A Case Study of Pension Administration I

A CASE STUDY OF PENSION ADMINISTRATION IN NIGERIA
BY
ADEGOKE, FADEKEMI ADESOLA

MATRIC. NO.: 13/LAW01/010
COLLEGE OF LAW,
AFE BABALOLA UNIVERSITY, ADO-EKITI,
EKITI STATE.
APRIL, 2018
A CASE STUDY OF PENSION ADMINISTRATION IN NIGERIA
BY
ADEGOKE, FADEKEMI ADESOLA
MATRICULATION NUMBER: 13/LAW01/010
BEING A LONG ESSAY SUBMITTED TO THE COLLEGE OF LAW, AFE
BABALOLA UNIVERSITY, ADO-EKITI, EKITI STATE NIGERIA IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR
OF LAWS, LL.B (HONS) DEGREE
APRIL, 2018
DECLARATION
I, Adegoke Fadekemi Adesola, hereby declare that this Long Essay titled ‘A Case
Study of Pension Administration in Nigeria’, is my original work, and apart from
reference to the works of other authors, which have been duly acknowledged, this
entire work is a product of my research, and has not, either in whole or in part, been
presents for another degree elsewhere.
…………………………… ……………………….
Student’s Signature Date

CERTIFICATION
This is to certify that this Long Essay titled ‘A Case Study of Pension
Administration in Nigeria’ was written by Adegoke Fadekemi Adesola, with
matriculation number 13/LAW01/010, under my supervision in partial fulfilment of
the requirements for the award of Bachelor of Laws, LL.B (Hons) Degree in the
College of Law, Afe Babalola University, Ado-Ekiti, Ekiti State.
…………………………….
……………………..
Dr. E.T. Yebisi Date
Supervisor
DEDICATION
This work is dedicated to my selfless parents, Mr. and Mrs. Adegoke.

ACKNOWLEDGEMENTS
My utmost gratitude and thanks goes to God who saw me through up to this point
and made the conceived idea for this research a reality.
I commend my supervisor, Dr. E.T. Yebisi, for his immense contributions and
encouragement towards the success of this work.
To my amazing family and friends, I am grateful.
My appreciation also goes to the College of Law, Afe Babalola University, Ado-
Ekiti and its diligent lecturers and efficient administrative staff. Words cannot
express the depth of my gratitude to you all for the diverse impartations you have
made in my academics as well as my character.

TABLE OF CASES
British Transport Commission v Gourley [1969] 1 AE & R 555 at 566
Gerhard Huebner v Aeronautical Industrial Engineering and Project Management
Co. Ltd. [2017] LPELR-42078 (SC)
Iwo v University of Uyo [2011] 6 NWLR (Pt 125) 1
Kasim v Nigerian National Petroleum Corporation [2013] 10 NWLR (Pt. 1361) 69
Knight v Knight [1840] 49 ER 58; [1840] 3 Beav 148
Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513
Momodu v National Union of Local Government Employees [1994] 8 NWLR (Pt.
362) 336
Speight v Gaunt [1883] LR 9 App Cas 1

TABLE OF STATUTES
Constitution of the Federal Republic of Nigeria 1999 (as amended), Cap C23 Laws
of the Federation of Nigeria 2004.
Lagos State pension Reform Law 2007
Pension Reform Act No. 2 of 2004
Pension Reform Act No. 64 of 2014
Trustee Investment Act, Cap T22 Laws of the Federation of Nigeria 2004.
International Labour Organisation Security (Minimum Standards) Convention No.
102 of 1952
LIST OF ABREVIATIONS
AFP Administradoras de Fondos de Pensiones
App Cas Appeal Cases
BOT Board of Trustees
CFRN 1999 Constitution of the Federal Republic of Nigeria 1999
CPFA Closed Pension Fund Administrator
CPS Contributory Pension Scheme
DB Defined Benefit
DC Defined Contribution
FDC Financial Defined Contribution
GMP Guaranteed Minimum Pension
ILO International Labour Organisation
ISC Investment Strategy Committee
JTB Joint Tax Board
LASPEC Lagos State Pension Commission
LFN Laws of Federation of Nigeria
LPELR Law Pavilion Electronic Law Report

LSPRL Lagos State Pension Reform Law
NAICOM National Insurance Commission
NDC Notional Defined Contribution
NPC National Pension Commission
NPF National Provident Fund
NSITF Nigerian Social Insurance Trust Fund
NWLR Nigerian Weekly Law Report
PAYG Pay-As-You-Go
PenCom Pension Commission
PFA Pension Fund Administrator
PFC Pension Fund Custodian
PPF Pension Protection Fund.
PPM Prem Pensions Myndigheten
PRA Pension Reform Act
PTAD Pension Transitional Arrangement Department
RMC Risk Management Committee
RSA Retirement Savings Account
SEC Securities and Exchange Commission

TABLE OF CONTENTS
TITLE PAGE……………………………………………………………………….....i
DECLARATION……………………………………………………………………..ii
CERTIFICATION…………………………………………………………………...iii
DEDICATION…………………………………………………………………….....iv
ACKNOWLEDGMENTS……………………………………………………………v
TABLE OF CASES………………………………………………………………….vi
TABLE OF
STATUTES………………………………………………………….....vii
LIST OF ABBREVIATIONS………………………………………………………
viii
TABLE OF CONTENTS………………………………………………………….....ix
ABSTRACT………………………………………………………………………..xvi
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Introduction……………………………………………………………………….1
1.2 Statement of the Problem…………………………………………………………3

1.3 Aim and Objectives of the
Study………………………………………………….5
1.4 Methodology……………………………………………………………………...5
1.5 Scope of the
Study………………………………………………………………...6
1.6 Significance of the
Study………………………………………………….............6
1.7 Literature Review…………………………………………………………………6
1.7.1 Conceptualising Pension…………………………………………………...7
1.7.2 Pension
Types……………………………………………………………..11
1.7.3 Pension
Scheme…………………………………………………………...11
1.7.4 Problems and Reform of Pension in Nigeria………………………………
13
1.7.5 Pension Administration and Political
Control……………………………..16
1.7.6 Gap in
Literature…………………………………………………………..17
1.8 Chapters Outline…………………………………………………………………
17
CHAPTER TWO
THE TRAJECTORIES OF THE LEGAL REGIME OF PENSION
ADMINISTRATION IN NIGERIA
2.1 Colonial Pension Administration………………………………………………..19
2.2 Post-Independence Pension Administration…………………………………….21
2.2.1 The National Provident Fund (NPF) Scheme…………………………….22
2.2.2 The Nigerian Social Insurance Trust Fund (NSITF)
Scheme……………...23
2.2.3 The Pay-As-You-Go (PAYG) Pension
Scheme…………………………..24
2.3 Legal Regime on Pension Administration in
Nigeria…………………………….25
2.3.1 The Pension Decree Nos. 102 and 103 0f 1979……………………………
25
2.3.2 Other Legislations on Pension Administration……………………………
26
2.4 The Nigerian Pension Industry
Timeline………………………………………...28
CHAPTER THREE
CURRENT LEGAL FRAMEWORK FOR PENSION ADMINISTRATION IN
NIGERIA IN COMPARISON WITH SELECTED JURISDICTIONS
3.1 The Pension Reform Act 2004 (PRA 2004)
……………………………………...30
3.1.1 Contributory Pension Scheme (CPS)
……………………………………...33
3.1.2 The National Pension Commission (NPC or PenCom)……………………
35
3.1.3 Pension Fund Operators or
Managers……………………………………..36
3.1.3.1 Pension Fund Administrators (PFAs)
……………………………..37
3.1.3.2 Pension Fund Custodians (PFCs)…………………………………
37
3.1.3.3 Closed Pension Fund Administrators (CPFAs)……………………
38
3.1.4 The Retirement Savings Account (RSA)
………………………………….38
3.2 Pension Reform Act 2014 (PRA 2014)
…………………………………………..39
3.3 Pension
Trust…………………………………………………………………….42
3.3.1 Pension Trust under the PRA
2014………………………………………..44
3.3.2 Distinction between the Conventional Trust and the Statutory Pension
Trust under PRA
2014……………………………………………………………………..46
3.4 Alternative Pension Reform: The Chilean and Swedish Models…………………
49
3.4.1 The Chilean Pension
System……………………………………………...49
3.4.2 The Swedish Pension
System……………………………………………..52
3.4.2.1 Income Pension…………………………………………………...53
3.4.2.2 Premium
Pension………………………………………………….54
3.4.2.2 Guarantee
Pension………………………………………………...54
CHAPTER FOUR
PREVALENT PROBLEMS AND THE PROSPECTS OF PENSION
4.1 The Shortcomings of the Erstwhile Pension
Schemes…………………………...55
4.1.1 Funding Modality…………………………………………………………55
4.1.2 Delayed or Non-Payment of Pension
Entitlements………………………..56
4.1.3 Pension Record and Disbursement Flaws……………..
…………………..56
4.1.4 Pension Payment Default by State Governments………………..…….
…..57
4.2 Problems of the Contributory Pension Scheme (CPS)……………………….
…..57
4.2.1 The Scope of Application of the
Scheme………………………………….58
4.2.2 The Rate of
Contribution………………………………………………….58
4.2.3 Low Level of Compliance…………………………………………..
…….59
4.2.4 Lack of Awareness………………………………………………………..59
4.2.5 Default in
Remittance……………………………………………………..60
4.2.6 Guaranteed Minimum Pension (GMP)……………………………………
60
4.2.7 Additional Voluntary Contributions………………………………………
60
4.2.8 Investment
Guidelines…………………………………………………….61
4.2.9 Lack of Professional Advice………………………………………………
62
4.2.10 Corruption and Misappropriation of Pension Funds and Assets…………
62
4.3 Benefits of Contributory Pension Scheme (CPS)
………………………………...64
4.3.1 Prompt and Regular
Payment……………………………………………..64
4.3.2 Inclusion of Private
Sector………………………………………………...65
4.3.3 Available Funds for
Investment…………………………………………...65
4.3.4 Little or No Government Involvement………………………….…………
65
4.3.5 Transferability………………………………..……………….…………..66
4.3.6 Labour Mobility…………………………………………………………..66
4.4 Safeguards for the Contributory Pension Scheme under the PRA
2014………….66
4.4.1 Privately Managed Account……………………………………….……...67
4.4.2 Separation of the Pension Fund Administrator and Pension Fund
Custodian……………………………………………………………………………67
4.4.3 Reporting Requirement of Pension Fund Administrators…….……….
…..68
4.4.4 Compliance Officers………………………………………………………
68
4.4.5 Restrictions on Investments and Risk Ratings of
Investments…………….69
4.4.6 Risk Management and Investment Strategy Committees.…...……..
……...70
4.4.7 Disputes Resolution…………………………………………...
…………..70
4.4.8 Sanctions………….………….……………….…………………………..71
4.5 State Enactment on Pension Administration in
Nigeria………………………….71
4.5.1 The Lagos State Pension Reform Law 2007 as a Model for State Pension
Administration………………………………………………………………………72
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary………………………………………………………………………...75
5.2
Conclusion……………………………………………………………………….76
5.3 Recommendations……………………………………………………………….77
BIBLIOGRAPHY……………..……………………….…………….….…………..81
ABSTRACT
Pension forms part of the social security accorded by a nation or country to its
citizens. It is thus, seen as a veritable tool for building labour capacity as it
guarantees the welfare of the citizens. Against this background, this study provided a
general overview of the administration of pension in Nigeria, its historical
background in connection with its legislative and regulatory history, the challenges
which plagued the system from the advent of the administration up till this present
time and the effectiveness of the system as a whole. The methodology employed in
this study was purely socio-legal. Therefore, the materials and pieces of information
relied upon were sourced from both primary and secondary sources. The study found
that the numerous problems which prevailed when there was no unifying statue on
the subject matter, such as the corruption and the delayed payments of beneficiaries,
necessitated reforms which were implemented in 2004 in form of the establishment

of a Contributory Pension Scheme (CPS). This reform was maintained in the
amendment Act of 2014. Unfortunately, the reforms did not completely eradicate the
problems of the system. Also, it was found that the implementation of the provisions
of the Act has not been effective considering the fact that some states of the
Federation are yet to adopt the scheme. Thus, there are still some lacunae in the
current administration of pension in Nigeria. Based on these findings, this study
recommended, among others, that the state governments should take accurate steps to
implement the scheme. Also, individual problems of the Act should be addressed to
get rid of the infractions in the system. It was then concluded that the administration
of pension in Nigeria, albeit fraught with inadequacies, has experienced
improvements over the years.
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Introduction
A democracy is often said to be the government of the people, by the people and for
the people.1 Indeed, the Nigerian Constitution2 gives effect to this conception by the
wordings of the preamble where it states that ‘we the people of the Federal Republic
of Nigeria…Do hereby make, enact and give to ourselves the following
Constitution….’ It is, however, regrettable that this democratic character has not
reflected in the overall administration of the country. This forms the foundation for
all the difficulties with which the Nigerian people are plagued with. Particularly, the
1
Words from the Gettysburg Address of Abraham Lincoln, often quoted as a definition of democracy
https://etc.usf.edu/lit2go/pdf/passage/4822/a-lincoln-anthology-003-the-gettysburg-address.pdf
accessed 9 January 2018.
2
Constitution of the Federal Republic of Nigeria 1999 (as amended), Cap C23 Laws of the Federation
of Nigeria 2004.
‘people’ as the arbiter of law and order in the society have the right to be well
catered for by the State, which is in fact the representative of the people. Thus, the
welfare of the people is the responsibility of the State and one way by which this
welfare responsibility can be achieved is for the State to cater for the ageing
population who have served their country in diverse capacities, either in public or
private sector.3 Hence, section 16(2) of the 1999 Nigeria Constitution states, inter
alia, that one of the economic objectives of the government is to direct policies
towards ensuring that old age care and pensions are provided for all citizens.
The common use of the term ‘pension’ is to describe the payments a person receives
upon retirement, usually under predetermined legal or contractual terms. The idea is
that since workers spend the whole of their productive lives working for their
employers, they (the employers) in turn should of necessity, make adequate plan for
the up-keep of their workers after they retire from active service. 4 Thus, pension,
simply put, connotes a form of official obligation in any employment relationship; a
legal and economic obligation in which employers of labour are mandated to fulfil in
their contractual relationship with employees.5 Pension plans are usually established
by a legal document called a trust deed with the declaration that the funds would be
administered in accordance with the rules spelt out in the document. 6 Employers
offer pension benefits to attract, retain and reward employees. Employees, on the
other hand, rely on retirement benefits as a form of financial security in their less
productive years.7
3
J.I. Ekele, ‘An Evaluation of Pension Fund Administration in Nigeria (A Comparative Analysis of
Premium Pension Ltd. and Sigma Pension Ltd.)’ (Unpublished MBA thesis, University of Nigeria,
Enugu, 2012) 3.
4
M. Nwafor, ‘The Impact of the Implementation of Pension Reform Act 2004 on the Pensioners’
Welfare: A Study of Nnamdi Azikiwe University, Awka from 2004 – 2012’ (Unpublished M.Sc.
Thesis, University of Nigeria, Nsukka, 2013) 4.
5
Ibid.
6
M. A., Babatunde, ‘The Impact of Contributory Pension Scheme on Workers’ Savings in Nigeria’
[2012] (7) (3) Medwell Journals of Social Sciences, 467.
7
Ibid.
The subject matter has received much attention in many countries over the past
decade with different countries adopting diverse mechanisms which they consider
best to ensure financial security for the ageing populace. These mechanisms are often
described as ‘pension reforms’. Thus, according to Alo,8 many countries of the world
are grappling with pension reforms in the face of pressures from ageing population
and Nigeria is not to be left behind. The Nigerian government has over the years
concerned itself with this contractual relationship between employers of labour and
the labour force and this is what has occasioned the vast number of reforms made to
pension administration in Nigeria and the resultant legislations. The pension
administration in Nigeria has experienced a myriad of innovations and renovations
over the years commencing from its operation under the British colonial rule. This is
to be expected in light of the plethora of problems associated with such matters. It is,
therefore, in this connection that this study seeks to evaluate the pension
administration in Nigeria.
1.2 Statement of the Problem
The pension administration in Nigeria, like every other governmental and
administrative matter, has its origin in the British structure. This structure was
inherently flawed in that the pensions and gratuities, though provided for by
regulation (not legislation), was not as of right as the Governor-General had full and
total discretion to reduce or completely withhold them. 9 This was the first challenge
by the labour force in relation to such matters. Sadly, 57 years post-independence,
Nigeria is still faced with challenges in the pension administration, though not all of
the kind experienced under the British administration.

8
Alo Oladimeji, ‘Current Pension Reforms: Implications for Career Development in the Public and
Private Sector (2004)’ Being a Paper Presented at the 2nd State Conference of the Lagos State Branch
of the Chartered Institute of Personnel Management of Nigeria (CIPMN)
www.bjournal.co.uk/paper/BJASS_15_2/BJASS_15_02_01.pdf accessed 9 January 2018.
9
O.I. Eme et al., ‘Pension Reform Act 2014 and the Future of Pension Administration in Nigeria’
[2014] (4) (2) Arabian Journal of Business and Management Review, 156.
While it is true to state that some of the difficulties connected with paying the
pension and gratuity of deserving Nigerian workers have been with Nigeria for quite
some time, it is, however, also true that some of the problems that exist now have not
been there. There was a time pensioners on retirement or disengagement were sure of
instant access to their entitlements but this scenario has now changed because of
government irresponsibility, non-release or late release of pension funds,
misappropriation and outright diversion of pensioner’s funds by government
officials.10 Consequently, retirement in Nigeria is now synonymous with deprivation
and suffering. Most often gratuities and pensions are not paid as and when due and it
is observable that, most often, a number of these pensioners die without accessing
their entitlements. Sometimes, in a bid to make ends meet, retirees even at very old
age look for employment or jobs.11
Although the pension industry has witnessed series of reforms since independence, it
is the opinion of some that the implementation has not actually made any significant
impact in the welfare of the beneficiaries – pensioners. This is because pension
administration in Nigeria is poorly handled and this stems from the fact that most of
its laws are only good on the paper with lack of proper implementation. 12 Also, in
recent times, Nigerians have been projected globally in a very bad image because of
scandalous and startling revelations of massive looting and fraud masterminded by
serving civil servants.13 A staggering amount running into inestimable trillions was
looted from pension funds by the stakeholders in the administration and management
of pensions.14 Therefore, it has been said that since Nigeria does not have a
10
A.T. Dagauda and O.P. Adeyinka, ‘An Analysis of the Impact of the 2004 Pension Policy on the
Welfare of the Nigerian Civil Servants: A Case Study of Selected Federal Ministries’ [2013] (1) (1)
Global Journal of Human Resource Management, 20.
11
Mabel Nwafor, op. cit., 10.
12
Ibid.
13
Ibid.
14
K. Gbenga, ‘The Historic Nigerian Pension Looters’, Daily Champion, (Lagos, 1 May 2012); I.
Emewu, ‘HOS Office Looted N501bn Pension Funds: N3.3tn Looted Since 1976: 50,000 Pensioners
sustainable social security system as obtainable in developed countries like Britain,
France and United States of America, it is appropriate to stress no harm for one to
plan for the period the body would no longer be fit to work.15
Thus, by answering the following research questions, this study seeks to contribute to
the body of legal (and sociological) knowledge on the machinery for the protection
of the welfare of the ageing population in the country.
i. What is the concept of pension administration in Nigeria?
ii. What are the innovations occasioned by the current pension legislation in
Nigeria?
iii. To what extent does the pension legislation guarantee a minimum standard of
living for retirees?
iv. What are the problems and challenges associated with the innovations
envisioned by the pension legislation?
v. What are the recommended solutions to the problems and challenges of
pension administration as articulated by the pension legislation?
1.3 Aim and Objectives of the Study
The main aim of this study is to provide a socio-legal framework for the
administration of pension in Nigeria and the specific objectives are to:
i. Examine the extent to which the extant pension scheme can guarantee at least
a minimum living standard for the retired public servants in Nigeria.
ii. Highlight the problems, challenges and implications of the extant pension
scheme.
iii. Evaluate the extent to which the Pension Reform Act 2004 and the Pension
Reform Act 2014 addressed the problems of pension administration.
not paid in 42 Years’, Daily Sun (Lagos, 5 November 2012).

15
T. Agunbiade, ‘Pension with Human Face?’, This Day (Lagos, 3 March 2006) 16.
1.4 Methodology
This study is socio-legal. As such, much reliance is placed on primary source in
statutes and the secondary sources as contained in textbooks, journal articles,
periodicals (newspapers and magazines), theses on the subject and online sources.
Thus a doctrinal approach is employed. These materials will be subjected to content
analysis which will be supplemented by empirical results found in other studies and
will be sourced from the library of the College of Law and the general library of Afe
Babalola University.
1.5 Scope of the Study
The scope of this essay covers the historical evolution of pension administration in
Nigeria, from the 1951 till date, with specific reference to the problem of pension
fund misappropriation. It addresses the reforms introduced by the Pension Reform
Acts of 2004 and the 2014 amendment while considering how well they have proved
effective in protecting employees who eventually become retirees.
1.6 Significance of the Study
The issues to be addressed in this study have both practical and theoretical import.
On the one hand, the study seeks to make an expatiation of the administration of
pension in Nigeria as a vehicle for the protection of the population. The expositions
made here will serve to enlighten the reader, providing pieces of information which
were both foreign and vague to the reader.
On the other hand, the study isolates the problems and challenges, both traditional
and contemporary, which have plagued the pension administration in Nigeria, the
causative analysis of these problems and challenges and the prospects for resolving
them. In this regard, the knowledge articulated in this area will prove to be useful to
government, institutions, researchers, students, jurists, law reformers and legislators.

1.7 Literature Review
Since it bothers on the welfare of the citizens, the issue of pension administration in
Nigeria has been a topical subject for discussion over the years even prior to the
Pension Reform Act 2004 which was a result of agitations for a reform in the sector.
There have been diverse contributions to the discourse by writers and scholars in
both sociological and legal fields. These contributions provide knowledge into the
workings of the pension industry and present issues for consideration which will be
useful in formulating conclusions and offering recommendations. It is therefore
pertinent to address the submissions of scholars and jurists on the subject matter as a
foundation for the issues which will be discussed in the subsequent chapters of this
study.
1.7.1 Conceptualising Pension
According to Eme, Uche and Uche,16 pension refers to a fixed sum to be paid
regularly to a person, typically following retirement from service either based on ill
health, having reached the retirement age or decided to disengage from service
before his or her retirement date. Quite remarkably, these writers pointed out the
unfortunate misconception to wit most people often associate pension with old age.
They dispensed with this by their above definition of pension which gives three
situations under which the use of the term may arise – retirement based on ill health,
retirement based on attainment of the requisite age or disengagement from service
before the attainment of the retirement age.
To Ayegba, James, and Odoh,17 the common use of the term ‘pension’ is to describe
the payments a person receives upon retirement, usually under pre-determined legal
and/or contractual terms. This definition also diffuses the ‘old age’ misconception
16
O.I. Eme et al., op. cit., 159.
17
O. Ayegba et al., ‘An Evaluation of Pension Administration in Nigeria’ [2013] (15) (2) British
Journal of Arts and Social Sciences, 97.
but restricts its application to ‘retirement’ of the pensioner. The definition, however,
markedly notes that the terms of a pension provision could either be legal and/or
contractual. It is legal where the law or statute specifically provides for such terms
which must necessarily be so contained, but it is contractual where the parties (that
is, the employer and the employee) specifies their own terms and agree on same.
Indeed this contractual pension was what was operational in private sector civil
service before the establishment of the 1961 National Provident Fund.
Nuel chooses to define pension as ‘a periodic payment made by a government or
private organisation, by virtue of a fund etc. to an employee, whether private or
public, on retirement or on the attainment of a specific age in order to take care of his
needs after retirement and as a reward for his service’. 18 This definition proves to be
somewhat all encompassing. The following elements of pension can be glimpsed
from the above definition:
a. It is periodic. That is, the payment of pension is not made as the whole sum.
In this regard, a pension is distinguished from a gratuity which is the payment of a
lump sum payable to a retiring officer who has served for a minimum period of
time.19
b. It could be made by a government or a private organisation. That is, the
employer is either the government in which case the employees are public servants
entitled to payment of pension from such government, or a private firm, company or
organisation. This covers the inadequacy observed in the definitions given by the
preceding authors who do not specify who makes a pension payment.
18
O. Nuel, ‘An Appraisal of the Concept of Trust in the Nigerian Pension Reform Act 2014’
https://independent.academia.edu/NuelOji or http://ssrn.com/abstract=2820246 accessed 9 January
2018.
19
c. It is made upon retirement or attainment of a certain age. It has earlier been
established that it is a misapprehension to associate pension merely with old age.
Payment of pension is made pursuant to retirement of the employee or the attainment
of the specified age. For instance, section 291(1)20 provides that a Justice of the
Supreme Court or the Court of Appeal may retire upon attainment of the age of sixty-
five years and shall cease to hold office when he attains the age of seventy years.
d. It is made in order for the pensioner to take care of his need. This idea about
pension can be said to be in consonance with tradition in Nigeria. For example, there
is an Igbo adage which states that the firewood that one gathers in the dry season,
one uses to keep oneself warm in the raining season. The Holy Book of the
Christians also gives credence to the fact that there is time for everything and a time
will come when man can work no more. 21 When such time comes, one needs a means
to take care of oneself.
e. It is a reward for service.
Adeoye22 viewed pension as a sum of money paid regularly to a person who can no
longer work because of old age, disability or retirement, or to his widowed or
dependent children by the state, former employers or from provident fund to which
he and his employer both contributed. This definition introduces two new points of
focus. The first is that pension payment may be made to the disengaged employee or
to his widow or to his children in a case where the beneficiary employee is dead. The
second is that the payment may be made from a fund into which both the employer
and employee have made monetary contributions. Robelo23 incorporates this element
in his assertion on pension when he said that it is the method whereby a person pays
20
CFRN 1999 as amended.
21
Ecclesiastes 3:2; John 9:4.
22
A.A. Adeoye, ‘An Evaluation of Pension Industry in Nigeria’ [2015] (3) (1) International Journal
of Banking, Finance, Management and Development Studies, 109-110.
23
M.F. Robelo, ‘Comparative Regulation of Private Pension Plans’ (2002) frabelo@fgvsp.br as cited
in O.I. Eme et al., op. cit., 158.
into pension scheme a proportion of his earnings during his working life, though he
does not state that contributions may also be made by the employer. This tangentially
touches the contributory pension scheme which was introduced by the Pension
Reform Act 2004.
In conceptualising the term, Dhameji and Dhameji 24 tried to link commitment to
motivation and opined that commitment is also tied to how well an employee is
motivated. Motivation here entails the process of influencing employee’s behaviour
towards the attainment of organizational goals. Motivation includes meeting the
psychological, financial and emotional needs of workers, because it creates an
impression in them that there is life after retirement. Pension serves as a means of
motivating the worker towards being productive in his work because if he is assured
of some stability of finance after service, it will be an incentive to put in more effort
for the success of his employee’s business.
The courts have not been left out in rendering a definition for the term. For instance,
in Kasim v. Nigerian National Petroleum Corporation,25 the Court of Appeal defined
it as a contract for a fixed sum to be paid regularly by instalments on retirement from
service. Also, in Momodu v National Union of Local Government Employees 26 it was
defined as an accrued right of an employee, be it the right in money or other
consideration, on retiring from the services of his employer and satisfying the
conditions for payment of the said pension. This definition shows us that the
payment of pension need not necessarily be in money. Similarly, the English Court,
in British Transport Commission v Gourley27 proffered a definition of the term and in
24
S.K. Dhameji and S. Dhameji, Industrial Psychology (S.K. Kataria and Sons 2009).
25
[2013] 10 NWLR (Pt 1361) 69.
26
[1994] 8 NWLR (Pt 362) 336.
27
[1969] 1 AE & R 555 at 566.
so doing, it distinguished the term from other related terms such as ‘gratuity’ and
‘will’ thus:
…The fruit, through insurance, of all money that was set
aside in the past in respect of past work. Pension also
differs from gratuity which is usually, the payment of a
lump sum in one single instance. Unlike a will, pension
becomes operative only after the tenure of employment not
of the person.
1.7.2 Pension Types
Ugwu28 stated that there are four types of pensions:
a. Retiring Pension: This type of pension is usually granted to a worker who is
permitted to retire after completing a fixed period of quality service usually 30 to 35
years or on attaining the age of 60 to 65 years for the public service in Nigeria and 70
years of age for professors and judges.
b. Compensatory Pension: This type of pension is granted to a worker whose
permanent post is abolished and government is unable to provide him with suitable
alternative employment.
c. Superannuating Pension: This type of pension plan is given to a worker who
retires at the prescribed age limit as stated in the condition of service.
d. Compassionate Allowance: This happens when a pension scheme is not
admissible or allowed on account of a public servants removal from service for
misconduct, insolvency or incompetence or inefficiency.
28
D.S. Ugwu, ‘Contributory Pension: A New Approach to Financing Pension Scheme in Nigeria’
(2006). A Paper Presented at a Seminar Organized by Mokasha as cited in B.A. Amujiri, ‘The New
Contributory Pension Scheme in Nigeria: A Critical Assessment’ [2004] (14) (1) NJPALG, 140.
By giving this typology, one tends towards concluding that the term ‘pension’ cannot
be defined with any definite clarity; much depends on the type which is being
referred to.
1.7.3 Pension Scheme
A Pension Scheme has been defined as the totality of plans, procedures and legal
processes of securing and setting aside funds to meet the social obligation of care
which employers owe their employees on retirement or in case of death and
disability29 and its purpose, according to Ugwoke and Onyeanu,30 is to provide
employees regular and stable income after their retirement from service. This is in
tandem with the opinion of Dhameji and Dhameji, 31 that pension gives the pensioner
the impression that there is life after retirement. Thus, Ugwoke and Onyeanu32
concluded that a pension scheme is an arrangement used by an employer or a group
of employers to provide pension (and sometimes other) benefits for their employees
when they leave or retire, or to their dependents if the employee dies before he can
claim his benefits. According to them, a good pension scheme does not only serve as
an incentive to employees but helps to attract and retain experienced staff. This
mirrors what has been previously said about the concept of pension itself, the only
difference being that pension scheme is the arrangement to provide for pension
benefit. However, if the idea that a pension scheme provides for some other benefit
than pension is redundant because pension has almost always been differentiated
from other forms of benefit like gratuity, it begs the question whether a pension
scheme is the general term for every plan to cater for the financial needs of the
retiree.
29
J.I. Ekele, ‘op. cit., 5.
30
R.O. Ugwoke and E.O. Onyeanu, ‘Determination of the Level of Acceptance and Compliance to the
New Pension Scheme in Nigeria’, [2013] (4) (1) Research Journal of Finance and Accounting, 8.
31
Dhameji and Dhameji, op. cit.
32
Ibid.
Onifade33 considered pension scheme as a pre-arranged and well thought out plan
which gives the beneficiaries the confidence that the benefits promised are being
properly arranged and will be paid at the appropriate time, and Chinwuba 34 viewed it
as a financial plan by which a worker’s benefit is provided whenever it falls due
according to the rules of the plan. Thus, a pension scheme is invariably a pension
plan.
Okotoni and Akeredolu35 in giving an overview of pension scheme in Nigeria posit
that two main benefits are available under the Nigerian public service pension
scheme namely, pension (life annuity) and gratuity (lump sum). This gives effect to
the distinction between pension and gratuity already addressed above. They state
further that a pension scheme is funded through two major sources, either by
contribution from both the employer and the employees (contributory) or by full and
total contribution by the employer (non-contributory). Following this, Odia and
Okoye36 make a division of pension scheme into defined contribution plan and
defined benefits plan. According to them, these two are equivalent to an investment
plan for an employee and the retirement benefit is variable depending on the
performance of the investment selected. Basically, the two pension plans create very
different investment problems for the plan sponsors. While the defined benefit plan
creates a liability pattern that must be anticipated and funded, the defined
contribution plan creates a liability only as long as there is investment at any point in
time.37
33
O.S. Onifade, ‘An Examination of the Nigerian Public Service Pension System’ 2001
www.cii.co.uk/documents/qualifications/fcii_eample1.pdf accessed 9 January 2018.
34
E. Chinwuba, ‘Legal and Regulatory Framework for Pension Schemes in Nigeria’ (2003) Being a
Paper Presented at the all Nigeria Stakeholders Summit
www.iiste.org/Journals/index.php/RJFA/article/viewFile/4005/4166 accessed on 9 January 2018.
35
O. Okotoni and A. Akeredolu, ‘Management of Pension Scheme in the Public Sector in Nigeria’
[2005] (16) (2) AJPAM, 81.
36
J.O. Odia and A.E. Okoye, ‘Pension Reforms in Nigeria: A Comparison between the Old the New
Scheme’ [2012] (3) (3.1) Afro Asian Journal of Social Sciences, 4.
37
Ibid 5.
1.7.4 Problems and Reform of Pension in Nigeria
As noted by Eme, Uche and Uche,38 the main feature of the pre-2004 pension
schemes was that civil servants bore no direct responsibility, by way of payroll tax,
for the provision of pension. Instead, pension benefits were paid through budgetary
allocations to be kept in the Consolidated Revenue Fund which resulted in payment
of a meagre sum as pension. Thus, in most cases, the amount released usually fell
short of the actual appropriation for pension payment.
Aigbepue and Ojeifo39 noted that the hitherto payment of pension in Nigeria was a
big challenge to the government of Niger due to a myriad of reasons which included
unfunded and inadequate budget allocation for pension in the public sector,
determination of overall government’s liability for budgeting and planning purposes,
huge outstanding pension liabilities, and so on.
According to them, pension administration in Nigeria was problematic also because
pension scheme was not mandatory in the private sector, although some employers
had pension schemes that were designated to cater for retirees which were mostly the
product of collective agreement between management and the union. There was also
the pay-as-you-go (PAYG) system which was operational in the public sector. The
system was bedevilled with many unwholesome practices ranging from fraudulent
diversion of pensioners’ entitlements to outright non-payment of pension to retirees.
According to Ayegba, James and Odoh40 the previous pension schemes before the
2004 Act fall within the defined benefit scheme, possessing, among others, the
following features:
i. Uncoordinated administration.
38
39
S. Aigbepue and S.A. Ojeifo, ‘Transparency and accountability in the Nigerian Pension Funds
Management’ [2014] (3) (6) International Journal of Business and Management Invention, 52.
40
O. Ayegba et al., op. cit., 99.
ii. Inadequate funding.
iii. Outright fraud irregularities.
iv. Diversion of allocated funds.
v. Pension of ineligible pensioners on the pension payroll.
vi. Inability to effectively implement budgets and make adequate provisions.
Thus, it is Aigbepue’s and Ojeifo’s positions that it was these sad developments
coupled with the revolutionary changes in the management of pension schemes
blowing across the globe that informed the Nigerian government’s decision to
introduce the pension reforms. The first innovation which the Pension Reform Act
2004 brought was the establishment of a National Pension Commission (PenCom)
charged with the responsibility of ensuring the effective regulation and
administration of pension matters in Nigeria. Therefore, Eme, Uche and Uche 41
opined that prior to the enactment of the Act and the subsequent formation of the
PenCom, pension schemes in the polity had been bedevilled by problems and
challenges of underfunding and vulnerable budgetary allocation.
The Act also established the contributory pension scheme (CPS). One of the benefits
of the CPS, Babatunde42 says, is that participants are allowed to open individual
retirement savings account where contributions are accumulated till retirement. The
scheme also permits members to make voluntary contributions as an additional
percentage of their salaries into their individual capitalised account.
The Pension Reform Act 2014 continued the establishment of a contributory pension
scheme for the payment of retirement benefit of employees to everyone the scheme
applies to.43 One major reform occasioned by the extant pension legislation in
41
42
M.A. Babatunde, ‘Impact of Contributory Pension Scheme on Workers’ Savings in Nigeria’ [2012]
(7) (3) Medwell Journal, 464.
43
PRA 2014, s 3(1).
Nigeria is the establishment of a pension trust. In his article dedicated to appraising
the concept of trust introduced in the Pension Reform Act 2014, Nuel44 defined
pension trust as the type of trust through which pension funds are vested in a trustee
or trustees for the benefit of an employer under a pension scheme. He adequately
addressed the concept of trust in itself and identified the trust provision in the new
Act. In his opinion, the coming into force of the Pension Reform Act 2004 which
introduced the contributory pension scheme for both the private and the public sector
in Nigeria very well prepared the ground for the application of trust to protect the
pensioner and an unshaken foundation for trust principles was laid.45
The Act largely built on its predecessor. For instance, the PenCom is empowered,
subject to the fiat of the Attorney-General of the Federation, to institute criminal
proceedings against employers who persistently fail to deduct and/or remit pension
contributions of their employees within the stipulated time. This was not provided for
in the 2004 Act.46
1.7.5 Pension Administration and Political Control
It is in the opinion of Abdulazeez 47 that political control of the public sector pension
was one of the constraints of the old pension system in Nigeria. According to her,
social security pensions provided on the basis of PAYG are subject to political risks
of three forms. The first relates to the tendency of politicians, eager to capture the
votes of electorates, to offer fabulous pension increases that they are either not going
to pay or which may fall on some other regime than theirs. Eme, Uche and Uche
expressed their agreement with this position by noting that another issue associated
with the past pension schemes was that the schemes suffered because politicians,
44
O. Nuel, op. cit., 5.
45
Ibid.
46
47
N. Abdulazeez, ‘Pension Scheme in Nigeria: History, Problems and Prospects’ [2014] (5) (2)
AJBMR, 3.
eager to capture the votes of the electorates, were in the habit of offering fabulous
pension increases that they either knew they were not going to pay or which may fall
on regimes other than theirs.48 The second refers to the fact that the pension account
may not be capable of being distanced from political control, thus falling ‘prey’ to
politicians who dip hands into the pension funds to cushion up temporary fiscal
shock. The third relates to the socio-political indifference to the plight of pensioners
by politicians. Muller49 identifies five variables likely to trigger reform – dynamic
political leadership, the role of international financial institutions, pension system
crisis, intelligent reform strategy design, and the respective power or powerlessness
of reform advocates and opponents. Of all these variables, Muller finds the role of
political leadership to be critical in a four case study of the countries, Argentina,
Bolivia, Hungary and Poland conducted by her. She finds that paradigmatic reform is
often triggered by new actors involved in the process. Abdulazeez 50 says this factor
identified by Muller is relevant in analysing the pension reform process in Nigeria.
For example, many of the economic reforms, including pension reform, could not be
carried out under the military regime; they could only be realised under a civilian
democratic regime. In other words, it appears that an active combination of both
players in the pension industry and the type of political system tends to influence the
feasibility of changes in the social policy under which the pension reform is
achieved.
1.7.6 Gap in Literature
Not much has been articulated by many of the writers, whose literatures have been
reviewed above on diverse areas of pension administration in Nigeria, on the corrupt
48
49
K. Muller, ‘The Making of Pension Privatisation in Latin America and Eastern Europe’ in
Holzmann, R.M. Orenstein and M. Rutkowski (eds), Pension Reforming Europe: Process and
Progress (Washington Dc: The World Bank 2003).
50
N. Abdulazeez, op. cit., 4.
practices that plague the pension industry from time immemorial till date. While
some like Odia and Okoye51 and Abdulazeez above, in addressing the attendant
problems and challenges of pension administration prior to the coming into force of
the Pension Reform Act 2004, make mention of the fact that there were corrupt
practices in the industry, not many have dedicated studies to fully addressing the
issue.
1.8 Chapters Outline
The study comprises of five chapters.
Chapter one: This is an overview of the entire study, introducing the reader to the
subject matter by identifying the specific problem sought to be tackled. The
significance of this study, its scope, aim and objectives, as well as the contributions
sought to be made to the body of legal knowledge will be succinctly elucidated in
this chapter. More importantly, a review of the contributions of scholars and jurists in
journal articles and law reports on the subject matter is conducted herein.
Chapter two: This chapter simply addresses the advent and evolution of pension in
Nigeria. The operation of pension in the pre-colonial era, its operation post-
colonialism, and the legislations enacted on the subject matter leading up to the
adoption of a more sophisticated method of pension administration will be detailed in
this chapter.
Chapter three: Here, specific focus is placed on the Pension Reform Act 2004 and the
Pension Reform Act 2014 in order to address the reforms occasioned by them. A
brief comparative analysis will also be carried out on the administration of pension
between Nigeria and Chile and Nigeria and Sweden.
Chapter four: This chapter is dedicated to addressing the prevalent problems that
have plagued the administration of pension in Nigeria. The prospects of the extant
51
J.O. Odia and A.E. Okoye, op. cit., 5.
scheme will also be discussed with a view to identifying the benefits its presents.
Also, as a prospect of pension administration in Nigeria, the position of state
government in the pension industry will also be briefly discussed.
Chapter five: Here, the writer makes a summary of the findings as presented in the
preceding chapters, concludes on all matters and issues and, consequently, offers
workable recommendations to be implemented by the concerned body or bodies.
CHAPTER TWO
THE TRAJECTORIES OF THE LEGAL REGIME OF PENSION
2.1 Colonial Pension Administration
It is pertinent to note that Nigeria had no pension system in operation prior to the
British colonial administration. Indeed, the country being a former colony of Britain
received a pension tradition into her public sector that is entirely modelled after the
British structure.52 Thus Uzoma53 noted that the Nigerian civil service was a
brainchild of the colonial administration and the colonial office handed over to
Nigeria what may be called a ‘model pension legislation’. Nigeria’s pension
administration commenced in 1951, when the colonial British administration
established a scheme providing public servants with both pension and gratuity,
52
F. Ihyongo, ‘History and Development of Pension Scheme in Nigeria’ The Nation (Lagos, 5 May
2014) http://thenationonlineng.net/historical-development-pension-scheme-nigeria/ accessed 11
January 2018.
53
P. Uzoma, Pension Schemes in Nigeria (Gentle Press Ltd. And Kubay Associates Ltd. 1993), 231.
through an instrument called Pension Ordinance, being the first legislative document
on pension in Nigeria. 54
The provisions of the Ordinance allowed the Governor-General to grant pensions and
gratuities in accordance with the regulations, which were reviewed from time to time
with the approval of the Secretary of State for Colonial Affairs in the United
Kingdom government.55 The Ordinance had a retroactive effect from January 1,
1946 and initially applied only to the United Kingdom officials deployed and
redeployed to the vast British Empire with vesting period fixed at 10 years of
service.56 The essence was to facilitate continuity of service wherever these officials
were deployed to serve the colonial administration. 57 When the law eventually
became applicable to Nigerians, the application was at the discretion of the
Governor-General. Thus, though pensions and gratuities were provided for in the
legislation, they were not a right for Nigerians as they could be reduced or withheld
altogether if it was established, to the satisfaction of the Governor-General, that the
officer was found guilty of negligence, irregularity or misconduct. 58 Similarly, staff
of government corporations and parastatals, including the Nigerian Railway
Corporation, National Electricity Commission (later renamed Power Holding
Company of Nigeria), and the Nigerian Ports Authority, were allowed to enjoy
pension schemes and other similar benefits as the core public service schemes
established under the 1951, Ordinance but differing on funding modalities. These
other schemes would, however, first be approved by the Joint Tax Board.59 Thus, the
54
M.K. Ahmad, ‘The Contributory Pension Scheme: Institutional and Legal Frameworks’ [2006] (30)
(2) CBN Bullion, 1.
55
56
Ibid.
57
O. Okotoni and A. Akeredolu, op. cit., 82.
58
G. Barrow, Pension Reform in Nigeria (Abuja Pen and Pages Ltd. 2008); S.I. Akhiojemi, ‘Pension
Reform: Pension Fund Administration in Nigeria’ [2007] (8) (1) Journal of Professional
Administration, 24 http://cia.org.ng/files/articles/PENSION-REFORMS.pdf accessed on 11 January
2018.
59
commencement of pension scheme for native public servants (or Native
Administration servants or staff as they were then called) as well as the British
officials deployed to Nigeria dates back to 1946 when the colonial government in
Nigeria, through the Chief Secretary to the Government, announced a superannuating
(pension) scheme for staff employed by the Government by Public Notice No. 4,
1946.60 The appropriate legal document that established the scheme being the
Pension Ordinance 1951.
In the private service, however, there was no established pension scheme. The first
private sector pension scheme is reckoned to have been set up for the employees of
the Nigerian Breweries in 1954, which was followed by United African Company
(UAC) in 1957.61 These private sector schemes were characterized by very low
compliance ratio due to lack of effective regulation and supervision of the system.62
2.2 Post-Independence Pension Administration
The colonial pension structure that Nigeria inherited was maintained in the
indigenous public service owing to the fact that the country was struggling with
political instability that characterized the first republic. 63 The January 15, 1966 coup
d’état, the counter coup of July 29, 1966, and the Nigeria/Biafra civil war, which
lasted from 1967 till 1970, were said to have worsened and elongated the plight of
the Nigerian worker with respect to pension and gratuity payment. 64 This assertion is
reasonable in light of the imminent and unavoidable disruptions that accompanied
change of government and, of course, war.
60
Ibid.
61
O.I. Eme et al., op. cit., 156-157.
62
T.M. Fapohunda, ‘The Pension System and Retirement Planning in Nigeria’ (4) (2) [2013]
Mediterranean Journal of Social Sciences, 28.
63
E.J. Nwagwu, ‘An Appraisal of the New Contributory Pension Scheme Administration in Federal
Universities in South-Eastern Nigeria, 2004-2011’ (Unpublished M.Sc. Thesis, University of Nigeria,
Nsukka, 2013) 64.
64
Ibid.
In 1997, parastatals were allowed to have individual pension arrangements for their
staff and appoint Boards of Trustees (BOT) to administer their pension plans as
specified in the Standard Trust Deed and Rules prepared by the Office of Head of
Service of the Federation.65 Each BOT was free to decide on whether to maintain an
insured scheme or self-administered arrangement. 66 Therefore, two notable schemes
were identified during this period which were the self-administered scheme and the
insured scheme. The self-administered scheme is administered on behalf of the staff
by the trustees, in line with the Trust Deed and Rules. The administrators collect the
contributions and invest such contributions through external or in-house fund
managers. For the insured scheme, the administration of the pension is transferred to
a life insurance company who collects the premium and invests the premium and on
retirement, pays the retirees pensions. 67 The most common form of this scheme is the
deposit administration which allows the insurance company involved to invest
accumulated pension fund contributions with subsequent interest. It is through the
use of the insured scheme or the use of pension fund managers that the private sector
managed its schemes effectively before 2004.68
There were three regulators in the pension industry prior to the enactment of the
Pension Reform Act 2004, namely Securities and Exchange Commission (SEC)
which was saddled with licensing pension managers, National Insurance
Commission (NAICOM) which was responsible for licensing and regulating
insurance companies in the country, and the Joint Tax Board (JTB) which approved
and monitored all private pension schemes with enabling powers from Schedule 3 of
the Personal Income Tax Decree 104 of 1993.69

65
66
M.K. Ahmad, op. cit., 12.
67
T.M. Fapohunda, op. cit., 27.
68
Ibid.
69
N.E. Bassey et al., ‘An Overview of the Nigerian Pension Scheme from 1951-2004’ [2008] (7) (1)
& (2) Global Journal of Humanities, 23.
2.2.1 The National Provident Fund (NPF) Scheme
The history of regulated private sector pension scheme in Nigeria began in 1961 with
the establishment of the NPF scheme. The Fund was established by an Act of
Parliament in 1961 to provide income loss protection for employees as required by
the International Labour Organisation (ILO) Social Security (Minimum Standards)
Convention 102 of 1952.70 The scheme covered only employees in the private sector,
and the monthly contribution was 6% of basic salary, subject to a maximum of N8.00
to be contributed in equal proportion of N4.00 each by the employer and the
employee. 71
The shortcomings of this scheme necessitated the establishment of
another scheme in 1993.
2.2.2 The Nigerian Social Insurance Trust Fund (NSITF) Scheme
In 1993 the NPF scheme was converted to a limited social insurance scheme,
administered by the Nigeria Social Insurance Trust Fund (NSITF) by Decree No. 73
of 1993 effective from 1st July, 1994.72 It was also established in response to the
requirement of the International Labour Organisation Convention 1952 which
mandated member countries to establish a social security programme for its
members. The NSITF was a defined benefits scheme that covered employees in the
private sector working for organizations with a workforce of not less than 5
employees.73 The initial monthly contribution of members was 7.5% of basic salary,
which was shared in the proportion of 2.5% by the employee, and 5% by the
employer.74 This was later revised in 2000 to 10% of gross salary (comprising basic
70
71
Ibid, 27.
72
N. Abdulazeez, op. cit., 3; O. Ayegba et al., op. cit., 98.
73
T.M Fapohunda, op. cit., 27.
74
N.E. Bassey et al., op. cit., 25.
salary, transport and housing allowances) shared in proportion of 3.5% by the
employee and 6.5% by the employers.75
The scheme was plagued with numerous problems. For one, it suffered poor public
perception, because it was viewed as an off-shoot of the defunct NPF, which had a
very serious reputation problem.76 Underfunding of the scheme was another major
set-back, because the bulk of the contribution (6.5%) solely rested on the employer
who failed to remit their quota, while deductions were being made from employees’
monthly emolument without remitting same to National Social Insurance Trust Fund
scheme.77 This abuse was possible because there was no higher regulatory agency to
supervise the implementation and regulate the overall administration of the fund.
2.2.3 The Pay-As-You-Go (PAYG) Pension Scheme
Prior to 2004 the pension scheme in operation was the Defined Benefit or Pay-as-
You-Go (PAYG). The government funded the public sector scheme hundred percent
and it was a non-contributory pension scheme. Chilekezi 78 observes that the pension
payment was done through budgetary allocations for each fiscal year. Being a non-
contributory scheme, the employee did not bear any burden to contribute to the fund
and this was considered as a merit of the scheme. The pension obligations were
effectively the debt obligation of the employer, which assumes the risk of insufficient
funds to satisfy the contractual obligations to retired employees.79 Also, it involved
periodic pension increases with salaries.80 That is, as the salaries of the employees
75
Ibid.
76
E.J. Nwagwu, op. cit., 74-75.
77
Ibid.
78
B. Chilekezi, ‘Outline of the Reformed Pension scheme in Nigeria’ at Lagos International Training
and Educational Services (2005) as cited in T.M. Fapohunda, op. cit., 27.
79
R. Onuoha & R. Obodoechina, ‘Towards a World-Class Pension Scheme in Nigeria’, Vanguard
(Abuja, 27 June 2012) https://www.vanguardngr.com/2012/06/towards-a-world-class-pension-
scheme-in-nigeria/ accessed 22 January 2018.
80
Ibid.
increased, the monthly pensions also increased. It was also less expensive to
administer since administrative costs began from retirement.81
Therefore, the public sector, prior to 2004 Pension Reform Act, operated Defined
Benefit (DB) pension scheme, which was unfunded and non-contributory with the
PAYG scheme being mandatory to the public sector but optional in the private
sector. It was revised under the Pension Act of 1990 in which pension or gratuity
granted to retirees was on the basis of fiscal pay and the sums were made chargeable
to the Consolidated Revenue Fund of the Federation.82 Government taxed active
workers to pay for the benefits of retired workers, which meant that the retirees may
or may not receive their benefits depending on whether or not their employer has
sufficient cash resources to make payments at that time.83
2.3 Legal Regime on Pension Administration in Nigeria
Other appropriate public sector pension legislations, together with relevant circulars
have since followed after the 1951 Ordinance and since independence in 1960,
several laws that revised the first legislation have come into force.
2.3.1 The Pension Decree Nos. 102 and 103 0f 1979
Notably, in 1979 a new law on pension came into being and it repealed all pre-
existing legislations on the subject matter. 84 It consolidated all enactments on
pensions and incorporated pension and gratuities seals devised for public officers by
the Udoji Public Service Review Commission in 1974. 85 Established to take care of
civil servants and the armed forces, the Pensions Decree Nos. 102 and 103 of 1979
(later Act), had a retroactive effect from April 1, 1974. Particularly, armed forces
81
82
A. Adegbayi, ‘Pension Industry Development in Nigeria: The Thrust of the Pension
Reform Act 2004’ http://www.leadway.com/pensiondev.pdf accessed 22 January 2018.
83
O.A. Orifowomo, ‘A Critical Appraisal of Pension System Reforms in Nigeria’
http://www.gonzagajil.org accessed 22 January 2018.
84
P. Uzoma, op. cit., 235.
85
O. Okotoni and A. Akeredolu, op. cit., 82
pension scheme was created through Decree No. 103 of 1979 and the law was later
replaced by the Pension Act of 1990.86 Section 1(1) of the Act stipulates thus:
Subject to this Act, any pension or gratuity granted
hereunder to any person on his retirement from public
service of the Federation shall be computed on the final pay
of the person entitled thereto and in accordance with the
provisions of the first schedule of this Act.
Thus, under this new law, the employer (mostly the government) bore hundred
percent (100%) pension liability for the payment of retirement benefits (gratuity and
pension).87 The implication of this was that no employee in the public service and the
armed forces was required to contribute funds towards payment of his or her
retirement benefits.88 Invariably, the 1979 Act provided for a defined pension
benefits (PAYG) system, whereby government had to make adequate budgetary
provision each fiscal year to sustain the payment of pension benefits scheme and to
pay retirees their gratuities and pensions as and when due.89
Commenting on the provisions of the Decree No. 102 of 1979, Uzoma 90 notes that in
the special case of the public scheme, the office of Establishment and Pensions acts
as the trustee and constitutes the rules of the scheme and that the scheme was for all
public servants except those who were on temporary or contract employment. The
compulsory retirement age for such workers was 60 years for both male and female
workers, except for High Court Judges which was 65 years and 70 years for Justices
86
Cap. 346 Laws of the Federation of Nigeria 1990.
87
E.J. Nwagwu, op. cit., 65.
88
89
D.S. Abdulkadir, ‘Impact of New Pension Reform Act 2004 on the Nigerian Business Environment’
[2006] (4) (1) & (2) International Journal of Social and Policy Issues, 101.
90
of the Court of Appeal and the Supreme Court. However, the earliest retirement age
was put at 45 years provided the worker had put in 15 years of service or more.91
2.3.2 Other Legislations on Pension Administration
A second phase of the reform of pension administration in Nigeria considered the
Nigerian Police Force, judges and other government agencies.92 There was the
Pensions Rights of Judges Decree No. 5 of 1985 with effect from January 1, 1985
and as amended by the Amendment Decree Nos. 51 of 1988, 29 and 62 of 1991. 93
The police and other government agencies’ pension scheme was enacted under the
Pension Act No. 75 of 1987.94 There was also the Local Government Pension Edict
which culminated into the establishment of the Local Government Staff Pension
Board in 1987.95 Another landmark development in the history of the Nigerian
Pension System was the Police and other Agencies Pension Scheme Decree No. 75
of 1993 which took retroactive effect from 1990.96 At this time all governmental
parastatals and agencies directly funded by the treasury had a unified pension scheme
that was virtually managed by insurance companies many of which were unable to
honour their pension obligations.97 In 1993, Decree No. 73 of 1993, with effect from
July 1, 1994, was enacted to set up the National Social Insurance Trust Fund
(NSITF) scheme to replace the defunct NPF scheme.98 Thus, some of the enabling
legislations enacted to establish pension schemes in Nigeria before 2004 include:
a. Military Pension Act Cap (Chapter or No.) 119.
b. Pensions Act Cap (Chapter or No) 147.
91
Ibid.
92
O. Okotoni and A. Akeredolu, op. cit., 82.
93
Ibid.
94
E. Adejoh, ‘An Assessment of the Impact of Contributory Pension Scheme to Nigerian Economic
Development’ [2013] (13) (2) Global Journal of Management and Business Research, 50.
95
Ibid.
96
97
Ibid.
98
A. Balogun, ‘Understanding the New Pension Reform Act 2004’ [2006] (30) (2) CBN Bullion, 17.
c. War Pension Act Cap (chapter or No) 212.
d. Pension (Special Pensions) Act 1961 (Chapter or No) 15.
e. Widows and orphans pension Act Cap 220.
f. Pensions (Statutory Corporation Service) Act 1961 No. 61.
g. Pension (Transferred Services) Act 1965 No. 28.
h. Special Constables Decree 1966 No. 7.
i. Police Pension Decree 1966 No. 60.
j. Pensions (Federal Fire Service etc.) Decree 1966 No. 74.
k. Pensions gratuities (war service) Decree 1966 No. 49.
l. Transferred offices and pension liability 1971 No. 8.
m. The Public Services the Recommendation Review 1974.
n. The Armed Forces Pension Act No. 103 of 1974.
o. Military Pensions (Amendments) Decree 1975 No. 13.
p. The Pensions Act of 1979 Decree No. 102.
q. The Pension Rights Judges Act No. 5 of 1985.
r. The Amendment Act No. 51 of 1988, 29 of 1991 and 62 of 1991.99
These Decrees, together with the several government circulars and regulations issued
to alter their provisions and implementations, remained the operative laws on public
servants, military and private sector pensions in Nigeria until June 2004. In all there
have been about eight registered pension schemes in the country before 2004 which
were largely unfunded, self-administered and uninsured.100
2.4 The Nigerian Pension Industry Timeline
The foregoing can be said to describe the timeline of events in the pension industry
in Nigeria. Thus, in a publication by PricewaterhouseCoopers (PwC) on the Nigerian
99
100
Pension Industry,101 a diagrammatic representation titled “The Nigerian Pension
Industry Timelines” was made giving a highlight of the landmarks in the industry
thus:
1951 – Pension Ordinance with retroactive effect from January 1946.
1954 – First private sector pension scheme set up by Nigerian Breweries.
1961 – National Provident Fund (NPF) set up for non-pensionable private sector
employees.
1979 – The Basic Pension Decree 102 establishing the Civil Service Pension
Scheme.
1990 – Pensions Act 1990 as amended by the Pensions Regulations 1991.
1993 – Establishment of the Nigeria Social Insurance Trust Fund (NSITF) to replace
the NPF scheme.
2004 – The Pension Reform Act 2004.
National pension deficit of about N2.3trillion.
Establishment of the National Pension Commission to regulate, supervise and ensure
the effective administration of pension matters in Nigeria.
Establishment of Trust Fund Pension Plc. by NSITF as a Pension Fund Administrator
(PFA) and to manage the accumulated funds of current NSITF contributors.
2012 – Pension fund assets of N2.9trillion.
2013 – Pension Commission (PenCom) registers 5.92million contributors and
generated N3.82trillion investible fund assets.
2014 – A joint public hearing on the bill for an Act to repeal the PRA 2004 and enact
the PRA 2014.
The Pension Reform Act 2014.
101
The Nigerian Pension Industry: Securing the Future https://www.pwc.com/ng/en/publications/the-
nigerian-pension-industry-securing-the-future accessed 22 January 2018.
CHAPTER THREE
CURRENT LEGAL FRAMEWORK FOR PENSION ADMINISTRATION IN
NIGERIA IN COMPARISON WITH SELECTED JURISDICTIONS
3.1 The Pension Reform Act 2004 (PRA 2004)
Until year 2004, Nigeria operated a defined benefit pension scheme, particularly in
the public sector, which was largely unfunded and non-contributory. The system was
characterized as a pay-as-you-go (PAYG) scheme since retirees were to be supported
not by any previous contributions but by annual budgetary provisions funded by the
employer.102 Since it was largely unfunded, it has been said that the defined benefit
system was fraught with unsustainability due to lack of adequate and timely
budgetary provisions, which led to massive accumulation of pension deb.103 In
response to this adverse effect, the Federal Government took measures aimed at
reversing the situation in order to achieve a higher degree of accomplishment in
102
I.P. Onyeonoru et al., ‘Social Policy and the Retrenchment of the Welfare State in Nigeria: The Old
and New Pension Schemes and Lessons from the Nordic Model’ [2013] (3) Journal of Developing
Country Studies, 33.
103
C.S. Ebere, ‘Pension Reforms in Nigeria’ https://www.researchgate.net/publication/305197828
accessed 9 January 2018; O.I. Eme et al., op. cit., 160.
pension matters.104 Therefore, In September 2001 the Presidency, through the Office
of the Head of the Civil Service of the Federation, organized a workshop for top
public servants and other stakeholders in pension matters in the country titled
‘Pension Reforms: A New Approach to Pension Regime in Nigeria.’ 105 In a
document called ‘Blue Print on the Contributory Pension Scheme’ being the
summary of the proceedings of the workshop, the participants made
recommendations to the effect that the laws on pension and gratuity hitherto in
operation in the country should be harmonized to establish a unified pension scheme
for both the public and private sectors of the civil service which will be administered
by a single governing authority and also be able to withstand economic depression.106
The Pension Reform Bill, was, therefore, submitted to the National Assembly in
September 2003, seeking to repeal all existing pension schemes and replace them
with a contributory and privately managed scheme.107 The Senate on the March 23,
2004 passed the Bill and President Olusegun Obasanjo signed it into law on June 25,
2004. Thus, the Pension Reform Act 2004 was enacted on June 25, 2004 with effect
from July 1, 2004. It repealed the Pension Act 1990. 108 In both its objectives and
features, the Act has been said to have marked a turning point in Nigeria’s annals of
pension regime.109 The Act established a Contributory Pension Scheme (CPS) for any
employment in the Federal Republic of Nigeria to ensure payment of retirement
benefits of employees to whom the scheme applies. 110 Accordingly, the Act was
enacted to make the CPS apply to all employees of the public sector (who are in
104
Ibid.
105
S.I. Akhiojemi, op. cit., 25.
106
Ibid; Femi Aborisade, ‘Gratuity and Retirement Benefits and the Pension Reform Act
2004’http://femiaborisade.blogspot.com.ng/2012/10/gratuity-and-retirement-benefits-and.html
accessed 9 February 2018.
107
108
E. Adejoh, op. cit., 49.
109
C.S. Ebere, op. cit.
110
PRA 2004, Part I, s 1 (1).
employment), the Federal Capital Territory and the private sector (who are in
employment in an organisation in which there are five or more employees) of the
country.111 It is worthy of note that the Act did not eradicate the existence of all the
erstwhile private sector pension schemes that had been used before the
commencement of the Act. These schemes are required to submit to the
Commission, a statement of their affairs, including assets, liabilities, list of members,
current statements, in the case of contributory scheme, and pensionable salary in the
case of benefits scheme.112 Particularly, section 42 made it compulsory for all trust
fund asset under the Nigerian Social Insurance Trust Fund Scheme that was in
operation in the private sector to be transferred to a Pension Fund Administrator in
accordance with the overall provisions of the Act and such transfer should be
effected at least five years after the commencement of the Act. 113 This is a
requirement of transparency and to enable the Commission keep up with the
activities of the scheme in order to test their viability. However, such schemes will
remain operational only if the following conditions are met:114
a. The pension scheme be fully funded and, in case of any defined contribution
scheme, contributions in favour of each employee together with the attributable
income be computed and credited to a retirement savings account opened for the
employee.
b. The pension funds and assets be fully segregated from the funds and assets of
the company.
c. The pension funds and assets be held by a custodian.
111
Ibid, s 1 (2).
112
Ibid, s 39 (3).
113
Ibid, s 42 (3).
114
Ibid, s 39 (1).
d. Every employee in the existing scheme be free to exercise the option of
coming under the CPS established under section 1 and his employer shall compute
and credit to his account his contributions and distributable income earned as at the
date the employee exercises such an option subject to the regulations, rules and
standards established by the Commission.
e. Any amount computed under (d) above be transferred to the RSA of the
employee maintained with a pension fund administrator of his choice.
f. All investments in assets other than those specified as permissible investment
for pension funds and assets under section 73 of the Act may be maintained and from
the commencement of the Act all such investments be subject to the regulation, rules
and standards established by the Commission.
g. The employer undertakes to the Commission that the pension fund shall be
fully funded at all times and any shortfall to be made up within 90 days.
h. The employer demonstrates that it possesses managerial capacity for the
management of pension funds and assets for a period not less than 5 years before the
commencement of the Act.
It can, therefore, be concluded that the Act has two imports or consequences. The
first one is that, there is now one unifying law for both the public and private sector
pension administration and the other is that, the new law makes contribution towards
pension compulsory for both employer and employee. Consequently, Nigeria now
has a fully funded scheme in place whereby both the employer and the employee
make monetary contributions in specified percentages into the pension fund.
3.1.1 Contributory Pension Scheme (CPS)
With the coming into force of the Pension Reform Act 2004, a new pension scheme
came to replace the previous Defined Benefit Scheme. The new scheme, which is
called Contributory Pension Scheme, is a defined contribution scheme and as the
name suggests, it is contributory in nature, making it mandatory for employers and
employees, both in the public and private sectors, to contribute into the retirement
fund.115 The contribution to be made is 7.5% respectively of the emoluments of the
employee to be made into a Retirement Savings Account (RSA). 116 However, for the
military, the contribution rate is 2.5% from the personnel with the government
contributing 12.5%.117 But these contributions are subject to the approval of the
Commission.118 This rate of contribution is, however, not rigid for the employer may
elect or agree to bear the full burden of the scheme, provided the contribution is not
less than 15% of the employee’s monthly emolument. 119 Also, the employee is
allowed to make voluntary contributions to the account in addition to the total
contributions made by him and the employer.120 Furthermore, the rates of the
contribution may, upon agreement between the employer and employee, be revised
upwards, from time to time and such revision must be brought to the notice of the
Commission.121 The primary aim of the scheme, as has been stated earlier, was to
enable retirees meet the challenges of retirement which the previous schemes failed
to tackle and its objectives according to section 2 of PRA 2004 include:
a. Ensuring every person who has worked receives retirement benefit as and
when due (to reduce old age poverty).
b. Assisting improvident individuals by ensuring that they save towards old age
in order to cater for their livelihood during old age.
115
C.S. Ebere, op. cit.
116
PRA 2004, s 9 (1) (a) &(c).
117
Ibid, s (9) (1) (b).
118
Ibid, s 9 (1).
119
Ibid, s 9 (2).
120
Ibid, s 9 (5).
121
Ibid, s 9 (6).
c. Establishing a uniform set of rules, regulation and standards for the
administration and payments of retirement benefits.
Having already identified the categories of employees to whom the scheme applies to
under section 1 (1) of the Act, there are certain categories of persons who are
exempted from the operation of the scheme. First, any employee who at the
commencement of the Act was entitled to retirement benefits under any pension
scheme existing before the commencement of the Act, but has 3 or less years to retire
is exempted from the scheme.122 Second, the categories of persons mentioned under
section 291 of the Constitution of the Federal Republic of Nigeria 1999 are
exempted.123 Section 291 of the Constitution basically makes mention of judicial
officers appointed to the Supreme Court or Court of Appeal. Invariably, the scheme
does not apply to a judicial officer in the Supreme Court and Court of Appeal.
3.1.2 The National Pension Commission (NPC or PenCom)
One of the identifiable reasons for the failure of defined benefit scheme was lack of
strict and effective regulations. 124 To address the problem, the Act established a body
to serve as sole regulator and supervisor on all pension matters in the country. Thus,
to ensure the smooth functioning of the scheme and other provisions of the Act,
section 14 (1) established a body known as the National Pension Commission to
administer the scheme with the object of regulating, supervising and ensuring the
effective administration of pension matters in the country. 125 The Commission is the
management organ in the pension industry and so, it is saddled with responsibilities
which are aimed at fulfilling the objects of its establishment as well as those of the
scheme. Thus, its functions as enumerated in section 20 are as follows:
122
PRA 2004, s 8 (1).
123
Ibid, s 8 (2).
124
125
Ibid, s 15.
a. Regulating and supervising the CPS.
b. Issuing guidelines for the investment of pension funds.
c. Approving, licencing, regulating and supervising pension fund
administrators, custodians and other institutions relating to pension matters as the
Commission may, from time to time, determine.
d. Establishing standards, rules and guidelines for the management of the
pension funds.
e. Ensuring the maintenance of a National Data Bank on all pension matters.
f. Carrying out public awareness and education on the establishment and
management of the CPS.
g. Promoting capacity building and institutional strengthening of pension fund
administrators and custodians.
h. Receiving and investigating complaints of impropriety levelled against any
pension administrator, custodian or employer or any of their staff or agent. In this
regard, the Commission can sanction any operator, its agent or the compliance
officer for non-compliance with the provisions of the Act. Sanctions could either be
legal or administrative or both and could range from two hundred thousand naira to a
term of imprisonment not less than 3 years or to both such fine and imprisonment
depending on the gravity of the offence. 126 To this effect, all activities of the pension
fund operators and other agents must be transparent, to which effect they are required
by law to publish their audited accounts.127
i. Performing such other duties which, in the opinion of the Commission, are
necessary or expedient for the discharge of its functions.
126
Ibid, s 90; O. Ayegba et al., op. cit., 101.
127
Ibid, s 56.
Basically, the Commission stands as a watchdog, with the overriding objective of
ensuring that all pension matters are administered with minimum exposure to fraud
and risk and the guidelines issued by the Commission, require the use of approved
risk rating agencies to determine the viability of an investment instrument.128
3.1.3 Pension Fund Operators or Managers
The new scheme requires pension funds to be privately managed and held by Pension
Fund Administrators (PFAs) and Pension Fund Custodians (PFCs).
3.1.3.1 Pension Fund Administrators (PFAs)
Section 44 of the Act provides that pension funds shall only be managed by Pension
Fund Administrators as licensed by the Commission. PFAs are licensed to open
RSAs for employees; invest and manage the pension funds in a manner as the
Commission may from time to time prescribe; maintain books of accounts on all
transactions relating to the pension funds managed by it; provide regular information
to employees or beneficiaries; and calculate and pay retirement benefits to employees
in accordance with the provisions of the Act.129 Also, PFAs are chosen by the
employees themselves and the employee is required to notify his employer of his
choice and the identity of the pension fund administrator.130
3.1.3.2 Pension Fund Custodians (PFCs)
Pension funds and assets can only be held by a pension funds custodian duly licensed
by the Commission.131 What this means is that the PFCs are the ones responsible for
warehousing the pension fund assets as the PFAs are not allowed to hold the pension
fund assets. The employer sends the contributions directly to the Custodian, who
128
O. Ayegba et al., op. cit., 100.
129
Ibid, s 45; A. Guga, ‘Good Governance: A Key Driver to Sustainable Development in Nigeria’
[2014] (2) (3) International Journal of Education and Research, 238.
130
Ibid, s 11(3)
131
Ibid, s 46.
notifies the PFA of the receipt of the contribution and the PFA subsequently credits
the retirement savings account of the employee.132 But the employee can have no
dealings with the PFC except through the PFA. 133 Specifically, the primary functions
of PFCs are to receive and hold the fund upon trust for contributors and
beneficiaries; settle investment transactions on behalf of the PFA; provide
independent reports to the PenCom on fund assets and undertake statistical analysis
on the investment and returns on behalf of the Commission and the PFA.134
3.1.3.3 Closed Pension Fund Administrators (CPFAs)
It has earlier been established that the Act allows for the continued operation of
previously existing private sector pension schemes provided certain conditions are
fulfilled. Pursuant to this, employers who wish to continue operating their schemes
are to apply to the Commission for a licence to become CPFAs to manage the funds,
on the proviso that it holds pension funds and assets of five hundred million naira
and it fulfils other requirements of a Pension Fund Administrator under section 50. 135
It may either do this directly or through a wholly owned subsidiary company. 136 The
CPFAs, it is said, are specifically established by companies with strong financial
standing to manage their pension funds, especially in cases where they wish to
continue operating schemes outside that specifically established by the Act.137
3.1.4 The Retirement Savings Account (RSA)
The employee opens an account to be known as a Retirement Savings Account in his
name with a pension fund administrator of his choice. 138 This individual account
belongs to the employee and will remain with him through life. He may change
132
Ibid, s 11 (6).
133
Ibid, s 11 (4).
134
Ibid, s 47.
135
Ibid, s 40 (1) and (2).
136
Ibid, s 40 (1).
137
138
Ibid, s11 (1).
employers or administrators (not more than once in a year 139) but the account remains
the same. An employer is under an obligation to deduct at source the monthly
contribution of the employee in his employment and to remit, within seven days of
payment of salaries, such amount constituting the employee’s contribution and the
employer’s to a custodian specified by the pension fund administrator of the
employee.140 If the employer fails to remit the contributions within the requisite time,
in addition to making the remittance, the employer shall be liable to a penalty which
shall not be less than 2% of the total contributions that remain unpaid for each month
or part of each month that the default continues. 141 Upon receipt of the contributions
remitted under subsection (5) (b) of this section, the custodian is required to notify
the pension fund administrator so as to enable him credit the retirement savings
account of the employer for whom the employer had made the payment. The
employee does not, however, have access to his retirement savings account until
retirement or attainment of the requisite age.142
3.2 Pension Reform Act 2014 (PRA 2014)
President Goodluck Jonathan, on July 1, 2014, signed the Pension Reform Act 2014
into law to repeal the Pension Reform Act 2004 and continue to govern and regulate
the administration of the uniform CPS for both public and private sectors in
Nigeria.143 The Act reproduces the 2004 Act but made some major amendments to it
and as such, it stands as the extant law on pension administration in the country. As
part of its continued efforts to share information to the public on the operation of the
CPS, ARM Pensions, which is one of the first seven PFAs granted a licence by the
Pension Commission in December 2005, gave a presentation highlighting some of
139
Ibid, s 11 (2).
140
Ibid, s 11(5)(a) & (b)
141
Ibid, s 11 (7).
142
Ibid, s 11 (4) and 3.
143
the innovations made by the PRA 2014.144 These innovations have also been
addressed by several writers.
This Pension Act expanded the coverage of the Scheme in the private sector. Now,
the scheme applies to employees who are in employment of an organisation in which
there are 15 or more employees.145 This does not, however, prevent employees of
organisations with less than 3 employees, as well as self-employed persons, from
participating in the scheme in accordance with guidelines issued by the
Commission.146 In addition, The PRA 2014 revised the rate of pension contribution,
from 7.5% contributed equally by the employer and employee under the 2004 Act, to
8% for the employee and 10% for the employer, bringing the minimum total
contributions for both parties to 18% as opposed to 15% previously.147 This will
provide additional benefits to workers retirement savings accounts and thereby
enhance their monthly pension benefits and retirement. 148 As contained in the 2004
legislation, an employer may choose to make the total mandatory contributions
without making deductions from the salary of the employee. But, under the 2014
Act, the total remittance for any employer who chooses to remit without recourse to
the employee must not be less than 20% of the monthly emolument of the
employee.149
According to a PricewaterhouseCoopers (PwC) publication in 2014, this provision
makes little sense given that the combined contribution by both parties is supposed to
be 18%.150 This will invariably discourage employers from taking full and complete
144
Key Highlights of the Pension Reform Act 2014 by ARM Pensions Digest 2014
https://www.proshareng.com/news/PENSIONS/Key-Highlights-of-the-Pension-Reform-Act-2014-/
24380 accessed 9 February 2018.
145
PRA 2014, s 2 (2).
146
Ibid, s 2 (3).
147
Ibid, s 4 (1).
148
149
PRA 2014, s 4 (4) (b).
150
‘Pension Reform Act 2014: The Good, The Bad and The Ugly’
https://www.pwc.com/ng/en/publications/pension-reform-act-the-good-the-bad-and-the-ugly accessed
responsibility of pension funds. The new Act creates another condition in which an
employee may be allowed to access his RSA and withdraw from it. Section 16 (2) (c)
provides that an employee, who disengages or is disengaged from employment
before the age of 50 years and is unable to secure employment within 4 months of
disengagement, is allowed to make withdrawals from the account not exceeding 25%
of the total amount credited into it. 151 Also, the 2014 Act empowers the PenCom,
subject to the fiat of the Attorney-General of the Federation, to institute criminal
proceedings against employers who persistently fail to deduct and/or remit pension
contributions of their employees within the stipulated time. 152 This was not provided
for by the 2004 Act.
Furthermore, operators who mismanage pension funds will be liable on conviction to
not less than 10 years imprisonment or fine of an amount equal to three times the
amount so misappropriated or diverted or both imprisonment and fine, 153 as well as
forfeiture to the government of any property, asset or fund with accrued interest or
the proceeds of any unlawful activity under the Act in his possession, custody or
control.154 In addition, with specific reference to the PFCs, the Act imposes a penalty
of at least ten million naira upon conviction, where the PFC fails to hold the funds to
the exclusive preserve of the PFA and the PenCom or where it applies the funds to
meet its own financial obligations, and in the case of a director, five million naira or
a term of 5 years or both.155 Section 82 creates a Pension Protection Fund (PPF) to
include an annual subvention of 1% of the total monthly wage bill payable to
employees in the public sector, an annual pension protection levy, the percentage of
which is to be determined by PenCom and income from investments of the PPF. The
22 January 2018.
151
PRA 2014, s 16 (2) (c) and s7.
152
Ibid, s 105 (2) (b); O.I. Eme et al., op. cit., 159.
153
Ibid, s 100 (1).
154
Ibid, s 100 (3).
155
Ibid, s 101.
objective of the Fund is to guarantee a minimum benefit to contributors in the event
of any shortfalls in the investment of pension funds and any other use PenCom may
determine from time to time.156
Notably, the requirement for the report of pension funds being managed by the
pension fund operator may raise a bit of controversy. While section 57 of the PRA
2004 makes the requirement for the annual report applicable to both the PFA and
PFC, section 67 of the PRA 2014 makes the requirement applicable to only the PFA.
One wonders whether the exemption of PFCs from making annual reports of funds
was an honest error on the part of the legislators or whether it was deliberate, since
both PFAs and PFCs have dealings with the pension funds and assets.
3.3 Pension Trust
Keeton offered a definition for the term ‘trust’, which definition was adopted by the
Court of Appeal in Iwo v University of Uyo,157 thus:
A relationship which arises whenever a person called the
trustee is compelled in equity to hold property, whether real
or personal, and whether by legal or equitable title, for the
benefit of some persons (of whom he may be one and who
are termed beneficiaries) or for some object permitted by
law, in such a way that the real benefit of the property
accrues, not to the trustee, but to the beneficiaries or other
objects of the trust.158
Another famous definition of trust was given by Underhill who defined a trust as an
equitable obligation binding a person (who is called a trustee) to deal with property
over which he has control (which is called the trust property) for the benefit of
156
Ibid, s82 (3).
157
[2011] 6 NWLR (Pt 125) 1.
158
G.W. Keeton, Law of Trusts, (11th edn, Sweet and Maxwell 1983) 2.
persons (who are called beneficiaries or cestui que trust) of whom he may be one,
and any one of whom may enforce the obligation. 159 Also, in the case of Gerhard
Huebner v Aeronautical Industrial Engineering and Project Management Co. Ltd.,160
the Supreme Court of Nigeria, per Galinje, J.S.C., in explaining the term made
reference to the definition proffered by the Black’s Law Dictionary161 as ‘the right
enforceable solely in equity to the beneficial enjoyment of property to which another
person holds the legal title.’ In clarifying the term, Lord Langdale’s judgment in
Knight v Knight162 is frequently referred to as setting out the proposition that the
validity of a trust rests on the presence of the ‘three certainties’: certainty of words,
certainty of subject or subject matter and certainty of object. 163 So where these are
not present, consequences arise. For uncertainty of words, the trust fails completely
and the trustee takes the property fully. If there is uncertainty of subject, that is if the
trust property cannot be ascertained with reasonable clarity, the trust fails completely
since there is no property to be bequeathed.164 Finally, where there is uncertainty of
object, that is, where the beneficiary is not certain, the trustee will hold on resulting
trust for the donor.165 For a trust to be validly created, therefore, certain property
must vest in a person, known as a trustee, who holds it for the benefit of another or,
in some cases, for his own benefit with clear words of delineation. The trustee’s title
to the property being legal and the beneficiary’s title being equitable.
The occupational pension scheme is usually deserving of particular attention because
it raises the joint question of law of employment contracts and the law of trusts and
159
R.O. Underhill, Law of Trusts and Trustees, (12th edn, Butterworth 1970), 3.
160
[2017] LPELR-42078 (SC) 9 & 10. http://www.lawpavilionpersonal.com/ipad/books/42078.pdf
161
B. Garner, Black’s Law Dictionary (7th edn, Thomas Reuters 1999) 1513.
162
[1840] 49 ER 58; [1840] 3 Beav 148.
163
H. Pettit, Equity and the Law of Trusts (12th edn, Oxford University Press 2012) 48.
164
J.O. Fabunmi, Equity and Trusts in Nigeria (2nd edn, Obafemi Awolowo University Press Ltd.
2006) 192.
165
Ibid.
property in relation to the treatment of pension fund property. 166 Thus, the aim of this
section is to consider he trusts law analysis of the role of settlor, trustee and
beneficiary in the pension funds structure. The ordinary private express trust revolves
around the triangle of settlor, trustee and beneficiary. While that structure is
replicated in the context of the pension trust, it takes subtly different form from the
ordinary private trust.167
3.3.1 Pension Trust under the PRA 2014
The scant attention given to the pension trust under the Act may be due to the unique
kind of pension trust created by the Act which is intricately different from the
traditional pension trust under the common law.168 Two provisions in the Act
expressly create a trust in favour of the employee and which leaves no scintilla of
doubt that a pension trust exists under the Act. First, section 57(c) of the PRA 2014 169
provides that ‘a Pension Fund Custodian shall hold pension funds and assets in safe
custody on trust for the employee and beneficiaries of the retirement savings
account.’ This trust provision is further reaffirmed by section 62(d)170 which states
thus:
An application for licence to act as a Pension Fund
Custodian shall not be approved by the Commission unless
such applicant undertakes to hold the pension fund assets to
the exclusive order of the Pension Fund Administrator on
trust for the respective employees as may be instructed by
the Pension Fund Administrator appointed by each
employee.
166
A. Hudson, Equity and Trusts, (2nd edn, Cavendish Publishing 2001) 699.
167
Ibid, 706.
168
169
PRA 2004, s 47(c).
170
Ibid, s52 (e).
Apart from these, the Guidelines for The Operations of Pension Fund Custodians
made by the National Pension Commission 171 states, in paragraph 4.01, that the PFC
shall open a trust account or accounts for the deposit of contributions with one or
more banks. This guideline mandates the PFC to open a trust account, which is
simply an account opened by a trustee for the benefit of the beneficiary (the
employee). This suggests that there is trust relationship created in favour of the
employee, so that the PFC is the trustee and the employee, the beneficiary. This can
be described as a statutory pension trust. The beneficiary to a pension trust has to
choose his PFA as provided by the Act under section 11 (1) as has already been
stated. In making his choice, he has to consider factors like the investment choices
the PFA offers, the number of changes in investment options it allows the beneficiary
to make in a year, its network of branch offices, its regular provision of investment
and retirement planning advisories, and its use of cutting-edge information and
communication technology.172 After the PFA has been chosen, the PFA shall then
choose a suitable trustee, the PFC. In the pension trust under the Act, it is, therefore,
submitted that the PFA is the settlor, being the person who creates the trust in favour
of the beneficiary while the PFC becomes a trustee by virtue of contract.173
While the Act does not stipulate the contents of the contract between the PFA and the
PFC, it, nevertheless, provides, and rightly so, that a PFA shall not keep any pension
fund or asset with a PFC in whom the PFA has any business interest, share or any
relationship whatsoever.174 This will avoid conflict of interest and also minimize
collusion between the PFA and PFC to defraud the beneficiary. But, The PenCom
171
National Pension Commission, ‘Guidelines for the Operations of Pension Fund Custodians’
https://www.pencom.gov.ng/category/regulations-codes/guidelines/guidelines-for-the-operations-of-
pension-fund-custodians/ accessed 6 February 2018.
172
F. O. Odulana, ‘How to Choose Your Pension Fund Administrator’
https://www.proshareng.com/articles/Pensions/ accessed 6 February 2018.
173
O. Nuel, op. cit., 7
174
PRA 2004, s77 (2).
guidelines provide some mandatory contents of the contract between the PFA and
PFC. The most relevant provisions here are paragraphs 8.4 and 8.4.1 of the
Guidelines for the Operations of Pension Fund Administrators, 175 which leads to the
conclusion that on the execution of the contract, the PFC, most certainly, becomes a
trustee of the pension assets. Paragraph 8.4 is the general introduction providing that
the following areas contained in paragraphs 8.4.1 to 8.4.12 should be included in any
contractual arrangement between a PFA and PFC. One of such areas is paragraph
8.4.1 which provides thus:
There must be a formal contract whereby a PFA appoints a
PFC to receive contributions and take title of property,
money or marketable securities in trust and to hold and
otherwise deal with such assets strictly in accordance with
instructions given by the PFA.
3.3.2 Distinction between the Conventional Trust and the Statutory Pension
Trust under PRA 2014
The trust created under the Act is sui generis. By this, it is meant that the Pension
Reform Act 2014 pension trust is of its own kind and differs from the conventional
common law pension trust on certain modalities. First, the classical pension trust is
based on the contract of employment and the terms of the trust deed.176 Under the
common law pension trust, the employer has a lot of discretion as regards the
operation of the trust. This much was articulated by the English Court when it was
observed, in Mettoy Pension Trustees Ltd v Evans,177 that the member’s rights have
contractual and commercial origins as they are derived from the contracts of
175
National Pension Commission ‘Guidelines for the Operations of Pension Fund Administrators’
https://www.pencom.gov.ng/category/regulations-codes/guidelines/guidelines-for-the-operations-of-
pension-fund-administrators/ accessed 6 February 2018.
176
177
[1991] 2 All ER 513.
employment of the members.178 In contradistinction, the statutory pension trust is
largely governed by statute, in this case, the Pension Reforms Act 2014. It is only
supplemented by general principles of trust and the custody contract between the
PFA and PFC as provided in the PenCom Guidelines for the Operation of Pension
Fund Administrators.
Secondly, it has been said that inherent in the pension trust under the Act is a
diminution of the traditional powers of a trustee.179 Under both the common law trust,
as well as the common law pension trust, the trustee has the discretionary power to
manage and invest the trust fund or pension fund.180 The trustees are entitled to
delegate their responsibilities and be free from liability provided that they have made
a reasonable selection of delegates and undertaken reasonable supervision of the
delegate.181 Under the Act, however, the duty of investment, administration or
management of the fund are vested exclusively in the PFA 182 while the PFC, who is
the trustee, only has the primary duty to have custody of the pension fund.183 Hence,
the role of the PFC has been described as passive, being a ‘bare’ trustees with the
PFA maintaining the most active role in the administration of the pension fund.184
But the duty of the PFA to invest the pension trust property (fund or asset) is not
completely detached from the duty of the ordinary trustee to invest the trust property.
Thus, the duty of investment of any trustee at all is largely governed by and is, in
fact, subject to the provisions of Trustee Investments Act185 which is an Act to
facilitate the investment of trust and other funds in Nigeria in locally issued securities
178
Ibid, 537.
179
180
A. Hudson, op. cit., 985.
181
Ibid.
182
183
PRA 2014, Part XII, ss 85 – 91.
184
L. Fashola, ‘Safe-keeping and Custody of Pension Assets’, ESQ Legal Practice Magazine (21 June
2013), 1 https://issuu.com/lerefashola/docs/esq_legal_practice_magazine_dec_201 accessed 12
February 2018.
185
Trustee Investment Act, Cap T22 Laws of the Federation of Nigeria 2004.
and for other related purposes.186 Particularly, section 2 of the Act makes a list of
securities which the Act applies to and section 3 (1) specifically states that a trustee
may invest in any of the securities specified in the preceding section. Therefore,
regardless of the discretionary power of trustees to invest the trust property, he is not
given a wide latitude in the matter so as to prevent bad investments which will lead
to a waste of the fund and asset. This is why the Trustee Investments Act is relevant
here.
Additionally, in the common law pension trust, the role of the pension fund trustee
can be played by anyone. This is illustrative of pre-2004 pension situation in Nigeria
where the employer had the full discretion with regard to the fund. This obviously
inexorably leads to a barrage of conflicts of interests which deepen the complexity of
pension trusts.187 The Pension Reform Act 2014 obviates such complexities by giving
the beneficiary of the scheme the latitude to choose their own PFA and mandating
PFAs to keep pension funds or assets with a Pension Fund Custodian, otherwise than
one in whom the Administrator has any business interest, share or any relationship
whatsoever.188 Wholly, the common law pension trust is reflective of a period in
Nigeria whereby pension matters and the administration of pension was totally under
the control of the employer in the private sector and in the public sector, a number of
different pieces of legislation applied. This solidifies the conclusion that the
enactment of the PRA 2004, with its amendment in 2014, was a welcome
development which has erased most of the arbitrariness prevalent in the pension
industry.
3.4 Alternative Pension Reform: The Chilean and Swedish Models

186
Ibid, preamble.
187
O. Nuel, op cit., 10.
188
PRA 2014, s 77 (2).
Nigeria, Chile and Sweden have all reformed their pension systems in order to
address the different challenges they face in delivering an efficient and sustainable
pension system. While the Swedish model has largely received widespread acclaim
as a model to be emulated and has indeed been copied by several countries such as
Latvia, Italy, Poland and Hungary, the Chilean model has been criticized for its
inherent dysfunction.189
3.4.1 The Chilean Pension System
Chile, in May 1981, replaced its government run pay-as-you-go (PAYG) retirement
scheme with a private system where workers fund their own retirements through
compulsory savings.190 This system is a fully funded and defined contribution (DC)
scheme that is mandatory for all workers, but those workers who were in the labour
force prior to January 1983 had the option of remaining in the old PAYG
government-run system or moving to the new system. 191 If they chose to remain in
the old system, they received their pension rights which was guaranteed under the
new law, if, on the other hand, they chose to move, they received their benefits from
government recognition bonds that acknowledged their contributions under the old
system.192 The recognition bond matures when the workers reaches retirement age,
dies, or becomes disabled. The private system scheme is administered and regulated
by an independent government agency, known as the Superintendencia de
Administradoras de Fondos de Pensiones (Superintendence of Pension Fund
Administrators).193
189
J. Selen and A.C. Stahlberg, ‘Why Sweden’s Pension Reform was able to be Successfully
Implemented’ [2007] (23) (4) European Journal of Political Economy, 1175.
190
I.M. Yusuf, ‘The Nigerian Swedish and Chilean Pension Systems: A Comparative Analysis of
Schemes and Reforms’ [2014] (23) (1) Ethiopian Journal of Economics, 43.
191
Ibid.
192
Ibid.
193
Ibid.
Under the scheme the pension funds are held by specialised private companies called
Administradoras de Fondos de Pensiones (AFPs) which are pension fund
administrators.194 Each month, workers deposit a minimum of 10% of their wages in
their individual pension savings accounts, managed by AFPs of their choice 195. But a
worker may contribute an additional 10% of his wages each month, which is also tax
deductible, as a form of voluntary savings. At the point of retirement, beneficiaries
are provided with three retirement options which are, a lifetime annuity, programmed
withdrawals (based on their life expectancy and those of their dependents) or a
temporary programmed withdrawal with a deferred lifetime annuity.196 In the Chilean
model, however, employers do not contribute directly to the employee’s retirement
savings account. But, at the onset of the reforms, employers had to increase
employees’ salaries to cover the pension contribution.197
The pension reform in Chile has been reported to have contributed significantly to
savings and economic growth of the country. For example, the private pension
system has been a major factor in increasing savings. Between 1984 and 1997, the
country’s economy grew at about 7% on average per year, investment and savings
increased and inflation was reduced from around 25% to below 10% range. 198 Ian
Vasquez noted this remarkable feat when he opined that over the course of 35 years,
private accounts have produced 8% annually as average real return and pension
savings have reached $168 billion, constituting about 70% of Gross Domestic
Product (GDP), which has stimulated high growth and domestic investment and has
put Chile on the verge of becoming a developed country.199

194
J.I. Ekele, op. cit., 31.
195
Ibid.
196
Ibid.
197
I.M. Yusuf, op. cit., 44.
198
Ibid.
199
I. Vasquez, ‘The Attack on Chile’s Private Pension System’
https://austrian.economicblogs.org/cato-liberty/2016/vasquez-chiles-pension/ accessed 28 February
2018.
However, several drawbacks of the Chilean model of pension reform have also been
identified, some of which include:
a. Volatility in the rates of return on investment funds. The investments of the
vast pension funds and assets made by the Administrators did not usually yield a
proportionate returns, which fall short of minimum standards imposed by the ILO
Conventions on social security and on old age, invalidity and survivor’s benefits.200
b. Low compliance.201 As is the situation with new enactments in most
countries, the level of compliance with the new system was very low due to little or
no awareness of the reforms.
c. High administrative costs.202 The cost of administering and regulating the
system was high due to the fact that it was fully funded, compared to the
government-run PAYG.
Dostal and Cassey203 argued that the Nigerian authority saw the Chilean reforms or
the Chilean model of pension administration to be worthy of emulation and it did so
without taking into account the weaknesses of the system as well as its own peculiar
socio-economic and institutional environment. At the time of the emulation of the
Chilean model, it is reckoned that Chile was preparing for an alternative Social
Pension Scheme because of the criticism it received204 and this led the World Bank to
come to the conclusion that the Chilean reform model has not delivered the benefit
that it was set out for from the beginning. 205 Thus, the Chilean government
200
C. Gillion and A. Bonilla, ‘Analysis of a National Private Pension Scheme: The Case of Chile’
[1992] (131) (2) International Labour Review, 150.
201
A. Singh, ‘Pension Reform, the Stock Market, Capital Formation and Economic Growth: A Critical
Summary on the World Bank’s Proposals’ (Centre for Economic Policy Analysis, 1996)
https://ideas.repec.org/p/epa/cepawp/1996-03.html accessed 9 February 2018.
202
Ibid.
203
J.M. Dostal and B.H. Cassey, ‘Pension Reforms in Nigeria: How not to Learn from Others’ at the
57th Political Studies Association, Annual Conference held on 11 – 13 April, 2007 in Bath as cited in
O. Ayegba and I. James and L. Odoh, op. cit., 100.
204
205
World Bank, ‘Pension Reform and the Development of Pension Systems: An Evaluation of the
World Bank Assistance’ http://documents.worldbank.org/curated/en/629861468166150111/Pension-
announced wide-ranging changes to its pension provision in 2006, placing greater
emphasis on solidarity and tax financing and higher controls on the operations of the
individual accounts to which employees are subscribed.206
3.4.2 The Swedish Pension System
Sweden’s public pension system underwent sweeping reforms in 1999, intended to
eliminate most of the subsidy in the system and tie benefit more closely to
contributions.207 Sweden converted a two-tier defined benefit scheme dating from
1960 into a combination of notional defined contribution (NDC) or pay-as-you-go
and financial defined contribution (FDC) schemes.208 The reform was first articulated
in a paper published by the Working Group on Pension Reform in 1992, and was
legislated in 1994. The new system applied to all employees born after 1954 and is
being gradually applied to those born between 1938 and 1953, which means that
employees born before 1938 will not participate in the new system. 209 The
contribution rate for the two mandatory and universal schemes together is 18.5% of
earnings, with a split of 16% and 2.5% between the NDC and FDC schemes.210 Both
schemes are based on individual accounts opened in the name of the employee. In
both the NDC and FDC schemes an annuity is granted at retirement, based on
lifetime account values and life expectancy at retirement, but earliest age at which an
annuity can be claimed is 61 years, but the guarantee, which is financed with general
tax revenues cannot be claimed until the age of 65 years.211
reform-and-the-development-of-pension-systems-an-evaluation-of-World-Bank-assistance accessed 9
February 2018.
206
J.O Odia and A.E. Okoye, op. cit., 4.
207
E. Palmer, ‘The Swedish Pension Reform Model: Framework and Issues’
http://www.oecd.org/finance/financial-markets/2638200.pdf accessed 9 February 2018.
208
E. Palmer, ‘Sweden’s New FDC Pension System’
http://siteresources.worldbank.org/INTLACREGTOPFINSECDEV/Resources/
SwedenSecondPillarPalmer.doc accessed 12 February 2018.
209
I.M. Yusuf, op. cit., 44.
210
Ibid.
211
E. Palmer, op. cit.
To achieve the goals of administering the mandatory financial account of the scheme,
the Prem Pensions Myndigheten (PPM), which is the Premium Pension Authority,
was established. The PPM is the ‘clearing house’ for fund transactions, keeping
individual accounts, collecting and providing daily information on participating
funds and providing information services to participants. 212 Therefore, the PPM
performs the role of regulatory body, manager of the account and administrator of
the fund. This is in contradistinction with the Nigerian model whereby the PenCom
is the regulatory body and the PFA is the manager and administrator of the account.
Palmer, thus, concluded that the new public pension system of Sweden has three
tiers, which are income pension, a premium pension and a guarantee pension.213
3.4.2.1 Income Pension
The income pension is a distribution system in which pension contributions paid in
by the gainfully employed during the year are used to pay out pensions to pensioners
in that same year. The income is completely independent of the national budget, and
financing is linked to the contributions paid in by employers each month as part of
the pension income of employees.214 The closest equivalent to this kind of payment in
Nigeria is a gratuity payment whereby contributions are made solely by the
employee and the lump sum is made to him.
3.4.2.2 Premium Pension
The premium pension is the part of the national pension that individuals can
themselves influence through investment choices. Each month, employers pay in
18.5% of the pensionable income of employees 16% income pension and 2.5%
premium.215 This can be described as the main pension entitlement of the pensioner
212
Ibid.
213
E. Palmer, op. cit.
214
The Swedish Pension System http://www.ap4.se/en/reports/annual-report-2015/report-on-
operations/the-swedish-pension-system/ accessed 12 January 2018.
215
Ibid.
upon retirement and is basically the same as the entitlement of the Nigerian
pensioner.
3.4.2.2 Guarantee Pension
The guarantee pension is a safety net for people who are entitled to a pension but
who do not have sufficient income. It is financed through the national budget and is
independent of the income and premium pension system.216 According to Palmer, this
provision for low-income pensioners constitutes the strongest redistribution element
and it is important considering the classical social policy goal of combating
poverty.217 This constitutes the highest form of old-age protection and social security
of aging population. It is, thus, enviable and worthy of emulation.
Hitherto, an exposition of the current or extant pension administration in Nigeria has
been provided. Some sections have been selected to provide a more insightful of the
industry. The comparison with the jurisdictions of Chile and Sweden offers a more
insightful understanding of the Nigerian system and helps in identifying such issues
that need to be addressed in the Nigerian pension industry.
CHAPTER FOUR
PREVALENT PROBLEMS AND THE PROSPECTS OF PENSION
4.1 The Shortcomings of the Erstwhile Pension Schemes
216
Ibid.
217
E. Palmer, op cit.
Hitherto, the payment of pension was a big challenge to the government of Nigeria
due to a myriad of reasons. The old schemes that were once operational and
administered under diverse pieces of legislations posed challenges for the
administration of pensions in Nigeria. The gravamen of these challenges was the
problem of non-unification of laws on the subject matter. The public sector had its
own various schemes in place and the private sector had its own separate scheme.
Other identifiable shortcomings of these old schemes are as follows:
4.1.1 Funding Modality
Under the old systems, the civil servants bore no direct responsibility by way of
payroll tax for the provision of pension, instead pension benefits were paid through
budgetary allocations to be kept in the Consolidated Revenue Fund. 218 This means
pension responsibilities were largely and solely borne by the government, being the
employer of labour. The budgets showed estimates of revenues and expenditures for
the fiscal year concerned and so it was entirely possible for the amount released from
the Fund to fall short of the actual appropriation for pension payment, therefore,
making it burdensome for the government to meet its obligations under the scheme.
219
For instance, it was reported that in fiscal year 2001, N6.4 billion was needed for
payment of military pensions but only N2.1 billion was released leaving a balance of
N4.3 billion pension arrears.220 Thus, the point being made is that because the
government was responsible for funding of the Fund, it could not meet its obligations
of keeping the Fund liquidated and this resulted in non-payment of pensioners as the
government was also responsible for other aspects of the economy.
4.1.2 Delayed or Non-Payment of Pension Entitlements
218
C.O. Odo and V.C. Igbeka and W.U. Ani, ‘Public Sector Pension Reform in Nigeria: A Historical
Perspective’ [2011] (9) (2) JORIND, 309.
219
Ibid.
220
Ibid.
The problem of non-payment of pension benefits has perturbed all the previous
pension schemes in Nigeria and may still be prevalent under the PRA 2014. The
PAYG scheme was not supported by any previous contributions, but by annual
budgetary provisions. For this, reason, it led to massive accumulation of pension debt
which led to either the non-payment or irregularity and delay of such payments. For
example, in the year 2004, a pension deficit of about N2.3 trillion was reported.221
Not only were payments delayed, but the pensioners also had to endure a lot of
hardships to access the stipends they were entitled to. Pensioners had to travel down
to the point of pension payment and they had to be on a ridiculously long queue for
long periods awaiting a verification process.222 There have been reports of some
pensioners fainting, collapsing, or even dying on these verification queues or while
awaiting the receipt of their pension benefits.223
4.1.3 Pension Record and Disbursement Flaws
In some establishments no accurate record of actual pensioners existed. This lack or
absence of facts and figures bred corruption in the pension industry during that
period and also resulted in the creation of ‘ghost’ pensioners.224 This claim was made
apparent when a verification of military pension account led to the discovery of
23,000 fake pensioners on the army pension roll. 225 This in turn resulted in the
inflation of pension costs.226Also, without proper documentation or records of the
pensioners, it is very possible for some pensioners to have their names excluded from
the payroll and they would not receive benefits until such error is rectified.
4.1.4 Pension Payment Default by State Governments
221
A.I. Adebayo and R. Dada, ‘Pension Crisis in Nigeria: Causes and Solutions’ [2012] (3) (2)
Journal of Applied Chemistry, 30.
222
F. Abiodun, op. cit., 32.
223
C.O. Odo, et al. op. cit., 309.
224
A.I. Adebayo and R. Dada, op. cit., 30.
225
W. Uwujaren, ‘The Looting of Military Pension’ Tell (Lagos, 26 July 2004) 20.
226
Furthermore, it is claimed that one reason why pension debts in the public sector
mounted, was because of the failure of some state governments to provide their
counterpart funds, necessary to make up the amount provided by the federal
government in situations where the pensioners worked for both federal and state
governments.227 It was a rule that the further release of money by the federal
government to the state government, should be premised on proven evidence that
pension for the previous month has been settled. 228 This seems to explain why a state
would fail to collect federal government counterpart funds for subsequent months
because such state could show no evidence of being up to date in payment of
pensions.229
4.2 Problems of the Contributory Pension Scheme (CPS)
Pensioners or retirees have high expectations on the government to ensure an
effective implementation of pension regulations existing in the country. 230 These
expectations stem from the need to have sustainable standard of living after
retirement by having their benefits paid as and when due. 231 But sometimes, these
expectations are not met due to a variety of problems which will hereinafter be
addressed in detail.
4.2.1 The Scope of Application of the Scheme
It is commendable that section 2 (3) allows organisations with less than three
employees and self-employed persons, to participate in the scheme in accordance
with PenCom issued guidelines, which provision was not contained in the repealed
227
C.O. Odo, et al, op. cit., 309.
228
Ibid.
229
Ibid.
230
P. Apere, ‘Key Challenges of Nigerian Pension Industry and Possible Solutions 1’ The Nation
(Lagos, 3 September 2015) http://thenationonlineng.net/key-challenges-of-nigerian-pension-industry-
and-possible-solutions-1/ accessed 7 March 2018.
231
Ibid.
2004 Act. But the problem that arises from this provision is that, there is no incentive
to participate or comply; there are no further provisions to ensure the compliance of
these small and private unorganised businesses with the provisions of the scheme. 232
The Act merely provides that the Commission may make guidelines in order to
ensure participation, it does not specify that the Commission be responsible for
ensuring participation and compliance with the scheme. The lacuna presented by this
provision has the effect of permitting employers of small labour to evade and avoid
providing pension for their employees, and even if they do provide retirement
benefits they may not necessarily be within the envisagement of the CPS.
4.2.2 The Rate of Contribution
Nigeria has moved from a situation where employers bear the totality of the pension
liabilities of their employees.233 The PRA 2014 revised the rate of contribution from
15%, contributed in equal proportions by both employer and employee, to 18% with
8% to be contributed by the employee and 10% to be contributed by the employer. 234
But the employer may choose to bear the full responsibility of the contributions and
in this case, the rate of contribution must not be less than 20% of the employee’s
monthly emoluments. This provision has been criticized because it imposes a burden
on the employer to make a contribution higher than what he would ordinarily make if
the contributions were made by him and his employee, thereby completely
discouraging the employer from bearing this full responsibility. 235 It would, therefore,
be almost impossible to find such scenario where the employer undertakes full
232
F. Abiodun, ‘The Legal Regime of Pension Schemes in Nigeria: An Analysis’ (Unpublished LLB
Project, Afe Babalola University, Ado-Ekiti, 2017), 67.
233
O. Collins, ‘Pension Reforms and Challenges of Implementation’ The Guardian (Lagos, 19
January 2016) https://guardian.ng/appointments/pension-reforms-and-challenges-of-implementation/
accessed 13 March 2018.
234
PRA 2014, s 4 (1).
235
22 January 2018.
responsibility of pension contribution in Nigeria. Also, the revised rate of
contribution in the Act has not been implemented by some states like Lagos state.236
4.2.3 Low Level of Compliance
Most states of the federation are yet to adopt the provisions of the PRA 2014 and to
enact laws to that effect. Basically, the states are at different levels, while some have
fully implemented the scheme and others have enacted laws to adopt the scheme,
some others like Gombe and Benue states are still lingering in passing their draft
bills.237 The result of this is that the states are operating on different levels of reform,
causing infractions in the pension system.238
4.2.4 Lack of Awareness
Most employees are not fully aware of their rights under the Act and so they are not
in a hurry to enforce what they do not know about. 239 Some may be aware but may
not have sufficient knowledge of the operation of the scheme and this increases the
chances of them being side-lined. Thus, when the people for whom the law seeks to
protect are not aware of the existence or the workings of the scheme, it creates an
impediment to the effective administration of the scheme and the pension industry at
large.240 Also, the scheme has been characterised by general misconceptions and
knowledge gap as employees with low financial literacy are either reluctant to
contribute due to lack of investment knowledge or just because they are unaware of
the benefits of the scheme.241
4.2.5 Default in Remittance

236
O. Collins, op. cit.
237
‘Pension at State Government Level: The New Era’
https://www.pwc.com/ng/en/assets/pdf/pension-at-state-governement-level/ accessed 22 January
2018.
238
Ibid.
239
F.O. Abiodun, op. cit., 71.
240
Ibid.
241
P. Apere, ‘Key Challenges of Nigerian Pension Industry and Possible Solutions 2’ The Nation
(Lagos, 3 September 2015) http://thenationonlineng.net/key-challenges-of-nigerian-pension-industry-
and-possible-solutions-2/ accessed 7 March 2018.
The scheme is contributory, which means that both the employer and employee are
required to make payments into the retirement account of the employee. It has,
however, been observed that some employers, including government agencies, have
not been faithful in remitting contributions to the PFCs.242
4.2.6 Guaranteed Minimum Pension (GMP)
The guaranteed minimum pension (GMP), which will be specified from time to time
by PenCom is a provision for protecting all retirees who have not accumulated
enough to have a decent standard of living in retirement under section 84(1) of PRA
2014. Thus, it is an income support from the government, which can act as a safety
net for pensioners. As laudable as this provision is, the modalities for implementing
GMP are yet to be finalized by PenCom for more than 14 years of its existence since
the 2004 Act.243 As a possible solution, it is suggested that since the assessment of
the level of GMP requires stochastic modelling techniques which is a task under the
control of an actuary, the Commission could obtain the services of these actuaries on
a regular basis.244
4.2.7 Additional Voluntary Contributions
With the exception of tax benefit, there is no incentive for additional savings towards
retirement, particularly where there is a GMP to be funded by the Government. Thus,
there are relatively small RSA balances of some retirees pending the implementation
of GMP, resulting in a growing sense of disenchantment with the token monthly
pension benefit being received by pensioners under the CPS.245 This above arises
from the expectation that all returns on invested funds belong to contributors
(employees) except for the minimal fees or charges expected for the pension
242
C.O. Odo, et al, op. cit., 311.
243
P. Apere, op. cit.
244
Ibid.
245
Ibid.
operators. The lack of frequent review of charging structure or fees chargeable by
operators and possible non-disclosure of secret charges, interests and commissions
accruable to pension assets might also be the cause of above dissatisfaction.246
4.2.8 Investment Guidelines
The dearth in range of investible instruments is a major problem facing the pension
operators, as it will be difficult to determine an optimal investment mix consistent
with risk profile as required by section 78(3) (b) of the Act. This will also hamper
diversification within PFA’s investment portfolios with the aim to maximize their
investment returns, leading to an increase in total pension assets. Empirical evidence
shows that PFAs have continued to invest bulk of pension funds in federal
government securities and money market instruments relative to equities, leading to
having investment portfolios that are too risk averse. 247 In other words, most PFAs
are adopting low risk investment strategies without taking into account the individual
members’ risk profiles and therefore, in the long term, are likely to result in lower
emerging pensions than might have been expected of investment portfolios with
different risk profiles.248 Furthermore, it has been argued that the over concentration
of pension funds in debt instruments might be limiting the growth potential of the
retirement fund for young pension contributors with long term investment horizon.249
4.2.9 Lack of Professional Advice
PFAs and insurance companies are misinforming newly retirees in order to gain
undue patronage under the CPS instead of allowing the retiring workers to freely
choose their mode of withdrawing their benefits as required in section 7(1). Thus,
lack of professional advice on the choice of pension benefit options at retirement has
246
Ibid.
247
P. Apere, op. cit.
248
Ibid.
249
Ibid.
led to more retirees still opting for programmed withdrawal than life annuity. Thus,
in February 2014, 94,097 retirees were recorded to have opted for programmed
withdrawals while 8,479 retirees opted for the latter and this was attributed to
insufficient provision of information on the part of the pension fund operators. 250 The
PFAs have failed in their duty to enlighten the retirees professionally simply to
advance their own business interests.
4.2.10 Corruption and Misappropriation of Pension Funds and Assets
Corruption has been the bane of the Nigerian society from time immemorial.
Corruption is prevalent in almost all levels of the Nigerian society. It is therefore, not
surprising that such problem arises in the administration of the CPS. According to an
article by PM News, the fraud in the pension system in Nigeria is so bad that it has
been a huge embarrassment for the nation.251 A benchmark in addressing the issue of
corruption and diversion of pension funds was the notorious scandal surrounding the
dismissal of Alhaji AbdulRasheed Maina as the Chairman of the Pension Reform
Task Team (PRTT).252 The story has been told in diverse versions, some good, some
bad and some deliberately twisted. This writer is concerned, not with the veracity of
any of the versions of the story, but more with the matters of corruption averred to in
the entirety of the matter. Indeed the PRTT was set up to inter alia, probe the
pension administration in the country and find lasting solutions to the problems of
inefficient and corrupt administration in the country.253 It was reported that Maina
demonstrated the ability to institutionalise the fight against corruption in the pension
system through many innovations and strategies that assisted the team to recover
N1.3 billion and delist about seventy thousand ‘ghost’ retirees from only about five
250
Ibid.
251
A. Olaniyi, ‘The Necessity for Enhanced Pension Corruption Battle under President Buhari’ PM
News Nigeria (Abuja, 13 February 2017) https://www.pmnewsnigeria.com/2017/05/02/necessity-
enhanced-pension-corruption-battle-buhari/ accessed 13 March 2018.
252
Ibid.
253
Ibid.
pension institutions that were investigated. 254 Also, the activities of the team led to
the discovery of huge fraud, running to over N4.5 billion, which were allegedly
committed by top officials of the pension offices, leading to the commencement of
their trial by the Economic and Financial Crimes Commission.255
Later, there were allegations flying against the Chairman that he had been guilty of
mismanaging over N21 billion of the pension funds from the Police Pension Account
and transferring them into three different accounts with three different banks. 256 Of
course, Maina denied this allegation and during the course of the hearing before the
Senate Committee some corrupt and fraudulent practices were uncovered. For
instance, the Chairman told the panel how thirty two staff members of the pension
office of the Head of Service had defrauded pension funds of N24 billion by
falsifying documents to withdraw such sum from the budget for payment of pension
that only required N3.5 billion.257 He also alleged as to how they fruadulently
siphoned over N18 billion of pension funds by inserting names of primary school
teachers in the pension payrolls.258 This seems to confirm the stories that there were a
lot of fraudulent activities fraud going on in the pension system of the public sector
and that a group of highly place persons were feeding off the scheme. Thus, the
move from a defined benefit scheme to a contributory one did not erase the
possibility that some officers or personnel, who have been put in charge of
administering the pension system at any level, could engage in corrupt practices and
embezzle funds.
As has been seen there exist few imperfections with the new scheme. But these have
little to do with availability of funds at retirement, which is clearly a departure from
254
A. Olaniyi, op. cit.
255
O.I. Eme et al, op. cit., 500.
256
Ibid, 501.
257
Ibid, 503.
258
Ibid.
the past which was characterized by scarcity of funds. 259 Besides, identifying these
problems and dealing with them would form the basis for transforming the Nigeria
pension industry to meet the expectation of pensioners.
4.3 Benefits of Contributory Pension Scheme (CPS)
Notwithstanding the attendant problems of the CPS in Nigeria, it has been lauded for
having some benefits or merits. Some of these include:
4.3.1 Prompt and Regular Payment
Unlike the old scheme, the CPS is designed to facilitate prompt and regular payment
of pension benefits or entitlements. This is achievable through the existence of the
RSA which is managed by an independent corporation. Upon retirement, the retiree
is allowed to make monthly withdrawals from the contributions made jointly by him
and his employer into the account during the course of his emolument. This monthly
withdrawals form a source of monthly income for the pensioner which is steady,
regular and reliable.260 Also, the funds in the account do not only include monies paid
into the account from the contributions, but also includes profits and interests which
have accrued from the profitable investments of the PFAs.261
4.3.2 Inclusion of Private Sector
One pitfall of the previous schemes in operation in the country was the separation of
pension schemes for private and public sectors. With the inception of the CPS, there
was a unified scheme for both private and public sectors, and while the PRA 2004
restricted the application to organisations with 5 or more employees, 262 the PRA 2014
259
Governance and Integrity of the New Pension Scheme
https://www.pencom.gov.ng/category/frequently-asked-questions/governance-and-integrity-of-the-
new-pension-scheme/ accessed 13 March 2018.
260
F. Abiodun, op. cit. 39.
261
Ibid.
262
PRA 2004, s 1 (2) (b).
expanded the scope to allow participation of organisations with less than that
number.263
4.3.3 Available Funds for Investment
As stated earlier, the funds in the RSA may include profits and interests accruing
from profitable investments of the funds made by the PFA. The only way any fund
can be invested is if such fund is made available, and the only way to make such
fund available in this case is to make contributions into the account as stipulated by
the Act. Thus, the monthly contributions made into the account provide available
funds to be used for investment, thereby increasing the entitlement of the retiree.
4.3.4 Little or No Government Involvement
The RSA is placed very far away from the control of the government. The only
control the government exercises, through the PenCom is a regulatory and
supervisory role over the PFAs and PFCs to ensure compliance with the provisions
of the Act and any guidelines and regulations issued by it. Also, the government
bears less or no administrative cost since it is the duty of the PFAs and the PFCs to
administer the scheme. More so, the untimely payment of benefits which resulted in
huge accumulation of pension liabilities that are yet to be settled in the public sector
is now a thing of the past for contributors under the new scheme, since the
government no longer bears sole or any commitment to the retirees for the payment
of their benefits.264
4.3.5 Transferability
Unlike the PAYG defined benefit scheme, the CPS is transferable in nature in that
the liability for pension contributions can be transferred from one employer to
another in the event the employee changes jobs. 265 This creates more flexibility in
263
PRA 2014, s 2 (3).
264
265
PRA 2014, s 14.
administering the scheme.266 Also, the employee is allowed to transfer his account to
another PFA, but not more than once in a year.267
4.3.6 Labour Mobility
The scheme enhances labour mobility. This means that the employee can move from
one employment to another without worrying about the possibility of accessing the
contributions that have been made during the course of his previous employment or
about having to open a new account or appoint a new PFA. 268 This is made possible
because the RSA is a fixed account and all that is needed is for the new employer to
make the necessary contributions into the same account after the employee has
furnished his PFA with the new changes in employment.
4.4 Safeguards for the Contributory Pension Scheme under the PRA 2014
The importance of safety of the pension fund assets cannot be overemphasized as the
success of the pension reform is hinged on the availability of funds to contributors
when they retire. Thus, since the pensioner will utilize the fund at the end of his
working life, it becomes imperative that adequate measures be taken for the
protection of the pension fund.269 Consequently, some sections of the PRA 2014
contain provisions whose singular objective is the protection of the pension fund and
assets as a safeguard for the effective operation of the Scheme so that the stated
objective can be achieved.
4.4.1 Privately Managed Account
The Scheme requires that the Retirement Savings Account be managed by an
independent Pension Fund Administrators specifically chosen by the employee
266
J. Mayaki, ‘Contributory Pension Scheme Excites Edo’ Vanguard (Lagos, 29 March 2017)
https://www.vanguardngr.com/2017/03/contributory-pension-schemes-benefits-excite-edo/ accessed
13 March 2018.
267
Ibid, s 13.
268
F. Abiodun, op. cit. 39.
269
J.I. Ekele, op. cit., 45.
himself270 and the contributions made by the employer are to be collected by the
Pension Fund Custodian on behalf of the PFA. 271 This requirement solidifies the
intention of the legislature to make the account as far away as possible from the
controls of the government. This means that the government cannot tamper with the
account since it does not have access to it or control over it and it shifts the focus of
the government to ensuring the safety of the funds account through enforcement of
strict letter of the law.272 The incidences of conversion and mismanagement are,
therefore, reduced since the PFA is chosen by the employee himself and is
continually supervised by the Commission.
4.4.2 Separation of the Pension Fund Administrator and Pension Fund
Custodian
This has been described as an ingenuity in the Nigerian pension administration. 273
Both the PFA and PFC deal with the pension funds and assets, but their functions are
clearly delineated. As can be seen from the combined interpretation of sections 54
and 56 of the PRA 2014, the PFA does not have direct access to the contributions
made, seeing as they go directly from the employer to the Custodian. In the same
vein, the Custodian cannot invest the pension assets except on the order of the PFA.
Thus, even though the PFA opens the account, it does not have access to the money
except for purposes of investment and the asset representation must still be kept with
the PFC who settles payment and other transactions made on particular investment
undertaking.274 Also, the money is not controlled by the PFC, who must act upon the
270
PRA 2014, s 11.
271
Ibid, s 57 (a).
272
Governance and Integrity of the New Pension Scheme
https://www.pencom.gov.ng/category/frequently-asked-questions/governance-and-integrity-of-the-
new-pension-scheme/ accessed 13 March 2018.
273
M.A. Umar, ‘Overview of the Contributory Pension Scheme’
http://m.covenantuniversity.edu.ng/content/download/41650/282622/file/Banking+%26+Finance+-
+Overview+of+the+CPS_Covenant+2nd+T+%26G.pdf accessed 3 March 2018.
274
instructions of the PFA and cannot treat funds with it as mere cash savings. 275
Therefore, as a matter of fact, while the functions of the PFAs and the PFCs
interlock, they are also separated so as to guard against financial impropriety. But it
is the position of Adejoh that considering the trust positions which the PFAs and
PFCs jointly assume, an incidence of financial imprudence cannot be totally ruled
out but can only be reduced.276
4.4.3 Reporting Requirement of Pension Fund Administrators
In order to keep track of their activities, the licensed PFAs are required to make an
annual report of their activities to the Commission.277 This requirement is expedient
in light of the volume and nature of the funds constantly handled by the PFA. Thus,
it is necessary to be able to spot any inconsistencies and wrongdoings as early as
possible so as to redress them in favour of the injured party.278
4.4.4 Compliance Officers
Section 80 of the PRA 2014279 requires that every PFA and PFC shall employ a
Compliance Officer who will be responsible for ensuring compliance with the
provisions of the Act on their activities, as well as the internal rules and regulations
of the particular PFA or PFC as the case may be. In doing this, they are allowed to
liaise with the Commission on any matter which will further enhance compliance. 280
These Officers will be required to report to the PenCom and the Board of Directors
or Chief Executive Officers of the PFA or PFC on any non-compliance. 281 The
requirement of Compliance Officers can be categorised as an instrument of checks
275
Ibid.
276
Ibid.
277
Ibid, s 67.
278
M.A. Umar, op. cit.
279
Formerly PRA 2004, s 78.
280
PRA 2014, s 80 (d).
281
Ibid, s 80 (c).
and balances of the activities of the trustees of the pension funds and assets. Thus, it
prevents arbitrariness of powers and functions of the PFCs and PFAs.
4.4.5 Restrictions on Investments and Risk Ratings of Investments
It is settled that the PFAs, as trustees of the pension funds and assets (or trust
property), are allowed and, indeed, have the discretion to invest the trust property.
This investment power is, however, regulated by the Trustees Investments Act as
well as Part XII of the PRA 2014. 282 The modes of investment are stipulated and
restrictions are placed on some investments. This ensures that the pension funds and
assets are not wasted in bad investment judgments of the PFAs. Also, in venturing
into any investment of any instrument, the Act, in section 90, requires the PFA to
conduct extensive research on the risk rating of that instrument, while having due
regard to the risk rating report of the instrument which has been undertaken by a risk
rating company registered under the Investment and Securities Act 1999. 283 This
requirement imposes a duty of due diligence on the PFA before investing in any
instrument. Finally,, in order to enforce compliance with the provisions on the
investments by PFAs of the pension funds and assets, section 91 imposes a penalty of
five hundred thousand naira for each day the non-compliance continues and a
forfeiture of the profits that accrued to the PFA from the investment, and where a
loss has been made from unathourised investment, the PFA is made to make up for
the loss. It is the opinion of the writer that this sanction is adequate enough to deter
PFAs from making unauthorized investments.
4.4.6 Risk Management and Investment Strategy Committees
The Act requires the PFA to establish two committees which will assist it in fulfilling
its investments obligations under the Act.284 These committees are the Risk
282
Ibid, ss 85 – 91.
283
Now Investment and Securities Act 2007.
284
Ibid, s 78 (1).
Management Committee (RMC) and the Investment Strategy Committee (ISC). It is
the responsibility of the RMC to draw up a risk portfolio for any non-restricted
investment and draw up a programme for adjustment in case of any deviation from
approved investments.285 The ISC, on the other hand, has the responsibility of
ensuring compliance with the investments guidelines set up by the Commission.
These provisions are very laudable as they ensure that the PFAs have a means of
checking their investments discretion, thus protecting the funds in the employee’s
account with the PFA.
4.4.7 Disputes Resolution
Any employee aggrieved with his employer or PFA in respect of pension matters is
obligated to approach PenCom in the prescribed procedure for a redress before
exploring other options.286 It is only where the decision of the Commission does not
provide the adequate redress that he can resort to arbitration proceedings. The effect
of this provision is that the PenCom is vested with the power to resolve disputes and
so, it is not only a regulatory body, but also an unbiased third party in the event of
dispute.287 The rationale for this is so as not to burden the courts with matters which
are largely within the purview of the Commission, since it is the most informed in
such matters.288
4.4.8 Sanctions
Clear legal and administrative sanctions have been provided for non-compliance with
rules and regulations under Part XIV of the Act. Offences are specified for failure to
comply with the provisions of the Act, for misappropriation of the pension funds and
assets, for failure to provide necessary information and so on. This keeps those who
285
Ibid, s 78 (2)
286
PRA 2014, s 106.
287
22 January 2018.
288
Ibid.
will have any contact with the pension funds and assets in check and will deter them
from violating the trust of their beneficiaries.289
4.5 State Enactment on Pension Administration in Nigeria
As with the diverse old federal schemes operational in Nigeria, the state schemes
were also fraught with problems such as lack of adequate funding, irregular pension
payments and the rigorous exercise of verification of pensioners.290 These problems
led to a reform pension at the federal level, and by extension, the state governments.
Thus, some states of the Federation have enacted their own pension laws to regulate
the industry in their various states. As at 2017, twenty-six states, have been reported
to have adopted the Contributory Pension Scheme (CPS) and are at various degrees
of implementation, while a few states have completed the process.291
It may be argued that, the enactment of state legislation on pension matters amounts
to an usurpation of the legislative power or authority of the Federal Government or
the National Assembly to make enactments on pensions, gratuities and other-like
benefit payable out of the Consolidated Revenue Fund or any other public funds of
the Federation as contained in the Exclusive List of the Constitution of Nigeria. 292 A
close examination of the PenCom publication on the ‘Framework for the Supervision
of States and Local Governments Pension Schemes’293 does not solve this
conundrum. In fact, paragraph 2.0 on the implementation process of the Scheme
states that the implementation of the Scheme shall commence with the establishment
of a Pension Bureau for the State and Local Government which Bureau shall
289
Ibid.
290
Lagos State Pension Commission, ‘Historical Background’ http://laspec.gov.ng/about-us/historical-
background/ accessed 6 March 2018.
291
C. Agabi, ‘What to Expect from Contributory Pension Scheme in 2017’ The Daily Trust (Lagos, 3
February 2017) https://www.dailytrust.com.ng/news/business/what-to-expect-from-contributory-
pension-scheme-in-2017/183656.html accessed 13 March 2018.
292
CFRN 1999 (as amended), Second Schedule, Part I, Item 44 and s4.
293
National Pension Commission, ‘Framework for the Supervision of States and Local Government
Pension Schemes’ https://www.pencom.gov.ng/wp-content/uploads/2017/04/SLG.body_.pdf accessed
5 March 2018.
commence operation after the enactment of the State pension law. 294 It is trite that the
Constitution is the grundnorm in Nigeria and as such, its supremacy is undisputed. 295
Thus, no law, regulation or guidelines should be inconsistent with its provisions and
any such inconsistency should be void. But recourse may be had to the provision of
section 119 of the PRA 2014 which gives prevalence to the Act over any State
legislation in the event of any inconsistency.
4.5.1 The Lagos State Pension Reform Law 2007 as a Model for State Pension
Administration
The Lagos State government, becoming the first state to adopt the new CPS
established by the PRA 2004, signed the Lagos State Pension Reform Law into law
on 19th of March 2007 under Chief Bola Ahmed Tinubu’s gubernatorial tenure, and it
commenced operation in July 2009.296 The Law is fashioned after the PRA 2004 297
and its objectives, as contained in section 2, are the same as that of the Act. This
leaves room to question whether the amendments occasioned under the 2014 Act
have any force of operation in that State. Section 1 makes the Contributory Pension
Scheme applicable to pensionable employees in the public service of the state,
employees of local government council, tertiary institutions and all parastatals
established by the state government. Therefore, the Lagos State Pension Commission
(LASPEC) is established as a corporate entity to regulate, supervise and ensure the
effective administration of the Scheme and all pension matters in the public service
of Lagos State,298 with its functions and powers clearly set out in sections 32 and 33
The rate of contribution specified under section 14 of the Law is the same as that
provided for under the PRA 2004, which is inconsistent with the revised rate under
294
Ibid, paras 2.1.1 and 2.1.2.
295
CFRN 1999, s 2
296
http://laspec.gov.ng/abou-us/hiatorical-background/ accessed 3 March 2018.
297
Ibid.
298
LSPRL 2007, s 22.
the PRA 2014, and as in the Act, the employer may elect to solely make the full
contribution. Therefore, both the employee and the employer are to contribute a
minimum of 7.5% each of the employee’ monthly emolument into the Retirement
Savings Account (RSA) opened for the employee and maintained by any Pension
Fund Administrator (PFA) of his choosing.299
But unlike the PRA 2004 and its 2014 amendment, the Law makes an explicit
provision for the age of retirement.300 While the PRA prevents an employee from
making withdrawals from his RSA before attaining the age of 50 years and also
allows such employees who have been disengaged from service before attaining that
age to make withdrawals,301 it does not specifically stipulate the age of retirement of
the employee from his service. By virtue of section 3 of the LSPRL, however, the
age of retirement is 60 years or after 35 years of service, whichever is earlier in time.
Also, the Law makes provision for a certificate of clearance which is not provided
for under either Acts.302 Section 8 of the Law provides that the certificate is to be
issued to persons dismissed from service by their employers within 21 days of the
employee’s dismissal or compulsory retirement. This certificate should be from his
last place of employment and is to be presented before the PFA can grant access to
the government contributions and interest accruals thereon in his account. The
certificate can, therefore, be regarded as prima facie proof of the employee’s
dismissal or retirement.
Pension administration in Nigeria has, therefore, been characterised by series of
changes and reforms leading up to the extant Contributory Pension Scheme
established under the Pension Reform Act 2004 and revised under the Pension
299
Ibid, s 6.
300
F.O Abiodun, op. cit., 57.
301
PRA 2004, s 3; PRA 2014, s 16.
302
F. Abiodun, op. cit., 58.
Reform Act 2014. While there have been problems plaguing the industry, it has,
however, prevailed in some. Pursuant to this, some of the states of the federation
have adopted the federal reforms and this has resulted in placing the country on the
map in terms of reforms. So far, this new scheme provides a solution to the pension
system that has elusively dogged the Nigerian economic clime.303
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
This study was borne out of the need for understanding the workings of the pension
industry in Nigeria. It is an inquiry into the entire gamut of pension administration in
Nigeria, covering its evolution in terms of laws, regulations and circulars, its current
legal position and the accompanying problems and challenges to effective
administration. The study also involved a review of some literature drawn from
sources, such as textbooks, newspapers and journal articles, which informed most of
the contributions made and from which certain discoveries were made.
303
J. Mayaki, op. cit.
Prior to the enactment of the Pension Reform Act 2004, pension schemes in Nigeria
had been bedevilled by many problems. The public service operated an unfunded
defined benefits scheme and the payment of retirement benefits were budgeted
annually. The annual budgetary allocation for pension was often one of the most
vulnerable items in budget implementation in the light of resource constraints. In
many cases, even where budgetary provisions were made, inadequate and untimely
release of funds resulted in delays and accumulation of arrears of payment of pension
rights. It was obvious therefore that the defined benefits scheme could not be
sustained. In the private sector on the other hand, many employees were not covered
by the pension schemes put in place by their employers and many of these schemes
were not funded. Besides, where the schemes were funded, the management of the
pension funds was full of malpractices between the fund managers and the trustees of
the pension funds. This scenario necessitated a re-think of pension administration in
Nigeria by the administration of President Olusegun Obasanjo. Accordingly, the
administration initiated a pension reform in order to address and eliminate the
problems associated with pension schemes in the country. The outcome of the reform
was the enactment into law of the Pension Reform Act 2004. After 10 years of
implementing the pension reforms in Nigeria, the Pension Reform Act 2014 was
signed into law to address the challenges of its predecessor and to introduce some
new provisions to aid the implementation process.
Despite the reform of the law in 2004 and, subsequently, in 2014, the administration
of pension is still fraught with inadequacies mostly due to ambiguous provisions in
the Act. One of such ambiguities was identified to be the rate of contribution as
provided for under section 4 of the PRA 2014, which though, causes an increment in
the rate of contribution, is not feasible in light of the option of the employer to
undertake full responsibility for it. Similarly, it was found that the scope of the Act is
limited in application as it does not impose a compulsory obligation in small
organised businesses to comply with the provisions of the Act.
Furthermore, it was found that some of the problems which plagued the previous
scheme have found their way into the present administration. The problem of
corruption, for instance, has not been effectively dealt with under the administration.
This causes one to wonder whether the reforms are of any significance or relevance.
Another notable finding which was made was the subjugation of the local
government to the state government with respect to pension matters. This problem,
however, has its root in the constitution which makes the local government
answerable to the state government. Also, due emphasis is not placed on sensitizing
the public as to their rights and entitlements under the Act and this can be remedied.
5.2 Conclusion
The pension industry in Nigeria has experienced a myriad of reforms, each one
attempting to make certain improvements upon its predecessor. However, worthy of
note, is the fact that the pension industry, especially prior to year 2004, was
administered under diverse legal regimes and legislations. For instance, the National
Provident Fund Scheme, established by Act of Parliament in 1961, was established to
apply only to the private sector. The public sector had its own scheme, and even
within the public sector, there were various enactments catering for various
categories of people, such as the Pensions Rights of Judges Decree No. 5 of 1985,
which applied only to judges and the Police and other Agencies Pension Scheme
Decree No. 75 of 1993 which made provision for pension payment to police officers
and officers in similar agencies. This has been said to have created a problem for
effective administration in pension industry and thus, the enactment of a unifying

pension law was a welcome development for all. With the coming into force of the
Pension Reform Act 2004 and the amendment of Pension Reform Act 2014, which is
the extant legal regime for pension administration in Nigeria, some of the challenges
to an effective pension administration under the old schemes have been eradicated.
What this bodes for the pension industry is that, the current law regulating pensions
in Nigeria has effected a plethora of reforms in order to achieve the objectives of the
new scheme (the Contributory Pension Scheme) which are at the core of old age
protection in the country. But this does not mean that the pension industry today is
not riddled with challenges and problems. In fact, the reality of the situation is that
some of the problems of the old schemes still prevail and also, some new ones have
arisen.
5.3 Recommendations
(i) Review of the Scope of Application of the Scheme: The Act makes no
provision for ensuring that small business and organisations with less than three
employees comply with the strict provisions of the Act. It is recommended that the
Act be revised to impose a strict obligations on these organisations to make pension
contributions towards the retirement of their employees.
(ii) Revision of the Rate of Contribution: In terms of the option given to the
employer to bear full responsibility of contribution to pension funds, the law needs to
be revised. This is because the employer will be discouraged to exercise that option
because he will be required to contribute more to the account (20%) than what will
be contributed if both he and the employee make the contribution (18%). Thus, the
legislators need to re-visit this provision to either reduce the employer’s sole
contribution 18% also, or increase the joint contribution of the employer and
employee to 20%. This is because if the percentage to entering into the RSA of the
employee is that same if he makes sole contribution or not, the employer will not feel
cheated and discouraged to bear full responsibility as it makes no difference.
(iii) Proper Compliance and Enforcement Mechanisms: The PRA requires all
states of the federation to adopt the CPS. So far, twenty-six states have adopted the
scheme and are at diverse stages of the implementation process. It is expected that all
the states should adopt the scheme and this can be done by the federal government
imposing an ultimatum for the adoption of the scheme. The resultant effect of
compliance by all states is that it will be easier to enforce the scheme throughout the
country and the objectives of the scheme will be realised. Also, methods should be
deployed to ensure the enforcement of the provisions of the Act by the Commission,
the PFAs, PFCs and all other operators in the industry.
(iv) Proper Awareness and Enlightenment: It is required that there should be a
form of public sensitisation so as to inform the populace about the scheme, how it
works, the major stakeholders in the industry, as well as their rights under the Act.
Also, mechanisms should be put in place to keep the public abreast of reforms in the
pension industry.
(v) Fight against Corruption: Despite the efforts put in place by the
administration of President Muhammadu Buhari to end corruption in all sectors of
the country, there are still evidences of corrupt practices in the country especially
with regard to the Pension Transitional Arrangement Department (PTAD). 304 Thus,
there is a need to adopt a mechanism to combat corruption in the industry. This could
be done by the government setting up an independent body with the task of
conducting investigations into the operations of the stakeholders in the industry to
ensure that best practices are upheld. This body would then employ certain other
304
Adah Inyada, ‘How Corruption now Rocks PTAD’ Nigerian Pilot (12 August 2016)
http://nigerianpilot.com/corruption-now-rocks-ptad/ accessed 30 March 2018.
strategies to battle corruption prevalent in the pension industry and then it would
report to the Economic and Financial Crimes Commission (EFCC) and the
Independent Corrupt Practices and other related offences Commission (ICPC) for
further action.
(vi) Autonomy of Local Government: The position of the law on pension, as it is
with most areas of administration in Nigeria, is that the local government is
subsumed under the state government for the purpose of administering pension. The
reality of the Nigerian situation is that there are indeed three tiers of government,
which are the federal, state and local governments. Unfortunately, however, the local
government is not always recognized as to be saddled with administration of its own
affairs. The situation is the same in the pension industry, the state governments,
through their Pension Bureau, are the ones responsible for local governments’
pension payment. It is, therefore, recommended that absolute autonomy is granted to
local governments with a view to establishing an independent unit which will be
entrusted with corresponding tasks pertaining to pension and health insurance.305
305
M.M. Kirfi and A.A. Aliyu, ‘A Glance at the Position of Grassroots Authorities in Nigerian
Pension Reforms of 2004: A Deviation from the Previous? [2013] (1) (6) JIARM, 466.
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A CASE STUDY OF PENSION ADMINISTRATION IN NIGERIA

ADEGOKE, FADEKEMI ADESOLA

ADEGOKE, FADEKEMI ADESOLA

MATRICULATION NUMBER: 13/LAW01/010

BEING A LONG ESSAY SUBMITTED TO THE COLLEGE OF LAW, AFE

BABALOLA UNIVERSITY, ADO-EKITI, EKITI STATE NIGERIA IN PARTIAL

FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR

OF LAWS, LL.B (HONS) DEGREE

Study of Pension Administration in Nigeria’, is my original work, and apart from

presents for another degree elsewhere.

Student’s Signature Date

Administration in Nigeria’ was written by Adegoke Fadekemi Adesola, with

matriculation number 13/LAW01/010, under my supervision in partial fulfilment of

College of Law, Afe Babalola University, Ado-Ekiti, Ekiti State.

Dr. E.T. Yebisi Date

This work is dedicated to my selfless parents, Mr. and Mrs. Adegoke.

and made the conceived idea for this research a reality.

encouragement towards the success of this work.

To my amazing family and friends, I am grateful.

made in my academics as well as my character.

British Transport Commission v Gourley [1969] 1 AE & R 555 at 566

Gerhard Huebner v Aeronautical Industrial Engineering and Project Management

Co. Ltd. [2017] LPELR-42078 (SC)

Iwo v University of Uyo [2011] 6 NWLR (Pt 125) 1

Kasim v Nigerian National Petroleum Corporation [2013] 10 NWLR (Pt. 1361) 69

Knight v Knight [1840] 49 ER 58; [1840] 3 Beav 148

Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513

Momodu v National Union of Local Government Employees [1994] 8 NWLR (Pt.

Speight v Gaunt [1883] LR 9 App Cas 1

of the Federation of Nigeria 2004.

Lagos State pension Reform Law 2007

Pension Reform Act No. 2 of 2004

Pension Reform Act No. 64 of 2014

International Labour Organisation Security (Minimum Standards) Convention No.

AFP Administradoras de Fondos de Pensiones

App Cas Appeal Cases

BOT Board of Trustees

CFRN 1999 Constitution of the Federal Republic of Nigeria 1999

CPFA Closed Pension Fund Administrator

CPS Contributory Pension Scheme

FDC Financial Defined Contribution

GMP Guaranteed Minimum Pension

ILO International Labour Organisation

ISC Investment Strategy Committee

JTB Joint Tax Board

LASPEC Lagos State Pension Commission

LFN Laws of Federation of Nigeria

LPELR Law Pavilion Electronic Law Report

NAICOM National Insurance Commission

NDC Notional Defined Contribution

NPC National Pension Commission

NPF National Provident Fund

NSITF Nigerian Social Insurance Trust Fund

NWLR Nigerian Weekly Law Report

PenCom Pension Commission

PFA Pension Fund Administrator

PFC Pension Fund Custodian

PPF Pension Protection Fund.

PPM Prem Pensions Myndigheten

PRA Pension Reform Act

PTAD Pension Transitional Arrangement Department

RMC Risk Management Committee