CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Pension scheme is a planned program, which enable corporate organization to acquire and set aside fund to cater for the well being of their staff after retirement from active service. The scheme enables pension to benefits to be paid to the beneficiaries. It could be paid to retired employee, a widow or a disabled person. There are legal and administrative procedures and processes made to facilitate the realization of this objective in both to public and private sectors of our economy. Pension benefits are given for meritorious services to the organization. The scheme is classified into two parts: (a) A non-funded plan where the fund is under the control of employer. This is where payment to retired employees are made directly from operations by the organization as they become due without accumulation of funds. This is obtainable in the public services system and (b) Contributory plan – where the employees bears parts of the cost (i.e. employees pay some portion for example, 10% of their gross monthly income, while the employer pays 15% of the gross monthly income.
Organizations specific in their pension plan, the number of years an employee has to service before he/she qualifies for pensions. In Nigeria, most organization currently allows a minimum of five and ten years for gratuity and pension respectively. The organizations that run a pension fund scheme usually have a pension board, such as the local government staff pensions board. There is also the Nigeria Social Insurance Trust Fund (NSITF), which now replaces the former national provident fund. This caters mainly for the needs of the private sector. When establishment pension plans through “retirement plans”, that qualify under the international Revenue Code, approval would be sought from the Joint Tax Board, so that the deductions would be tax-free. Those expected to run the contributory pension schemes are: i. Every worker who is employed by a company incorporated or deemed to be incorporated under the Company and Allied Matters Decree (CAMA) 1990.ii. Every workers employed by a partnership irrespective of the number of workers employed is not less than five including owners. The two types of pension scheme used in Nigeria are: (a) The self-administered pension scheme, which is managed and administered by the trustee of the scheme.
It is their responsibility to pay retirees their pension regularly and invest the balance surplus fund. (b) The insured pension fund scheme is managed and administered by an underwriter on behalf of owners of the scheme i.e. the Board of Trustees. The underwriters (actuaries) invest the contributory funds into some government bonds or gilt-edge securities, commercial stocks, and today, they are in real estate and transport services. They by this contribute to the economic development of the country; collect the principle contributions, while the fund continue to generate more money through multiplier concept. Government scheme, which is a non-funded scheme, is the core public service plan. It is planned to totally dependent on funding from the treasury to the extent law permits this arrangement.
It is charged to the consolidated expenditure. It will be worthy to note that pension is a liability already incurred and as such, the fund to meet this obligation should be secured and made available always. The objective of pension scheme is to ensure a health, stable, economic and social atmosphere that will promote harmony and given a sense of belonging to the retirees. This is achieved through: (i) Maintaining unbroken service, by retaining experienced staff, high rate of productivity and operational safety is achieved through good quality of labour force and efficiency. (ii) Confidence in serving officers that their status would still be maintained even after their service, by providing them a regular periodic payment to prevent them from slipping into destitution. (iii) To ensure loyalty and orderliness in the public trust would work conscientiously of the expected pension benefits. (iv) The pension fund is also used to make investments-cost saving to generate more money and employment in the economy. As to the extent to which those objectives have been achieved or successful, this project addressed the results and identified the problems. The history of pension in Nigeria was dated back to 1946 with the first pension legislation enacted in 1951, referred them to as pension law was primarily designed for the United Kingdom Officers who will move from post to post in vast British Empire. Its objective was to maintain continuity of service wherever they are sent to serve. When the law became applicable to the indigenous staff, it had limited application to the extent that it was granted at the pleasure of the governor-general.
Under ordinance, pension was not automatic right of Nigerians but discretionary. To ensure consistency and equality of rights, the federal government promulgated the Pension Act No 102 of Federation of Nigeria 1979 (Now Cap. 346 laws of the Federation of Nigeria 1990) with a commencement data of 1st April 1974. The Decree No. 102 of 1979 consolidated all enactments on pension and incorporated pensions and gravity, and sought devices for public officers by adopting the Udorji public service Review Commission in 1974. The administration of the public service pension scheme is a joint responsibilities between the federal and state governments, i.e. for those officers who served within the period March 31, 1976. In other words, all those whose appointments fall from 1st April, 1976 are paid wholly by the tier of government he/she served in the federation. The federal government however provides the guidelines for managing the scheme both for the states and the local governments. Other pension acts and circulars are contained in chapter two of this project work.
