Effects of Pension Schemes on the Nigerian Workers

Effects of Pension Schemes on the Nigerian Workers

In the traditional Nigerian society, aged parents look up to their children for support and this is one reason that the average numbers of children in Nigeria home are usually more than those of their counterparts in more developed countries. The home is therefore the bedrock of provision for the old. This arrangement therefore instates the role of a pension scheme on a less final setting.

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It would be appropriate at this junctures to briefly give the meaning of a pension.

A pension can be defined as a series of regular payments provided by government or former employer for a person who has come to the end of his normal working life. It is an income during retirement at it’s most basic level. Such an income will assist the retired person to survive and depending on the amount and on any other means he may have, it may also enable him continue to enjoy some of the luxuries which he could afford during his working life. As earlier indicated, it is evident now that the Nigerian traditional society simply substitutes the large extended family as a pension scheme. Members of the family collectively make every provision required by the retired for his/her upkeep until death.

This method of course is crude and not very effective one which can be illustrated as thus: Assuming the retired has an infirmity this would mean double trouble for the supporting family and where the loss by accidental means one can retire only imagine the plight of such a retiree and dependents.

In order not to dabble much into that aspect, we will now examine the background of the pension scheme itself. Accordingly, pension dates back to the twelfth century and in those time, it was only through local manors or boroughs that protection was obtained from hardship and also within the confines of the community that guilds distributed relief. At that time though it was only regarded as relief for the old and poor and not necessary as a benefit for service rendered during one’s working days. These guilds were founded on religious or charitable basis and as time want on, merchants and craft guild were also founded. Gradually as strong central government emerged, caring of the poor because a national issue rather than a local responsibility so legislature concerning the poor because common.

As time wants on, the occupational pension scheme which established a right to a pension as a result of previous employment was also introduced and this is where, we are most concerned with in this research work.

In Nigeria generally, pension scheme does not import much meaning to the workers, not to mention it’s usefulness. It still has not rested it’s full weight on the Nigerian populace because all they see and know about is that it is some sort of income which one is supposed to be entitled to after retirement but never gets.

This is the present position of what the average Nigerian worker feels and knows of pension, which is pathetic.

What is the cause of this situation? How do we go about correcting the system? All these and other questions will enable us straighten out the present position of pension schemes in Nigeria using Enugu state as a case study.

Many Nigerian workers after retirement from active service whether voluntary or otherwise are not aware of what entitlements they are entitled to as pension or where there is awareness, those in authority seen to be up to one thing or the other in order to delay the commencement and safe of the retiring employee’s pension.

Experts in Nigeria agree that due to the fact that most workers become dejected and worn-out after retirement, not a few of them (workers) look up to their retirement period with optimism.

While the retired civil servants could be slightly better if as they are entitled to monthly stipends in the firm of pensions their counterparts in the private sector are not so lucky. They receive theirs en-bulk at the initial time of retirement and no more. Therefore it becomes difficult for them to plan and carry out their obligations which they still carry along with them regardless of their fresh status, as retried workers.

Another area where this research would tend to examine are the reasons being given for the delay in payments of gratuities and pensions which range from structural defects in payment arrangement in relation to bureaucracy, fraud and mismanagement of pension funds, though the Nigerian constitution on the protection of pensioners safe “The right of a pension in all the public service of the federation to receive pension or gratuity shall be regulated by law. Any benefit to which a person is entitled shall not be withheld to his disadvantage it however, is salient on when payments should be made and penalties for delay.

It is against this background that this research work will be established and recommendation made curb the present disheartening situation as regards pension schemes in Nigeria.


          This study will aim at examining the problems associated with pension scheme effectiveness and efficiency, the administration of pension funds and criteria for setting up such schemes in Nigeria. It intends to finds out why it is near impossible for retirees to receive their pensions, the employees’ role in pension’s arrangement and the administration of the pension funds. Another problem that would be considered would be that of managing the retirees in such a way that they are given adequate opportunity which would enable them to prepare very well or their new lives after their disengagement from active service as well as rehabilitating them so as to prevent the social menace in the society.


          The objectives of the study are enumerated as follows:

  1. Examine the effects of pension schemes on the average Nigerian workers
  2. Ascertain difficulties associated with the administration of the scheme
  3. Cross check methods in which schemes are run
  4. Recommendation on row to solve difficulties.


          The significance or import of this study is such that would be a useful parameter in the following ways:

  1.       Reward for loyal service
  2.      Promote efficiency within an organization by making it possible for older employees to retiree without fear of poverty and wretchedness.
  3.   Help employers attract the right types of staff and retain them
  4.   Encourage good employer/employee relationship
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The study will also be an invaluable contribution to the following groups:

  1. Employers of labour
  2. Slate and local government Authorities
  3. Management and staff of the Nigerian social insurance trust fund
  4. Federal government
  5. Insurance and brokerage companies


The scope of this study will be limited to Enugu State and focus on two public limited companies Nigerian Railway Corporation (NRC) and NNPC but focusing mainly on Nigerian Nationally Petroleum Corporation (NNPC). It is anticipated that the result of this research would provide valuable insight for a possible re-valuation of not only the target companies but other companies administration of pension scheme.

Time constraint was a major limitations in presenting this research work as the incessant disruption of academic would not encouraged one to carry on with school chores and finally  when academic eventually began, only a short period was set aside before examinations would commence, with the present economic for more than 5 years.


Pensions cannot be discussed without mentioning retirement as the lather brings about the former. Ekula Brifaced in his article “Government Pension Scheme in Nigeria” said that enforcement is one of the most dreaded word in the workers dictionary. Every year, thousands of workers both in the public and private sectors of the economy are asked to rest their bones by way of retirement after working for a stipulated length of time. That in itself is not a bad idea except that more often than not, it is done in such a manner that leaves the worker in a devastated stated instead of serving as a veritable means of relaxation and deserved rest.

This is due to the fact that when in service the workers especially the unskilled ones, among them depend almost entirely on their salaries which they can afford to overshoot in their budget or even go borrowing with the intension of paying back when they collect their salaries at the end of the period.

Unfortunately, at retirement the frequency of their income is seriously affected making it relatively difficult for them to plan and carryout their obligations which they still carry along with them regardless of their fresh status as retired workers.

According to Dr. Francis Nwafia an industrial relations expert, it is very unfortunate that retired workers in the country are not given adequate opportunity which would enable them to prepare very well for their new lives after disengagement from active service. It is sad that they are not given adequate awareness regarding the obvious hostility of the environment after their services and that is why many of them find it extremely difficult to cope after retirement and that is why many of them take to drugs and alcohol so as to wipe away the thoughts of retirement. (Dr. Nwafia Francis 1994, Guardian page 13)


          Retirement should be pot of gold at the end of the rain bow not in a monetary sense but in terms of personal fulfillment. After all, one has worked long and hard, one has shouldered one responsibility one should look forward to a well- earner respite.

“A person on reaching the age of retirement is now the night of every one”. The day it is first received is a milestone which most people pass with a peculiar sense of achievement. For some the satisfaction is lessened by compulsory departure from the habits of a lifetime, for other there is the opportunity of continuing the customary work to a lesson extent or of branching out into a new sphere of activity”. A county doctor (1964 pg 17)

At a conference on the retirement process under the auspices of the National Institute of Child Health and Development, the view was widely expressed that the word retirement had been implied of much of its earlier meaning and a better term should be found, but the conference was unable to find it. Summing up the findings of the conference, Dr. Francis N. Carp wrote:

“Retirement has many meaning of those undergoing it.          The end of individual work and social contacts …. Rest,   relief from any unpleasant, overtaxing or health drawing           job, or completion of commitment to society and          initiation of self realization; It may be a ceremony        between one career and another it may represent the    opportunity to start ones “real” life work….second and    even third careers are becoming more common.

Greek Philosopher Plato wrote over 2,000 years ago and his observation is as true today as it was then. “In fact old age is not necessarily a cause of unhappiness. The discontents of later life have their roots in character more than in events”. A county Doctor (1964 pg 19).

One should be able to view retirement as the reward which one’s labour has bought. In the not – so –good old days, retirement if it came was something to be accepted and endured, not planned for and enjoyed, with luck, there might be a room in a son’s or daughter’s house.

Normally, both the retired civil and public servants are entitled to

  1.      Gratuity
  2.    Pension
  3.    Incapacity benefits and
  4.  Death benefits.

Unfortunately that is not the situation. While the retired civil servants could slightly better of as they are entitled to monthly stipends in the form of pensions, their counterpart in private sector are not lucky, they receive theirs en-bulk at the time if retirement and no more. Since this research is focused on pensions, all other benefits will be overlooked.

Regardless of the fact that there are rules and regulations governing the payment of pensions to retried workers, the lamentations of these workers never seems to end. Retires of the Nigeria Railways Corporation (NRC) in an endless list have either died or become disabled after retirement such that they become burdens to their families and themselves and so spend the later part of their days in pains and agonies rather than pleasures. About six thousand (6,000) of their over twenty five thousand (25,000) NRC pensions have reportedly died in the last three years but this gory story is not peculiar to the NRC. It appears to be the plight of the whole service in the country.  Looking through the pages of newspapers such headlines as “Pensions slumps to death waiting to collect gratuity, pensioners protest non-payment of arrears” “pensioners expectations lashed” are ever so often words to confront the reader.

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Where no advance provision has been made for payment of a pension, an employer may simply take the money for each installment directly which has often been done in the past. This may, more difficult for him to maintain regular payments if business conditions became less favorable in the future or if the relative numbers of retired employees increase. Even where an immediate annuity is purchased from an insurance company these removers the problem in that instance but involves finding a sizable capital sum which man not be practicable at the time a particular employee retires.

From the employee’s point of view, these methods are open to criticism as he has no advance guarantee of any given amount of pension or indeed a pension at all. This may depend on the continuation of the business, its prosperity at the data of his retirement with any sense of certainty. The purchase of immediate annuity from reputable insurance company though would provide security after retirement which payment “out of the till” cannot provided.

The modern concept of an organized pension scheme therefore implies that there should be an advance promise of the payment of future benefits on some defined basis, together with some guarantee if financial security to ensure that this promise can be realized. To achieve this, it is usual for regular amount of money to be set aside by the employer and these sums ear-marked for the provision of pensions and other benefit in such a way that they are quite separated from the general asset of the business.


          The process of establishing a retirement benefit scheme is often described as “Installation” , partly form legal requirements and partly from practicing a research standard procedure which has evolved. The details tend to vary with the type of scheme, the nature of benefits being provided and whether or not any existing schemes are being superseded. The procedure for installation is as follows:

  1. The creation of the legal frame work
  2. Obtaining the Pension Scheme Office (PSO) approval. In Nigeria this duly is perform by the Nigerian Social Insurance Trust Fund (NSITF)
  3. Establishing confirmation of contracting out, where such contracting out is to be adopted.
  4. Infirming the employees.


           The Nigeria constitution on the protection of pensioners say’s the right of a person in all the public service of the federation to receive pension or gratuity shall be regulated by law. Any benefit to which a person is entitled shall not be withheld or attend to his disadvantages. The whole area of

  1. Pension provision
  2. Contribution
  3. Benefits and entitlements are therefore controlled by legislation which we subject to frequent charges.


  1. Letter of Exchange

          When it has been decided to inaugurate a pension scheme, the Pension Scheme Office (PSO) will not consider that the scheme is effective until there is a trust. If there are more than one or two employees for whom benefits are to be provided either a trust dead will be executed or a declaration of trust made or a board resolution may be used to establish the trust fund. If there is only one employee involved, a scheme may be constituted in the basis of an exchange letter between the employer and the employee concerned. The letter with attached conditions constitutes the rules of the arrangement. The pension’s schemes office has laid down guidelines to be followed so that a large number of interim documents for setting up trust for one-man arrangement are not requirement.

An interim trust dead is needed if provisional relief on any contributions by the employees is to schemes office and it is usual for trust dead and rules to be required.

Traditional Occupation Schemes

          The draft of the trust deed is passed to the Occupational Pension Board (OPB) which has to be satisfied that certain legislative requirements have been met until this procedure has been completed, the engrossment cannot be prepared for execution. The drafting of documentation should be a first effort between the employers, the provision consultant / broker, actuary of insurer and the solicitor. It is unlikely that an employer who decided to proceed with the setting up of pension provision of his employees would decide to defer inauguration until this procedure has been carried out. It is customary to prepare and execute a simple interim trust deed which inter alia appoints the trustees and administrations and include only the provisions necessary to enable the scheme to be operated including the undertaking to observe all the requirements of relevant legislation relating to preservation.

The interim trust dead will cover a number of specific points such as:

  1. The establishment of irrevocable trust
  2. The appointment of the first trustees and administrator
  3. A statement of the principal purpose of the scheme e.g. provision of pensions on retirement at a specific age
  4. Investment powers
  5. The method of death benefit disposal
  6. Contracting out provisions, if applicable
  7. Amendment powers.
  8. The employers will be asked to complete a short proposal firm, if the scheme is to be insured and also provide the information which the Pension Scheme Office (PSO) requires:
    1.  Full name if the company with its registered address
    2.   Details of the business
    3.   Details of employer’s and employee’s tax offices required
    4.   A  note if the tax office references


  1. The date of the employer’s accounting year end
  2. Details of directors being included in the scheme and whether they can control more than 20% of the issued share capital.
  3. Details of any other retirement benefit scheme of the company or associated companies.

The interim trust deed will be required to be stamped by the stamp duty office after execution, although the absence of a stamp does not usually affect the validity of a deed, deed

Cannot be used in a court of law unless it has been properly stamped and the document should be stamped within thirty days and the document should be stamped within thirty days (30 days) of execution. If it is not stamped within that period, a financial penalty may be imposed. If the policy plus rules procedures is adopted, a set of rules will be drafted by the insurer and when agreed they should be formally adopted by the employer as the rules of the scheme. E.g. by means of a board resolution; several copies will be produced for reference purposes and sometimes a copy will also set out the main provision regarding the rights of the employers and the day-to day operation of the scheme.

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E.g. they may specify:

  1. Which employee may join the scheme
  2. Whether they are required to contribute to it
  3. The benefits and options available
  4. The right of the employer to amend or discontinue the scheme
  5. The way in which the benefits are to be provided.


          This is the last stage in the installation establishing a retirement benefits scheme. Employees are informed by a means of announcements and an explanatory booklet. Some of the points highlighted in the booklet included the following:

  1. Date of commencement
  2.  Eligibility – Who may join the scheme and when
  3. Entrance data- indicates the date (s) in which now employees may be admitted into the scheme, usually once a your
  4. Normal retirement age
  5. Basis of pension – definition of the annual pensionable earnings in which retirement benefits are based
  6. Basis on which the employee will continue
  7. Payment of pension – mode and frequency
  8. Nomination for death benefit
  9. Death benefit
    1. On leaving service
    2. Whilst in service
    3. On leaving service but prior to nominal retiring date
    4. Past benefits (if any)
    5. Early retirement – serious ill health or incapacity pension allowed at any time. Others not allowed by pension scheme office before age 50 years.
    6. Late retirement – consequences of employee postponing retirement
    7. Commutation of pensions
    8. Liability to tax – pension is taxable
    9. Learning service – Presentation retirements
    10. Temporary absence from work- illness etc
    11. The additional benefits, conditions and contributions.


Under Decree No 12 of 1979, for employee to qualify for any form of retirement benefits, the employee must have put – in not less than ten years (10yrs) to active service to quality for pensions, and five years (5yrs) or more for gratuity. The payment though will still be subject to certain circumstances or conditions fulfilled by the employee.

Circumstances In Which Gratuity and Pension May Be Granted

  1. On voluntary retirement after qualifying service of ten (10) years up to 31st March 1977, fifteen years as from 1st April and ten (10) years as from 1st June 1992
  2. On compulsory retirement at the age of 60 years or 35 years service which ever is earlier.
  3. On compulsory retirement for the purpose of facilitating improvements in the organization of the officer’s department or ministry so that greater efficiency or economy may be effected.
  4. On the advice of a properly constituted medical board certifying that the officer is no more mentally or physically
  5. On total or permanent disablement while in service.
  6. On abolition of his office as a result of a re-organization in the department and he can not be transferred to another office
  7. If he is required by the public service, commission of the federation to retire on the grounds that his retirement is of public interest.
  8. To take up appointment in a local government or as a member or head thereof with the prior consent of the commission, if the commissioner is satisfied that such retirement is in public interest.

Where an officer retires after 31st May 1992 in pursuant to conditions (a) to (b) above

  1.     If he has completed 5 years but not up to 10 years services, he shall be entitled only to gratuity.         
  2.      If he has served for not less than10 years he shall be entitled to pension.
  3.  If he is required to retire after 10 years qualifying service pursuant to the provisions of condition (a) to (b) above, he shall be entitled to pensions immediately on retirement not withstanding that he has not attained the age of 45 years.

Pensions guaranteed for 5 years for an officer who dies in service after qualifying for gratuity and pensions or within 5 years after retirement, his next of kin or designated survivors shall be entitled to 5 years pension in addition to his gratuity or the balance of his pensions up to 5 years after retirement this could be paid forthwith.

Computation of Pension and Gratuity 

With effect from 1st January 1991 the calculation and payment of retirement benefits are based on the total annual emolument of an officer. The component units if an officer’s total emoluments which are taken into account in computing pensions and gratuities are as follows:


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Effects of Pension Schemes on the Nigerian Workers

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