Problems of Contributory Pension Scheme in Nigeria
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A pension refers to payment made by the government of a country to its
retired citizens. It is an arrangement between citizens and
governments wherein a worker deposits a certain percent of his or her
salary to a pension account so that upon retirement, they can have
access to these funds.
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Before 2007, Nigeria operated a defined benefits system where the
pension account was funded solely by the employer, or in the case of
the civil service, by the government. This meant that retirement
benefits were included in the annual government budget. This was
difficult to maintain for the employers because it was too expensive.
Hence the introduction to the contributory pension scheme.
Under the contributory pension scheme, it is the responsibility of
both the employer and the employee to contribute to the pension
account. The employee pays a minimum of eight percent of his or her
total monthly remuneration while the employer pays a minimum of ten
percent. The contributory scheme applies to workers under any sector,
whether public and private or contract staff. The contributory scheme
also provides rules, regulations, and standards for the administration
and payment of retirement benefits for both the public sector and
private sectors. However, pension schemes in Nigeria have failed to
achieve their intended purpose of easing the burden of employees after
retirement. More so, of the 69 million people in the Nigerian labour
force, just 7 million have pension accounts.
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Problems of Contributory Pension Scheme in Nigeria
This article highlights the problems of the contributory scheme in
Nigeria. Read on below:
Non-remittance by government
Due to lack of funds and the instability of the Nigerian economy, the
federal government and many state governments have been unable to
remit to their employee’s retirement savings account (RSA). This has
negatively affected the implementation of the contributory scheme in
Nigeria. The refusal or inability of governments and private employers
to keep up to their obligation of ensuring regular remittance to the
employee’s retirement savings account (RSA) contradicts the
provisions of the law. The law states that the employer shall not
delay later than 7 working days after payment of the employee’s
salary remit the agreed amount to the RSA. One of the major problems
of the contributory scheme is the lack of funds and instability of the
Nigerian economy which makes it difficult for the federal government
to facilitate government distribution to employee’s retirement
savings account.
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The inability of employees to access their pension benefits upon retirement
There are many cases where some retired employees are unable to get
their pension benefits, to include gratuity due to bureaucracy and
corruption
The inability of some Nigerian employees to open and own a retirement
savings account (RSA)
Many Nigerian workers do not even have a retirement savings account to
start with. It is mandatory that every worker open a pension account
with any licensed pension fund administrator in Nigeria. With many not
able to open a Retirement Savings Account, the implementation of the
contributory scheme is not achieved.
Perception of employees and employers to the scheme
Many employees have a wrong perception of the pension scheme. Some are
not aware of the fact that they can get pension accounts while others
do not want any amount of money deducted from their salaries. Some
employers, especially those who have small businesses are of the
belief that they do not have to provide their employees with pension
plans. However, the Nigerian law makes it mandatory for employers to
have a pension plan especially if one has over 15 employees. Some
employers avoid putting up a plan in the first place. The report has
it that only about 10% of the working population in Nigeria have
pension plans, one wonders what will happen to the 90% left upon
retirement.
Non-penalization of offenders
There have been reports of cases where private employers have failed
to remit their contributions to the employee pension accounts, and
then the backlog becomes too much to pay. Many do not bother about it
because they know they can get away with the law. This is in spite of
the fact that the law stipulates a 2% penalty on unremitted funds.
However, there are no strict measures in place to ensure compliance
with the law.
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The inability of government to fund the guaranteed minimum pension (GMP)
As mentioned earlier, due to the instability of the government
revenue, the government is often unable to fund the guaranteed minimum
pension to employees in public institutions. The guaranteed minimum
pension is a provision of the law to protect all retirees who were
unable to build up enough wealth to have a decent standard of living
after retirement.
Non- education and unavailability of orientation programmes for
Nigerian employees and employers
Many employees in many institutions have not received proper and
adequate orientation about the contributory pension scheme. It is sad
to know that some employees still think that the country operates the
old defined benefit pension scheme. Many employers also do not
adequately inform and ensure that their employees register with any
pension fund administrator of their choice. This ignorance and lack of
information creates room for accumulated unremitted pension funds.
Corruption
Corruption is a menace that has hindered the success of the pension
schemes adopted in Nigeria, including the old defined benefit pension
scheme. These same practices have been transferred to the new
contributory scheme. This is seen majorly in the lack of transparency
in the operations of schemes.
Returns on investment
Another major problem of the contributory pension scheme is returns on
investment. Over the years, returns in Nigeria’s pension industry
have barely covered a high inflation rate. This means that the savings
of hard-working Nigerians are effectively losing their value.
This is because pension fund administrators (PFA) have often invested
in safe but low-yielding ventures such as government securities. There
is a need to review the management of Pension Funds Administrations in
Nigeria and encourage PFAs to diversify their investments in order to
get higher returns in the pension industry. This is a way to boost
pension penetration.
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A pension refers to payment made by the government of a country to its
retired citizens. It is an arrangement between citizens and
governments wherein a worker deposits a certain percent of his or her
salary to a pension account so that upon retirement, they can have
access to these funds.
(adsbygoogle = window.adsbygoogle || []).push({});
Before 2007, Nigeria operated a defined benefits system where the
pension account was funded solely by the employer, or in the case of
the civil service, by the government. This meant that retirement
benefits were included in the annual government budget. This was
difficult to maintain for the employers because it was too expensive.
Hence the introduction to the contributory pension scheme.
Under the contributory pension scheme, it is the responsibility of
both the employer and the employee to contribute to the pension
account. The employee pays a minimum of eight percent of his or her
total monthly remuneration while the employer pays a minimum of ten
percent. The contributory scheme applies to workers under any sector,
whether public and private or contract staff. The contributory scheme
also provides rules, regulations, and standards for the administration
and payment of retirement benefits for both the public sector and
private sectors. However, pension schemes in Nigeria have failed to
achieve their intended purpose of easing the burden of employees after
retirement. More so, of the 69 million people in the Nigerian labour
force, just 7 million have pension accounts.
(adsbygoogle = window.adsbygoogle || []).push({});
Problems of Contributory Pension Scheme in Nigeria
This article highlights the problems of the contributory scheme in
Nigeria. Read on below:
Non-remittance by government
Due to lack of funds and the instability of the Nigerian economy, the
federal government and many state governments have been unable to
remit to their employee’s retirement savings account (RSA). This has
negatively affected the implementation of the contributory scheme in
Nigeria. The refusal or inability of governments and private employers
to keep up to their obligation of ensuring regular remittance to the
employee’s retirement savings account (RSA) contradicts the
provisions of the law. The law states that the employer shall not
delay later than 7 working days after payment of the employee’s
salary remit the agreed amount to the RSA. One of the major problems
of the contributory scheme is the lack of funds and instability of the
Nigerian economy which makes it difficult for the federal government
to facilitate government distribution to employee’s retirement
savings account.
(adsbygoogle = window.adsbygoogle || []).push({});
The inability of employees to access their pension benefits upon retirement
There are many cases where some retired employees are unable to get
their pension benefits, to include gratuity due to bureaucracy and
corruption
The inability of some Nigerian employees to open and own a retirement
savings account (RSA)
Many Nigerian workers do not even have a retirement savings account to
start with. It is mandatory that every worker open a pension account
with any licensed pension fund administrator in Nigeria. With many not
able to open a Retirement Savings Account, the implementation of the
contributory scheme is not achieved.
Perception of employees and employers to the scheme
Many employees have a wrong perception of the pension scheme. Some are
not aware of the fact that they can get pension accounts while others
do not want any amount of money deducted from their salaries. Some
employers, especially those who have small businesses are of the
belief that they do not have to provide their employees with pension
plans. However, the Nigerian law makes it mandatory for employers to
have a pension plan especially if one has over 15 employees. Some
employers avoid putting up a plan in the first place. The report has
it that only about 10% of the working population in Nigeria have
pension plans, one wonders what will happen to the 90% left upon
retirement.
Non-penalization of offenders
There have been reports of cases where private employers have failed
to remit their contributions to the employee pension accounts, and
then the backlog becomes too much to pay. Many do not bother about it
because they know they can get away with the law. This is in spite of
the fact that the law stipulates a 2% penalty on unremitted funds.
However, there are no strict measures in place to ensure compliance
with the law.
(adsbygoogle = window.adsbygoogle || []).push({});
The inability of government to fund the guaranteed minimum pension (GMP)
As mentioned earlier, due to the instability of the government
revenue, the government is often unable to fund the guaranteed minimum
pension to employees in public institutions. The guaranteed minimum
pension is a provision of the law to protect all retirees who were
unable to build up enough wealth to have a decent standard of living
after retirement.
Non- education and unavailability of orientation programmes for
Nigerian employees and employers
Many employees in many institutions have not received proper and
adequate orientation about the contributory pension scheme. It is sad
to know that some employees still think that the country operates the
old defined benefit pension scheme. Many employers also do not
adequately inform and ensure that their employees register with any
pension fund administrator of their choice. This ignorance and lack of
information creates room for accumulated unremitted pension funds.
Corruption
Corruption is a menace that has hindered the success of the pension
schemes adopted in Nigeria, including the old defined benefit pension
scheme. These same practices have been transferred to the new
contributory scheme. This is seen majorly in the lack of transparency
in the operations of schemes.
Returns on investment
Another major problem of the contributory pension scheme is returns on
investment. Over the years, returns in Nigeria’s pension industry
have barely covered a high inflation rate. This means that the savings
of hard-working Nigerians are effectively losing their value.
This is because pension fund administrators (PFA) have often invested
in safe but low-yielding ventures such as government securities. There
is a need to review the management of Pension Funds Administrations in
Nigeria and encourage PFAs to diversify their investments in order to
get higher returns in the pension industry. This is a way to boost
pension penetration.
(adsbygoogle = window.adsbygoogle || []).push({});
(adsbygoogle = window.adsbygoogle || []).push({});
(adsbygoogle = window.adsbygoogle || []).push({});
jQuery(document).ready(function( $) { $.post(
'https://nigerianfinder.com/wp-admin/admin-ajax.php', {action:
'mts_view_count', id: '291098'}); });
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