Problem and Prospect of Public Sector Financing Scheme

Problem and Prospect of Public Sector Financing Scheme

(A Case Study of Ministry Of Establishment Pension Section Main Secretariat Awka)

 Theoretical/Conceptual Framework  

With regards to the 2004 pension reform Act, here after to as the Act was established to make sure that all retired workers in the country are paid their pension benefits when due. And the body charged with this homogenous task is the Pension Commission of Nigeria referred to as (PENCOM) and it’s headquarter in Abuja. And they are the only body legally responsible for all matters concerning the regulation and oversight of pension in the country. Presently, due to some constitutional contingencies or constraints, the Act only covers the workers of the federal public service, the various armed service, the federal capital territory and the private sector with five or more.

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So the state and local government are left to devise their own pension legislation to cover their workers, although “PENCOM” has provided guideline to the state and local government to assist them in drafting and setting up their own scheme, since then various government polices have encouraged.

The importance of pension scheme has always been to provide the employees with an income after retirement, which gives financial support beyond the working age. The dream of many workers to retire into an enhanced social status and leisure is often shattered by unplanned and forced early retirement. Lack of adequate material resources and the disintegration of the extended family system leave the worker on retirement all on his own at the time when his need for food and shelter are very acute.

In Nigeria today, pension benefits are regarded as the main source of old age income for those who have served their employer. And it is being described in business circle as “deferred wages” but Ojo etal described pension scheme plan as “imperfect substitute for other forms of savings so that the balances will be added appreciably to aggregate savings also in New York, it was found out that employees covered by pension plan to save more and enjoy better standard of living than those not covered contribution to this arguments, squire stated that from the stand point of the whole system of social economy, no employer has a right to engage man in any occupation that exchanges the individuals, industrial in ten, twenty or forty years and then leave the remain floating on society at large.

Choaman also stated that in a highly organization industry, an employer who has become inefficient through age may be reducing the periodicity of others. If there is pension plan, this service can be readily terminated and the cost of pension may be off set by an improvement by overall efficiency. The 2004 pension reform Act (PENCOM) has been mandated to provide group of life insurance coverage of not less than three times the total emotional for each employee. This means that if you and an employee were to die while in the service of your employer, your loved one’s will be paid a lump sum of his amount. The amount will be credited into your Retirement Saving Account (RSA) and then paid to your beneficiaries according to a prescribed schedule.

From economics consideration, when an employee retires from active service either due to old age or infirmity a capital sum is immediately awardable which could be useful in paying off party or wholly outstanding loan such as mortgage on his house, car where exist. If the retires still have sufficient stamina, they may which to set up a business of their own which together with the house would be sufficient to feed them and the house if in a commercial location would yield some income for their families long after they are dead.

Development of workers pension scheme throughout the country would make individuals contribution to the reduction of corrupt practices by both public and private sector employees.

Today, the employers seen to have realized that in a situation where there are no prospects of post retirement benefits, workers tend to do their jobs with divided interest and royalty; always seeking to guarantee their future with earnings from other sources. In    industries where skill are scarce and manpower highly mobilized, the prospects of post retirement benefits to be paid by employers to employee at the end of the latter service has helped to retain some of the crucial manpower that would otherwise move away in search of green pastures. Fortunately, however it is now widely realized at lease in principal that it is in the interests of the employer, his social and the smooth operation of his business, industry or establishment to uphold the welfare of both the current worker and retired worker.

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Therefore investment opportunity increase in production, reduction of shop practices by workers, skillful and valuable manpower, substance and maintenance of the retires welfare in term of good health, shelter, his dependents etc. and the settlement of his other debt obligations could not be disregarded as the economic importance of pension scheme.

CURRENT LITERATURE BASED ON THE VARIABLES

The pension or gratuity granted by the decree is not assignable except to pay a debt to the government or a periodic payment ordered by a court for the maintenance of the wife or former wife or minor child to retire after putting fifteen years but not up to fifteen years shall give one month notice of his intention to do so or he shall pay one month notice in view of such notice.

PUBLIC SECTOR PENSION FINANCING SCHEMES

Public sector pension financing schemes covers the employees of federal, state and local government, the nationalized industries, public board and similar bodies. Such schemes, involves the spending of public money, which meet statutory authority the scheme have been set up with full published rules under the authority of acts of parliaments or other statutory instruments.

The relevant legislation in Nigeria is contained in the income Tax management Act 1961, and the company’s income Act empowered. The Joint Tax Board to prescribe such other regulation as it may deem fit from time to time or the approval of pension scheme in 1973, the Udoji Commission which was set up by the Federal government to review the salaries and benefits of public officers in government parastatals  and ministries recommended a uniform scale of benefit. The uniform benefit scale took off on the 1st April, 1974. It allowed that public servant does not qualify for pension under commission. A public servant must have complete ten years of service and obtained the age of forty-five, while a minimum of three years of service is essentials to qualify for gratuity. Such a qualified public servant will be allowed on full salary as gratuity and 80% of his monthly salary as pension.

On the 30th of March, 1997 and March 8th 2007, pension schemes benefits structures for public sector was again modified. In the new modification, any office who served for less than 15years are eligible to drew gratuity at the rates that had existed since 1974 but they will not be eligible to a pension.

However, public servant retiring 15years service will be entitled of 100% of their final salary as grateful and 30% of their final salary as annual pension. There after, gratuity and pension will be calculated as graduated scale

THE PROBLEM OF PUBLIC SECTOR PENSION SCHEMES IN NIGERIA

In spite of the well and clearly stated nature of public sector pension scheme in Nigeria a number of problems and difficulties face its proper and good implementation. This has caused great concern to the affected pension especially the recipient of the benefits and those that should be the responsibility of payment of retirement benefit. The problem could be grouped as follows:

  1. Accountability: The federal ministries are empowered to pay gratuities to their retiring officer. Authority to Incur Expenses (AIE) and thereafter it is forwarded to the pension papers to the office of establishment and management services, to enable them to do so, the office of establishment and management service releases funds for settlement of claims for gratuities.

After the payment, ministries are expected to send return on how the payment, were affected (Accountability) completed forms, the office of establishments and management services will not be in a position and caused delay in the payment of retirement benefits. This however applies also where a state government ministry was not able to render paper account for how it spent money on pension of federal pensioners such government ministry will not be able to get its reimbursement and will affect further payment of pension.

  1. Inadequate record of service: This is also a big problem. A retired officer cannot be paid his benefits unless his records are up to date. Certain information about the officer has to be properly documented before he/she is included in the pension roll such information include officer. Date of first appointment: It has to be properly documented in order to know his length of service, his date of birth will have to be clearly indicated in his records of date of his last promotion and terminal salary must be available to be able to place the retire on the correct pension scale. In many instances, these facts are not given in the record and consequently an officer will have to get them sorted out before his entitlement is processed. Some officers have served for 35 years without official records indicating the dates of their first appointment. This situation has created problems for retired officers because they would have to take action to put their records of services in order before their pension will be processed.
  2. Ignorance: Sometimes, the schedules officers who handle pension matters in the ministry do not know what to do when an officer retires, the lack of knowledge of how to process retirement paper contribute in no small measures to the delay in the payment of retirements benefits.
  3. Late collection of pension by the pensioners: The pension benefits should be collected early enough to enable the ministry/state given account to the establishment service in order to claim their reimbursement or cash balance. If the pensioners collect their pension late, the ministry will not be able to claim the cash balance and this will bring about delay in payment of pension for subsequent months.
  4. Also lack of money for payment of pension constitutes a hindrance to smooth running of the public sector pensions schemes, some state government are poor and therefore cannot always provide huge amount involved in both pension and gratuity.
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MORTALITY TABLES

Nature and characteristics: This shows the proportion of pension certain age and sex that dies in a year or within a specified period of time. The existence of such date helps the trustees of a pension fund scheme to make better forecast. It is however, unfortunate that most African countries (including Nigeria) have not been able to have a record of her mortality rate in spite of the obvious advantages.

A statistical study delivered from the United Kingdom natural population and other records found that similar type who dies within a year varies only within narrow limits from the proportion of person of the same sex, age and circumstance who die in another year. If therefore, from the records of a certain large group of lives, the average person at each age who die within a year out of say 100,000 birth/employees who may be expected 0 service 0 each age up to the limit of life should be added to that, however, large group being investigated. Accidental fluctuation in the experience will be revealed and it may be desirable to smooth these out before preparing the table.

When completed, the table will provide an instrument by which forecasts may be made and these will be sufficiently reliable (if the mortality tale is based on suitable data) to be the basis of pension fund calculation. It is however, describes to test the suitability of death which have actually occurred with the number which is expected to occur according to the mortality table used. This can be done only if the number of lives and number of years involved are sufficiently large to give some chances for the law of average to operate.

METHOD OF CALCULATING PENSION BENEFITS

The calculation of pension benefits is done according to the duration of service and of the circumstances upon which an employee retired. It could be looked at firms various angles thus early retirement benefits, late retirement and withdrawal benefits are:

  1. EARLY RETIREMENT BENEFITS

It is generally provided that the consent of the employer (land or managing committee of the fund) an employee may retire on pension before the normal pension age. This could be as a result of ill health or other personal reasons. These are some basis features that deport retirement before the attainment of early one. This includes retirement before the attainment of the age of 45 years which is the pensionable age. Any officer unless retired in the public interest is not qualified for a pension until such officer attain the age of 45 years. If death occurs before 45 years, pension will still come at the 45th birthday and will last for 5 years.

Also, an officer who retires before the year but after five years can only collect gratuity without pension. Officer who is qualified for pension and wishing to retire must give six month notice or forfeit six month salary lieu of notice while those qualifying for only gratuity should give three months notice or forfeit three months salary in lieu of notice.

  1. LATE RETIREMENT BENEFITS

It is generally accepted principle of all pension schemes for employees that the benefits arise on retirement. It is therefore, usually provided that an employee remains in the service beyond the normal pension date, his pension will not be payable until his actual retirement.

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Initially in a small percentage of privately invested funds, the pension may still be calculated according to the normal rules of the scheme when retirement takes place after the normal pension agreement. Such sharp practice were condemned in the public sector pension scheme before 1989 when some officer already due for retirement whether an attainment of retire age or by reacting 35 years of service or 65 years of age will have to refund the total of salary and allowances he was paid afterwards, it will have to be deduced from his benefits.

  1. WITHDRAWAL BENEFITS

The rules of the scheme must prescribe what benefits if any of employee is to receive when he leaves the scheme/office, upon the termination of his employment prior to normal pension age whether that termination be honourable or dishonourable, voluntary or involuntary. Where some benefits on withdrawals is to be given such as full or partial paid up pension or a refund of contribution proper allowance for these will of course be made up by actually in his calculation. If good example of how a refund of contribution is made could be seen under the University of Nigeria Teaching Hospital (UNTH) staff welfare scheme rules.

PRINCIPLES OF PENSION SCHEME VARIATION

The rules of invested fund (pension fund scheme) usually provide for periodic actual investigation. The present tendency is to have an investigation or valuation made on fairly regular basis, because of the changing financial conditions. On such occasion, or investigation, the actually of the fund will notify secretary as to what information is required in order to enable him to carry out such investigation.

For instance, if the rules of this fund provided for triennial valuations, the secretary of the fund would supply the actually with full details of the membership after each period of three years together with particular of exists and the preceding three years audited accounts including a list of investments help from these. The experience against his original forecast and the actually still want to adopt the same bases for his valuation as were used before.

SUMMARY OF THE LITERATURE REVIEW

The predominant problem with retirement and widows pension benefits is investment, how to maximize the return on the contribution which are to be set aside during working life by the members of the pension scheme and their employer or by the later alone in a none-contributory scheme. From the fore-going, it is clear that the essence of any pension scheme is collection of contribution (a contributory scheme) during employment in order to be able to pay out. In future, the benefits accruing under the scheme due to member of their dependable after collection and before the paying out, there arises a long term investment problem, solving the problem is the responsibility of the trustee in the scheme insuring the scheme, while in some cases the wisest thing to do is not to remove the problem but merely to decide to adopt one particular solution to it because insurance policies are merely one form of investment though which the trusted can decided to work.

The financial operation of pension scheme is based on the assumption that the funds will accumulate to an extent sufficient to make possible the payment of the promised benefits. It follows that if this proves to be ill-funded, the operation of the fund may be imperiled, if on the other hand, the above assumption is more than fulfilled there will be scope for increasing the benefits or reducing the contribution.

Problem and Prospect of Public Sector Financing Scheme (A Case Study of Ministry Of Establishment Pension Section Main Secretariat Awka)

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