Reforming the 2004 Pension Act: The Challenges A Head

Moses, Ajeka and Okoroafor George,  Eme Okechukwu I.

Department of Political Science Imo State University, Owerri

Department of Public Administration and Local Government Studies University of Nigeria, Nsukka

E-mail: okechukwunncnt@yahoo.com, okechukwunncnt@gmail.com

Accepted 24 November 2014

Abstract

Given the discouraging record of the public pension system in Nigeria and the limited coverage of the private-sector pension schemes, PRA’04 is a bold attempt at sanitizing the public sector scheme, standardizing the rules for private-sector pension schemes and enlarging its coverage. The new pension scheme is contributory; it de-emphasizes the lump-sum payment of gratuities, removes pension administration from the public sector and places it squarely in the hands of financial institutions. Efficient pension administration now depends on the efficiency of the Nigerian financial institutions, which calls for well-managed banks, insurance companies, pension fund administrators and custodians and an effective regulatory framework in the money and capital markets. The new pension scheme appropriately focuses on the need for adequate national savings, good investments and sustained output growth. There is, however, some doubt as to whether the public sector in Nigeria can exhibit the level of fiscal discipline over the long-run required to generate the surplus to pay off accumulated pension obligations carried over from the old scheme which would soon involve the issuing, holding and redemption of retirement bonds. As the value of pensions now depends on the returns on invested funds, there is genuine fear relating to the ability of the Nigerian capital market to generate adequate returns over time on invested funds to assure retirees decent living. This throws open the state of the various other determinants of investment yields such as the macroeconomic environment, fiscal incentives, level and quality of available infrastructure, existence of skilled and low-cost labour, existence of efficient mechanisms for resolving industrial disputes, enforcement and protection of property rights, and adequate inflows of foreign direct investment (FDI). The government still has a lot to do in each of these areas.

Keywords: Pension and Pension Reform, Retirement, Pension Managers and Administrators, Corruption and Public-Private Partnership.