is an official change in the way something is done or organized. According to Caiden, (1970) Administrative Reform is power politics in action: it contains ideological rationalization, fights for control of areas, services, people, political participation and institutions.

However, the broad objective of the study is the impact of pension reform on organizational performance in the public sector, 2004: a study of Lagos state ministry of Education-Nigeria.


Chapter Five


Summary Of Findings, Conclusion And Recommendations.

5.1 Summary Of Findings

The purpose of this study was to assess the impact of pension reform on organizational performance in the public sector, using Lagos state Ministry of Education as case study.

To achieve this, four hundred (400) questionnaire were distributed to gather information for empirical validation. Questions were truly constructed to the hypothesis formed and the research work came out with the following findings; out of 400 questionnaires distributed, only 380 or 95% were duly completed and returned, while 20 or 5% were not returned.

In hypothesis one (1), 300 respondents representing 78.95% held the view that the periodic pension contributions and their investment were left to the whims and caprices of employers, while 80 respondents representing 21.05% faulted the statement.

In hypothesis two (2), respondents who were of the opinion that the rate of pension contributions were adequate to provide the needed benefits of the would-be retirees were 60 respondents representing 15.79%, while 320 or 84.21% objected the statement.

In hypothesis three (3), respondents who believed that late and non-payment of pension entitlements lead to wide-spread complaints and death among retirees are 270 or 71.05%, while 110 respondents representing 28.95% held contrary view to the statement.

In hypothesis four (4), respondents who were of the opinion that the incidence of transition gap and the funding system of the scheme do affect adequate and early payment of pension entitlement were 300 representing 78.95%, 80 respondents representing 21.05% claimed that the incidence of transition gap and the funding system of the scheme do not affect adequate and early payment of pension entitlement.

In view of the analysis, majority of the respondents agreed that the pension reform Act 2004, is not the solution to pension crisis in Nigeria.


5.2 Conclusion

Indeed, the New Pension Scheme of the Federal Government has some cobwebs in its reform kitchen. There is no gain saying that Nigeria blue and white collar workers dread retirement, due to the fact that they do not know what the future would hold for them, since the pension reform Act has proved not to be the solution to pension crisis in the country. Equally, it has been observed that many employers have resorted to falsification of their personnel records, frivolous swearing of affidavits to extend their years of service.

There should be prudent management of pension fund, hence cases abound where retired employees’ pensions are not paid. Where it is paid, the payment is epileptic, thereby creating unnecessary damages and hardship to the Nigeria public service and retired employees respectively.


5.3 Recommendations

The new pension fund scheme has not been tailored to fit into the realities of time. Pension Fund Administrator should enlighten the employees about their company and how they intend to manage the Retired Savings Account (RSA). Federal and State Ministries should note that pension reform Act 2004, grants the sole choice of pension fund administrator to the employees. It is illegal for any employer to dictate or influence the choice of pension fund administrator. There should be immediate review on the bureaucratic nature of late and nonpayment of pension benefits to the beneficiaries.

  1. Government should try as much as possible to increase her contributory part to fifteen percent (15%), while the employee should contribute five percent (5%) only; reason being that employees should be assisted in the provision of individual socio-economic needs while in active
    service.
  2. Various levels of government should be mandated to keep a fixed percentage of their revenue with the Central Bank of Nigeria (CBN) to carter for pension need of their workers as a way of securing the future of the retirees.
  3. Government should mandate all the PFAs to pay interest rates
    according to all the customers.
  4. Also, there should be periodic issuance of statement of account that will afford the workers the opportunity to view the position of the pension contribution and to plan for their future more intelligently.
  5. Any pension fund administrator, custodian that is found uncomfortable or dubious in his transactions should be blacklisted instantly and pension fund records and funds in the keeping be retrieved and transferred to another custodian or administrator.

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