ROLE OF THE FINANCIAL MARKETS
IN THE NIGERIAN PENSION REFORMBYMISS E. T. HENSHAW
COMMISSIONER TECHNICAL
NATIONAL PENSION COMMISSIONPLOT 2774, SHEHU SHAGARI WAYMAITAMA FCT ABUJANIGERIAwww.pencom.gov.ng27
TH
OCTOBER 2006
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1.0 THE GENESIS OF PENSION REFORM IN NIGERIA
For quite sometime, successive Governments in Nigeria were burdenedwith numerous problems associated with the pension systems operatedin both the public and private sectors. The Defined Benefit (“Pay As YouGo”) scheme operated in the public sector was characterized byinadequate funding, discrimination in coverage, demographic shifts andweak administration. These factors led to the accumulation ofunsustainable pension liabilities and huge pension arrears.The private sector on the other hand operated a combination of definedbenefits and defined contribution schemes, most of which took thenature of “resignation”, rather than retirement schemes. In someinstances, many workers were not covered by any form of retirementbenefits arrangement. For the few schemes that existed, they weregoverned by diverse operational rules and standards and in some casesfull of malpractices between the Fund Managers and Trustees of thepension fund.The foregoing scenario necessitated a paradigm shift to a moresustainable Defined Contribution pension scheme. This culminated intothe enactment of the Pension Reform Act 2004 (The Act) by the presentdemocratic regime in Nigeria.The Act established a Contributory Pension Scheme (the Scheme) forthe Federal Civil Servants, Employees of the Federal Capital Territory(FCT) and employees of any Private Sector organisation with five (5) ormore employees. However, existing pensioners and employees whohad three (3) or less years to their mandatory retirement as at June2004 were exempted from the Scheme. Also exempted were Judicial
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Officers who are covered under Section 291 of the Constitution of theFederal Republic of Nigeria 1999.The Act also instituted a uniform pension scheme for both the Publicand the Private Sectors of the country. Similarly, it established theNational Pension Commission (The Commission) as the sole regulatoryauthority on all pension matters in Nigeria.The key objectives of the contributory pension scheme could aptly beposited as follows:a) to ensure that every person who has worked in either thepublic or private sector receives his/her retirement benefits asand when due;b) to empower the worker;c) to assist improvident individuals by ensuring that they save tocater for their livelihood during old age;d) to establish a uniform set of rules and regulations for theadministration and payment of retirement benefits in both thepublic and private sectors;e) to secure compliance and wider coverage; andf) to stem the growth of outstanding pension liabilities.
2.0 NATURE OF THE CONTRIBUTORY PENSION SCHEME
As the name suggests, the new Contributory Pension Scheme iscontributory in nature. Under the Scheme, both employers andemployees are each obliged to contribute a minimum of 7.5% of thetotal monthly emolument of the employee. In the case of the Military,the minimum rate of contribution is 12.5% and 2.5% for the employerand employee respectively. In all cases however, the employer may
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