Philosophy of Social Security in Nigeria
The philosophy of social security in Nigeria can be found in the extended family and kinship system. In this system, members of each group take care of one another and come together in times of celebration, calamity and emergency to collectively celebrate or alleviate the losses and sufferings of members of the group.
Different parts of the country have their own ways of achieving the same goal. The age grade system and town unions in the South-Eastern part of the country, for example, exist for mutual benefits of their members in accordance with the constitution of each group or association. Social clubs, which exist in every nook and cranny of the country, perform similar functions. Churches, Mosques and several other organisations are involved in the provision of similar assistance to their members.
Modern Day Concept of Social Security
The modern day concept of social security evolved out of humankind’s quest for protection from the hazards arising out of vagaries of nature, life and work in modern societies.
The origin of modern day concept of social security dates back to late 19th century in Europe but it was only in the three decades following the Second World War that it developed its characteristic features. As the International Labour Organisation (ILO) noted, as the pace for industrialisation quickened, a large new class of factory workers emerged, completely dependent for their livelihood on the regular payment of wages. They could well be reduced to deprivation if and when their wages stopped during sickness and unemployment, following work injury or in old age.
In the attempt to protect the urban labouring classes from destitution, several other systems evolved. There were, for instance, savings bank facilities sponsored by governments; there were measures laying upon employers some obligations to maintain the sick or injured workman; there was the growth of mutual aid societies organised to provide modest cash aid in sickness and old age; and private insurance development of simple life policies and funeral benefits.
The above brief summary traces the development of the concept, which has come to be known as social security. ILO further states that the expression acquired a wider interpretation in some countries than others. It defined social security as the protection which society provides for its members, through a series of public measures, against economic and social distress that otherwise would be caused by stoppage or substantial reduction of earnings, resulting from sickness, maternity, employment, injury, unemployment, invalidity, old age and death.
“Prior to the coming into force of the Pension Reform Act 2004, pension schemes in Nigeria were categorised into public and private sectors. The public sector had the Pay As You Go (PAYG) Defined Benefits Scheme, which was bedevilled with many problems. Against the backdrop of an estimated N2 trillion deficit, budgeted appropriations for pension benefits had over the years fallen far short of promised benefits. This was further compounded by late release and sometimes, non-release of funds. Pension arrears owed to military, police, customs, immigration and prisons including civilian pension departments alone were estimated at N56 billion as at the end of June 2004. The pension crisis in the more than 300 federal government parastatals was alarming as most of these schemes remained under-funded.”
Pension as a Pillar of Social Security
If the objective of social security is to provide an appropriate cash benefit for the demand of a particular contingency and for the need of a particular individual, in no branch have the planners exercised their analytical skills and ingenuity more thoroughly than in devising schemes of benefit for old age.
The most useful old-age benefit, in social security is a life pension. Pension is a retirement plan that provides monthly income in retirement. ILO defines pension as old age benefits or old age protection, which covers, if not all the population, at least a section of it.
Evolution of Pension in Nigeria
In Nigeria pension has received significant attention. The first public sector pension scheme was the Pension Ordinance of 1951, with retrospective effect from January 1, 1946. The law provided colonial public servants, mostly British, with both pension and gratuity. Pension Decrees 102 and 103 of 1979 were enacted to for civil servants and the military respectively, with retrospective effect from April, 1974. The two Decrees became Acts of Parliament and were referred to as Pension Act 1990 and the Armed Forces Pension Act, 1990. The Police and Other Agencies Pension Officers (Establishment, etc.) Act 1993 and the Police Pension Rights of Inspector-General of Police Act 1993 were also enacted.
The Pension Reform Act 2004 repealed all these pension laws. On the other hand, the first private sector pension scheme in Nigeria was set up for the employees of the Nigerian Breweries in 1954; this was followed by the United Africa Company (UAC) in 1957. The National Provident Fund (NPF) was the first formal pension scheme in Nigeria, established in 1961 for non-pensionable private sector employees. It was largely a savings scheme, where both the employee and the employer contributed the sum of four Naira (N4) each on a monthly basis.
The scheme provided for only one-off lump sum benefit. The National Provident Fund was replaced by the Nigerian Social Insurance Trust Fund (NSITF). The primary objective of the NSITF was the protection of workers in the private sector against loss of employment income in the event of old age, invalidity and death. It also paid funeral grants to supplement burial expenses of deceased members. The scheme was compulsory for employers and employees of the private sector with not less than five (5) employees. The Pension Reform Act 2004 stripped the NSITF of all pension functions and directed it to establish a company to undertake the business of a Pension Fund Administrator.
Prior to the coming into force of the Pension Reform Act 2004, pension schemes in Nigeria were categorised into public and private sectors. The public sector had the Pay As You Go (PAYG) Defined Benefits Scheme, which was bedevilled with many problems. Against the backdrop of an estimated N2 trillion deficit, budgeted appropriations for pension benefits had over the years fallen far short of promised benefits. This was further compounded by late release and sometimes, non-release of funds. Pension arrears owed to military, police, customs, immigration and prisons including civilian pension departments alone were estimated at N56 billion as at the end of June 2004. The pension crisis in the more than 300 federal government parastatals was alarming as most of these schemes remained under-funded.
Private sector pension schemes were largely provident fund schemes rather than retirement schemes. Most private sector pension funds were not segregated from the funds of the companies. Therefore in the unfortunate event of a company going under, the pension fund also went under. Moreover, there were several government agencies such as the Joint Tax Board, Security and Investment Commission, etc. all regulating different aspects of the same pension scheme as it affected their mandates.
It was as a result of all these problems, including pension issues in privatised public corporations that prompted the Obasanjo administration to set up a Committee to reform the pension industry in Nigeria. The overriding principle was to have a system that would ensure that pensioners have adequate, affordable, sustainable and diversified retirement benefits. It was also aimed at ensuring that every person who had worked received his/her retirement benefits as and when due so as to prevent old age poverty and secure pleasant retirement life.
The Committee concluded its assignment and presented a draft Pension Bill to the President along with its report. The Bill after going through the necessary bureaucratic processes, was sent to the National Assembly as an Executive Bill. The Bill was passed into Law as Pension Reform Act 2004. The Pension Reform Act 2014 repealed the Pension Reform Act No 2, 2004.
Pension Reform Act 2014
The Pension Reform Act 2014 was enacted to make provision for the uniform Contributory Pension Scheme for the public and private sectors in Nigeria; and for related matters.
The objectives of the Act are as follows: (a) establish a uniform set of rules, regulations and standards for administration and payments of retirement benefits for the public service of the federation, the public service of the Federal Capital Territory, the public service of the state governments, public service of the local government councils and the private sector; (b) make provision for the smooth operations of the Contributory Pension Scheme; (c) ensure that every person who worked in either the public service of the federation, Federal Capital Territory, states and local governments or the private sector receives his retirement benefits as and when due; and (d) assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
In the case of the private sector, the Scheme shall apply to employees who are in the employment of an organisation in which there are 15 or more employees. Notwithstanding these provisions, employees of organisations with less than three employees as well as self-employed persons shall be entitled to participate under the scheme in accordance with guidelines issued by the National Pension Commission.
The National Pension Commission (PenCom)
The National Pension Commission (PenCom) is the regulator established by the Act to enforce and administer the provisions of the Act; co-ordinate and enforce all other laws on pension and retirement benefits; and regulate, supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria.
The functions of the Commission include issuing of guidelines, rules and regulations for the investment and administration of pension funds; approve, license, regulate and supervise pension fund administrators, custodians and other institutions relating to pension matters as the Commission may, from time to time, determine; receive, investigate and mitigate complaints of impropriety made against any pension fund administrator, custodian, employer, staff and agent; and promote and offer technical assistance in the application of the Contributory Pension Scheme by States and Local Government Councils in accordance with the objectives of the Act.
The Commission operates under a Board of Directors headed by a part-time Chairman with the Director General as the Chief Executive Officer. The day-to-day running of the Commission is handled by the Executive Committee, which comprises of the Director General and four Executive Commissioners who are also members of the Board. Each Commissioner heads a Division that is made up of Departments and Units that are headed by Heads of Departments and Units.