IMPACT OF PENSION REFORM ON ORGANIZATION PERFORMANCE IN THE PUBLIC SECTOR

1.0 Introduction

1.1 Background to the Study

The pension reform act has become a socio-economic and political issue that has engaged the attention of government, employers and workers not only in Nigeria, but also in many developing countries of Africa, Asia and Latin America.

Before the enacted and established- Olusegun-Obasanjo- led- pension reform of June 25th, 2004, Nigerian operated a defined benefit (DB) pension Scheme, which was largely unfunded and non-contributory. The system was also characterized as “pay-as-you-go” (PAYG) scheme since retires were to be supported, not by their previous contributions, but by annual budgetary provisions.

Thus, the bane of this new Olusegun Obasanjo reformed pension scheme, was to review the inefficient, ineffective and fraughting existing problems, merged with insecurity some of these problems were desertion of unfunded state run pension system which caused anguish, want and penurial existence for pensioner in their old age.

1. Problem of the harmonization of the public and private pension system and
2. Confusion as to the institutional regulator of the scheme
3. Problem of determining the law as that governs the management, control administration and investment of pension funds and
4. Bad record keeping in private and public offices making it impossible to access and quantify the contribution of individual employee and endemic corruption (Fashoyin, 1994).

Therefore, in effect of this, the Olusegun Obasanjo-led-government incorporated the need at reversing the situation through developing a system that is sustenance and proned to providing the ultimate goal and capacity in ensuring stable source of retirement savings for each participant.

With this face in June, 2004 of the pension Reform Act, 2004, a new pension was replaced as against the previous DB Scheme (Defined Benefit).

The new Scheme in-place of DB(Defined Benefit), was the DEFINED CONTRIBUTION (DC) Scheme, which was contributory in nature, and mandatory on employers and workers (in the public and private sector organizations with 5 or more employees) to contribute 7.5% each of the emoluments of the employee into a retirement savings account (RSA). However, for the military, the contribution rate is 2.5% with the government contributing 12.5%.

This system has a number of features making it an increasingly vital component of the pension systems of many countries not only in the Organization of Economic Corporation and Development (OECD)countries, but also amongst the developing countries, particularly in Asia and Latin America.

However, the current reforms are necessary in order to correct and repeat the old pension Act 1990. According to Ibrahim ,(2004) who is a member of the national pension’s reforms commission, the rationale for the pension reform includes:-

1. Weak and inefficient administration of the old pension Schemes.
2. Unsustainable outstanding pension liabilities estimated at N2billion and
3. Unregulated pension Scheme with highly diversified arrangement.

The current reform and necessary in order to bring sanity to a system that was glaringly unable to cope with the challenges of the country’s pension system. When faced with a situation of this kind, there are often two policy options introduction of half-hearted measures that might have some appeal, but which may address the symptom rather than the cause of the problem; or the adoption of reforms that address the essential factors behind the underlying weaknesses of the previous Scheme and adopt measures for which experience of other countries and their own domestic imperatives points towards a huge potential for success, if only there is the determination to pursue them. Of course, the government decided to adopt the latter option. The government to President Olusegun Obasanjo has the determination to pursue them and make a success out of the current arrangement. Understanding and support of everybody, not least an important stakeholder like this body, is required for the success of the Scheme, more importantly to ensure retirees receive their benefit as at when due.

1.2 Statement of the Problem

Regardless of the new scheme established to revamp the nation’s old pension scheme, there are challenges that must be unraveled to make the new system function. Experiences of other countries seems to suggest that a strong regulatory and over sight body is required in order to deal with the major constraints that could truncate the success of the Scheme. If unregulated, private pension institutions could in their bid to compete against each other and maximize profit, pursue promotional; expenses that could make the Scheme costly. Literature however reveals that:

1. A weak regulatory environment could jeopardize the success of the Scheme especially when private pension institution embarks on high-risk investment Schemes that could escalate the risk of bankruptcy.
2. The weak regulatory system promotes difficulties for the Scheme in coping with macro-economic fluctuation especially during inflation and downsizing.
3. Despite its reforms, there is still the existence of irregular pension payment that has led to the impairment and untimely death of retirees on-cue or clamor for their entitlements.

When weighed against the enormous potential benefits of the new Scheme, these challenges are well worth facing with all the DC Scheme (Direct Contribution). Therefore curbing these anomalies requires an effective and re-engineered National pension commission (NPC) whose mandate is to provide overall regulatory and oversight functions on all issues concerning pensions in Nigeria.

1.3 Aim and Objective of the Study

The aim of study is to access the practice of pension reforms in Lagos state ministry of Education, with reference to its pensions. The specific objectives are as stated below:

1. To ascertain if the periodic contributions and their investment are left to the whims and caprices of employers.
2. To determine the rate of pension contributions were adequate to provide the needed benefits of would-be retiree.
3. To ascertain if late and non-payment of pension entitlements leads to wide spread complaints and death among retirees.
4. To ascertain if the incidence of transition gap and the funding system of the scheme do not affect adequate and early payment of pension entitlement.

1.4 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• What are the periodic pension contributions and their investment on Public Sectors?
• To what extent does the rate of pension contribute to public sector?
• How do the incidence of transition gap and the funding system of the scheme affect payment of pension entitlement?

1.5 Research Hypotheses

Hypotheses are guide for the researcher on the line of his study. They tend to serve as assumed answers to the principal questions raised in the study. The correctness of which shall be assessed in the course of the study.

For the purpose of this study, the following hypotheses were tested:

Hypotheses One

• H0: The periodic pension contributions and their investment are not left to the whims and caprices of employers.
• H1: The periodic pension contributions and their investment are left to the whims and caprices of employers.

Hypotheses Two

• H0: The rate of pension contributions was not adequate to provide the needed benefits of a would-be retiree.
• H1: The rate of pension contributions was adequate to provide the needed benefits of a would-be retiree.

Hypotheses Three

• H0: Late and non-payment of pension entitlements do not lead to wide-spread complaints and death among retirees.
• H1: late and non-payment of pension entitlements lead to wide-spread complaints and death among retirees.

Hypotheses Four

• H0: The incidence of transition gap and the funding system of the scheme do not affect adequate and early payment of pension entitlement.
• H1: The incidence of transition gap and the funding system of the scheme affect adequate and early payment of pension entitlement.

1.6 Significance of the Study

The following are the relevance of the study as stated below;

1. The study is important because the outcome will enable the researcher to know how effective and practicable the new pension reform (DC) (Direct Contribution) has been in Lagos State ministry of education.
2. The outcome will unveil varieties of the ascribed and stated pension fund administration used by the ministry
3. It will assist the researcher to understand how workers can allocate their retirement savings and diversity their investment over a range of investment instrument
4. The result will assist in facilitating on how retirement savings account can be maintained by each employee.
5. It will assist the researcher in ascertaining how proper-maintenance of the Retirement Savings Account (RSA) tend to generate massive long-term fund that could be available for investment.
6. The outcome will address how government stands to benefit on extent to which fiscal discipline can be imposed in the budgetary process to how pension obligations is can be accurately determined.
7. It will assist the researcher to know the parameters on how current weak regulatory systems can be remedified as against its back drop relating to inflation and downsizing via recession
8. Finally, the outcome will enable the researcher to identify and enquire other sources and modalities through which its current weak regulatory system can be curbed.

1.7 Scope of the Study

The study examines the state of pension Reforms in the public sector, with special focus on the Lagos State Ministry of Education, Alausa, Ikeja, Lagos State. In reference to the impact of the National Pensions Commission, towards ensuring compliance and sanity in coping and tackling the challenges of the nation’s pension plagues. The target respondents aimed for the study are majorly public servants from the top, middle and lower staff of the organization.

1.8 Limitation of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this institution to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
3. Research material: availability of research material is a major setback to the scope of the study.
4. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
5. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

1.9 Definition of Terms

It is very important and reasonable for the researcher to allow readers of this work to know the contextual meaning of some key words therein to avoid misinterpretation of such words. Below are some of such words;

The National Pension Commission (NPC): It is a Commission created by the Federal Republic of Nigeria to regulate, supervise and ensure effective pension regime in Nigeria.