ASSESSMENT OF THE CONTRIBUTORY PENSION SCHEME IN THE NIGERIAN ARMED FORCES

ABSTRACT

The work examined and analysed the management of pension scheme in the Nigerian  Armed  Forces  since  the  introduction  of  the  contributory  pension scheme in Nigeria. The research design was a combination of a survey, oral interview and model modification. The population of the study was 6000 made up of military personnel of the 6 military units based in Makurdi, Port Harcourt, Calabar, Enugu, Abuja and Kaduna. From this, a sample size of 375 was drawn using the stratified sampling technique of probability sampling. The sample size was got by the use of Taro Yamane’s formular. The study utilized data from both primary and secondary sources. Primary data were generated using questionnaire, oral interview schedule and dichotomous oral interview schedule as three instruments. Secondary data, on the other hand, were obtained from official publications, journals, textbooks, documentations, paper clippings and internet services. 375 copies of the questionnaire were administered to the military personnel.  The  data  was presented  using  tables,  simple  bar charts, histograms and a pie chart. The reliability analysis was done using systematic sampling.   The content validity analysis was done using both systematic and stratified sampling. The data was analysed using percentages, relative frequencies, z-test and Spearman’s rank correlation coefficient. The five hypotheses were tested using Spearman’s rank correlation coefficient, z-test of population proportions and one factor chi-squared test. It was found that the administrative and management lapses that characterized the Pay-As-You-Go- Scheme would be absent in the contributory pension scheme. The study also confirmed  that  the  long  delay  in  payment,  perennial  lack  of  funds  and corruption that characterized the Pay-As-You-Go system will be eliminated in the contributory pension scheme. It concluded that the work should be extended to the public sector to make for better generalization of the Nigerian situation. It was recommended that Government and the National Pension Commission should ensure effective monitoring, supervision and enforcement of the provisions of the Pension Reform Act 2004 that introduced the contributory Pension Scheme to avoid the problems identified with the Pay As You Go system.

CHAPTER ONE INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The dream of every employee is to make a graceful exit from an active work life into the peace and tranquility of old age. Owing to the   demands of this vital phase in the life of a worker, he looks forward to a financial parting reward in lump sum or periodic payments that would enable him manage the stress of old age without having to  beg for his upkeep  and  that of his family members. Brown (2004:8) declares that such financial lifeline is so desirable considering that in retirement one has little or no opportunity to engage in very serious economic activity that can guarantee immediate financial needs.

Artchley, (1998:8) asserts that in a broader sense, some people see retirement particularly at old age as being synonymous with sickness and the weakening of one’s physical strength. This is true especially in Nigeria where retirees hardly get employed after attaining certain age and where social security benefits for the aged and unemployed are hardly available on government list of priorities. Bethel (2003:8) argues that it is perhaps an attempt to avert these embarrassing moments in retirement that every worker sees his benefits often as a priceless issue that needed to be protected and provided for while in active service. This confirms Copper (2002:18) statement that contributing towards one’s retirement must be regarded as a responsibility that every worker should dutifully implement.

Prior to the Pension Reforms Act of 2004, pensions were mandatory in the public sector but optional in the /private sector. On the one hand, ‘government

workers’ pension was devised under the Pension Act of 2004. Under this Act the pension and gratuity granted to retirees were on the basis of final pay and the  sums  were  made  as  charges  to  the  consolidated  revenue  fund  of  the federation (Elegbana, 2004:11). It is important to note that the Federal Public Service operated an unfunded non-contributory defined benefit Pay-As-You-Go System (PAYG). In a PAYG System, government taxes active workers to pay for the benefits of retired workers.

According to Bello (2002:5), retirement benefits therefore became a function of the rate of growth of tax base. This in turn depends on the rate of growth of labour force and the rate of growth of real wages per worker. Sabot (2006:18) denounces this  arrangement as he  argues  that the  retirees may or may  not receive their benefits depending on whether or not their employer has sufficient cash resources to make payment at that time.

Herman (2003:8) also questi—*ons this arrangement. According to him, even though government guarantees gratuity and pension, it is bound to fail since it is not funded by the setting aside of money from which commitments could be served. He argues that in no distant time there was the likelihood of the pension salary  outrunning  the   salary  of  the  active  workers.  The  result  of  this arrangement was the crisis of nonpayment/delayed payment of pension and gratuity across the public sector – the main stream civil service, parastatals, military, state governments,  universities and local government etc (Ndalolo,

2004:18 – 22). Dike (2006:11) argues that the sheer size of the public sector workforce in Nigeria has made it difficult for government to pay its workers their salary let alone adequately meet its pension commitments.

Blake (2006:33) reports that most institutions in the private sector do not have any pension  or retirement benefits scheme  for their employees. Though  he agreed that some institutions operated similar schemes to the PAYG system, others operated funded contributory schemes. In the latter case, contributions to a pension provident or other retirement benefit funds are made tax free with deductions allowed in the attainment of income of an individual. However, such arrangements must have been approved by the Joint Tax Board.

Omoragbon (2004:2) criticizes this development as it would then appear that workers in the public sector enjoyed an advantage over their counterparts in the private sector, to the extent that pension/retirement benefits were guaranteed to one sector but not to the other. Under the old Pensions Act, the stipulated age for retirement was 60 years or 35 years of continuous service, whichever came first. An officer who has put in service up to 10 years but less than 15 years was entitled to the payment of gratuity only but no pension was payable. However, where he has served  for more than 15 years, he would  be entitled to both gratuity and pension.

Osuagwu  (2001:13)  postulates  that   though  the   foregoing  represents  the conditions for the payment of gratuity and pension under the Pension Act but regrets that progressively and quite noticeably in recent years, the government has struggled with little success to meet its pension obligations. According to him, payments of retirement’s benefits have become erratic and irregular. Retirees no longer receive payments of their entitlements as and when due. The crisis generated by this development has necessitated the reform undertaken by government, which culminated in the enactment of the Pension Reform Act

2004.

Jacquiline (1999:16) frowns at a situation where many retired government functionaries usually wait several years for their entitlements before getting them. According to  her, the situation was the  same for most retired  public officers. Soldiers have regretted a scenario where after fighting for their father land, they were now fighting to collect their entitlements from the military authorities.  In one of such instances, the soldiers vowed never to leave the Federal Capital Territory until their entitlements were paid. Ejim (2003:4) concludes that the issue of pension administration in Nigeria has become one of the thorniest issues in the country today as millions of retired Nigerian workers live in abject poverty and neglect as a result of the failure of the country’s pension system.

Alubo (2002:3) asserts that despite efforts being made by the Federal Government to mop the pension backlog, Nigeria still owes about 2 trillion naira to  its workers. Citing  the  Nigerian  railways as a  typical example,  he disclosed that monthly pension bill then stood at N210 million with a monthly wage bill of N210 million as against a part sum of income it was generating. Ahmed (2003:16) in his report at the National Pension Commission put the outstanding Federal Government’s pension liability at N2.56 trillion. The same report showed that retired military and Para military were owed N2 trillion while the accumulated pension arrears for the military stood at N56 billion.

Pension has been defined as a series of regular payments provided by Government or a former employer for a person who has come to the end of normal working life. Traditionally, according to Bashir (2003:16), the word applied only to those in government employment but increasingly it is seen as appropriate for everyone that engages in any employment whether public or

private sectors. Pension can also be conceptualized more broadly in terms of a plan or  systematic  arrangement  made by an  employer  for  the  provision  of ancillary benefits to his employee. Omoragbon (2004:11) defines pension as a sum of money regularly paid to a person who no longer works because of age, disablement etc or to his widow or dependent children by the state or his former employer or from funds to which him or his former employer or both have contributed.   In the view of Hanclot and Martins (1985:13), the purpose of occupational pension scheme is to provide employees regular and stable income after their retirement from service. It is an arrangement an employer or group of employers uses to  provide pension (and sometimes other) benefits for their employees when they leave or retire. They also provide benefits to the employee dependants if the employee dies.

Mouly (1978:7) views the annual budgetary allocation for pension as one of the most vulnerable items in budget implementation in the light of resource constraints. He states that even where budgetary provisions were made, inadequate and untimely release of funds results in delays and accumulation of arrears. However, current arrears of pension payments are only the symptom of a much deeper crisis. Furthermore, since the scheme is unfunded, there is no opportunity for the accumulation of investible funds. Even where funds were accumulated under some parastatals’ schemes, restrictive investment policies and practices sometimes limited the capacity of such funds to grow. Political instability and military involvement in governance in the past had engineered massive  premature  retirements  thus  creating  an  unstable  pensioner-to-active work ratio (Jerome 2001:18).

He admits that poor administration, inadequate delivery structures for payment and lack of a database of pensioners have resulted in delayed payments of benefits and consequent near destitution of pensioners, adverse publicity in the media and portrayal of society and government as uncaring to the plight of its senior citizens. Babalola (2005:18) concludes that such inherent problems of the pension scheme in the country have given rise to insecurity and appeared to have encouraged corruption in the active work force.

Ibiang (2003:12) chooses to use the armed forces as another graphic example. He states that there are more officers and men on the pension roll than those in active service, many of them in their thirties and forties .The implication is that they  are  at  the  mercy  of  budgetary  constraints  for  at  least  thirty  years. According to him it is therefore not surprising that pension crisis in Nigeria has manifested most dramatically and tragically in the Nigerian Armed Forces, the Railway and the Teaching Service. This above explains in part why the existing pension scheme collapsed.

Ibrahim  (2003:18)  recalls  how  military  officers  of  all  cadres  who  had contributed immensely to national development are treated in most dishonorable manner due to poor pension management. According to him, there have been incidences of collapse while queuing up for the stipends, partial paralysis and even deaths among the military men while struggling to collect their pensions. Several pension verification exercises conducted by the military had recorded so many deaths arising from long queues and delays.

Accordingly, President Olusegun Obasanjo’s administration initiated a reform in order to address and eliminate the problems associated  with the pension

schemes.  There  were  essentially  two  choices  for  a  pension  reform.  One approach was to carry out minor reforms or adjustments to the existing public schemes.  The  adjustments  may  include  changes  to  eligibility  criteria  for receiving pensions, the benefit structure or the administration of the scheme. These are usually referred to as parametric reforms. Unfortunately, these adjustments were not only insufficient to address the underlying problems of military pension  schemes but  would  have  succeeded  in deferring  the  fiscal crisis.

It was against this backdrop that Nigerians welcomed the 2004 pension reform that established a Contributory Pension System supervised by the National Pension Commission (PENCOM). The setting up of PENCOM by the Obasanjo administration has been described by many as one of the high points of its achievement  in  the  Nigerian  economy  and  particularly  for  the  nation’s workforce. Before its final passage the Pension Reform Act benefited from the collective wisdom of many Nigerians which assisted in building wide range consensus on the elements of the reform. Implementation of the scheme was phased starting with federal ministries and related agencies which commenced in July 2004, while the private sector was allowed to commence the implementation of the scheme in January 2005 to ensure adequate planning and further  sensitization.  Ibikunle,  (2005:13)  declares  that  unlike  the  defined benefits contribution that limited  workers entitlement to  a fixed  amount of money on retirement, the new defined contribution is a function of what the employees and the employers have contributed over the years, including the return from investment made with the fund managers.

1.2     PROFILE OF THE NIGERIAN ARMED FORCES

The traditional and central roles of the Armed Forces of any nation are, first and foremost, the defense and protection of a nation’s territorial integrity (Armed Forces Act 1993). This broad objective naturally fans out to encapsulate the other roles which involve the furtherance of the national aspirations in the area of working with government and the people to achieve all laudable national objectives  which  would  contribute  to  the  wellbeing,  stability,  peace  and progress of the society. In this way, one of the key aspirations of every nation is that it should achieve peace and  stability within and without its borders to enable its military to deploy its special skill and capabilities that have been honed  through years of disciplined formation  and  culture of  excellence for external conquests. (Aminu, 1986: 51) In that way, the military continues to be involved in national defence.

Bolarin (2001:3) agrees that even though the military in every society is subject to evolutionary development as it systematically assumes wider and more expansive roles detected by contemporary realities, it still continues to be the bedrock for the defense and furtherance of the lofty aspirations of the society. In that process, it often becomes the most reliable partner and the automobile which  drives  the  national  interest  of  every  country.  That  is  why  in  most societies it is the last line of defense during any untoward event in the country, as in the case of natural and man-made disasters.

Adesina (2004:18) points out that the historical circumstances that informed the formation of  the military of  every  nation  determines the level of  its social involvement as well as how it perceives its roles vis-à-vis the members of the same society. For instance, a national military formation that emerged from the

ashes of a war of independence like those of South Africa, Kenya, Algeria, Zimbabwe, Israel, the United States of America, Cuba, to mention only a few, invariably becomes very people oriented in its behavior and outlook because it sees itself in close partnership with the other members of the society with whom it had toiled together for the achievement of national survival.

In his contribution, Nwolise (2001:8) avers that elite military formations which emerged out of less difficult circumstances like in the case of Nigeria, Ghana, India and so on, there is often a disconnection between the military and the other members of the society which the military often views with condensation and spite. It was in that spirit that the members of the Nigeria Armed Forces had often viewed the people as ‘idle civilians’ just as the civilians had felt that ‘the mother of a soldier is childless’. According to him this type of mutual distrust and suspicion has often led to the situation whereby the military had believed that the civilians had no exclusive right or better stake to national governance, leading to the several military interventions of the past.

Under the direction of leaders who have the inborn disposition to wean the military of its previous and now unacceptable and non-fancied habits of political adventurism,  the  Armed  Forces  have  now  found  themselves  in  a  vantage position to catalyze the success of this attainable vision. More strikingly, it is only the type of commitment, discipline, determination and other glowing attributes that have made the Nigeria Military as one of the most important in the world that could be brought to the achievement of that vision. In spite of the distractions which the Nigerian Military experienced on account of its deep involvement in politics, it has been able to hold its own prestige in the comity of nations. (Imobighe, 1978:34).

1.2.1  The Nigerian Army

The armed forces of  most countries serve as veritable tools through  which national  power  is  projected.  Usually,  the  armed  forces  are  designed  and organized  along  environmental  and  functional  chains  for  the  defence  of territorial integrity and projection of national interests. The Nigerian Armed Forces as established under Section 217 (1) of the 1999 Constitution of the Federal Republic of Nigeria comprise the Nigerian Army (NA), Nigerian Navy (NN), and the Nigerian Air Force (NAF). Of these 3, the Nigerian Army, which is the oldest, largest and most operationally experienced, is saddled with the responsibility  of  conducting  ground  battles  in  favor  of  Nigeria.(National Defence Policy, Abuja 2006:22.23)

The NA has a rich history, spanning over a hundred years. The roles of the Service have transformed from foot-soldiering at inception in the nineteenth century, to the present day mechanized and motorized formations. The transformations were at  various times,  in line  with the threat  perception of Nigeria  by  Federal  Government.  Furthermore,  the  Service  has  undergone several organizational changes to its force structure from pre-independence period to the present. The 1996 Order of Battle (ORBAT) which is the force structure in existence, is premised on a 5 combat divisions structure, which is basically designed to enable the Service achieve its assigned roles, as a principal component of the Nigerian Armed Forces. (Raymond, 1980:14)

The NA evolved from  then early colonial Para-military units established  to strengthen Britain’s colonial rule and protect her economic interests in Nigeria. The  earliest  of  these  units  consisted  of  18  indigenes  of  Northern  Nigeria selected by Lt Glover of the Royal Navy into what was called Glover Hausas’ in

1863. The force which was used to mount punitive expeditions and protect

British trade routes around Lagos became known as the Lagos Constabulary in

1965. Other similar units were the Royal Niger Company Constabulary Force in Northern  Nigeria  and  the  Niger  Coast  Protectorate  Force  in  the  South. (Onimode, 1983:156)

Towards the end of the Nineteenth Century, the British Government, for various reasons, developed active interest in West African affairs. This was against her previous stand of non-governmental participation or interference. In 1889, with a mandate from the British Government, Lord Fredrick Lugard in 1900 formed the incipient body of what became the West African Frontier Force (WAFF), at Jebba, in Northern Nigeria. By 1901, the new unit had expanded by absorbing Nigerian based elements of the Royal Niger Company which incorporated all Para-military units in the other British West African dependencies; thus fully meriting its designation as WAFF. (Aminu, 1986:3)

According to Damadami (1981), all units in the WAFF were standardized after the   integration,   and   organized   into   regiments   in   each   of   the   British dependencies. Each regiment was seen as a territorial force, with the responsibility of ensuring the security of the territory to which it belonged. There   was   however,   provision   for   collective   assignments   amongst   the regiments. In the territory of Nigeria there were two regiments; these were the Northern and Southern Regiments.

The Northern Regiments has two infantry battalions, one mounted battalion and two artillery batteries. The Southern Regiment comprised two battalions – the First  and  Second  Battalions.  With  the  amalgamation  of  the  Northern  and

Southern Protectorates of Nigeria in 1914, the two regiments were integrated to form the Nigerian Regiment.

The Nigerian Regiment  was renamed  the Queens Own Nigerian Regiments (QONR), following the state visit of Queen Elizabeth II to Nigeria in 1956. Also, in the same year, the WAFF witnessed unprecedented regionalization and each military force in the British colonies in West Africa became independent of the other. As a result, the QONR became the Nigerian Military Force (NMF) later in 1956. As a prelude to Nigeria’s independence, the British Army Council relinquished control of the NMF to the Nigerian Government in June 1958. In

1960,  when Nigerian became  independent, the  NMF  became known as the Royal Nigerian army (RNA). On attainment of the status of a republic in 1963 the RNA was re-designated as the NA. (Bade, 1983:70).The Organogram of the Nigerian Army is at appendix iii.

1.2.2 The Nigerian Navy

One of the primary responsibilities of a nation and indeed her Government is the protection of her national interests at home and abroad. According to a school of thought on international relations, the tripod upon which national interests are founded includes national Security, Economic well-being and International Prestige. From this perspective, the overriding national interest of any nation can be concretely interpreted as preservation of territorial integrity and national values. Obviously, for littoral nations such as Nigeria, the protection of her maritime front and related activities by a capable naval force is an imperative. (Garment 1975:21) In supporting this assertion historically, General Hithles of the United State Marine Corps said, “the pathway of man’s journey through the

ages is littered with the wreckage of nations which, in their hours of glory, forgot their dependence on the sea”.

Deutsh, (1969) asserts that nations with maritime interest and which aspire to exert their influence outside their own boundaries must be able to bring power to bear at sea.  According to  the doctrine of Sea Power, ‘any nation which derives benefits from the sea cannot turn its back on the sea’ It, therefore, follows that any nation whose territory borders the sea, and whose economy is supported largely from  the sea,  must logically need  the sea for   at least 4 purposes which are:

a.  Passage of goods and people, that is sustenance of Commercial activities b.  Passage of military forces, for diplomatic purposes and in the event of

war, as a base for engaging enemy land, air and sea targets.

c.  Exploration and Exploitation of Resources in or under the sea. d.  Preventing hostile Military access to its Territory.

Pumel, (1973:129) asserts that Nigerian’s location at the strategic corner of Africa in the Gulf of Guinea, within the South Atlantic Ocean, makes her a maritime nation. Her sea frontier extends from Long 0020 49’ E to Long 0080

30’E, with a coastline of 420 nautical miles. As a maritime nation, she needs the sea for the purpose earlier enumerated. In addition, her dependence on the sea and other maritime interests need to be secured against any threats be it external or internal, political, economic or military. It was for this reason that some Nigerian nationalist, prior to independence, perceived the need for a full-fledge navy with the capabilities and relevant organizational structure to ward off any attempt to undermine the nation’s security, territorial integrity and maritime

interests. Chief A Rosiji, a member of the erstwhile Nigerian Parliament, during the 1955 debate on the need for a navy, stated that, ‘One of the functions of the Navy will be Naval Defence of Nigeria within its territorial waters. The Organogram of the Nigerian Navy is at appendix iv.

1.2.3  The Nigerian Air Force

The armed forces of  a nation constitute an effective instrument of national power. The Nigerian Air Force is one of the instruments by which the nation can apply that power. The Nigerian Air Force has the primary responsibility of defending the airspace of Nigeria and ensuring that other sister Services enjoy a favorable air situation in their respective areas of operation, by use of its air power. Air power is usually defined as. ‘The ability to project military force through the air medium’. The attributes of high speed, long-range, surprise, inherent flexibility and devastating firepower, distinguish air power from sea and land power. A working definition is that given by Lord Trenchard who said that “Air power is the ability to use the airspace for offensive, defensive and supply services and deny its use to an enemy”. FGN, (2006) National Defence Policy.

The size, structure and composition of an air force would depend on a careful analysis of the threat to national security. Such threats could be enduring or emerging, from either internal or external environments. Apart from political and economic considerations, the effectiveness of an air force would depend largely on the size of her skilled manpower, availability of technological advanced platforms and equipment and her structure. (Adams, 1976:23)

Air power came into existence long before the First World War but assumed pre-eminence during  the  Second  World  War.  It  has  since  been  undergoing

phenomenal development, especially in advanced countries. However, the need to establish an air force for Nigeria did not arise until the early 1960s. After attaining independence, Nigeria vigorously involved herself in sub-regional and other international commitments like the United Nations peacekeeping operations. As part of her desire to fulfill these commitments, the idea of setting up an air force was mooted. This idea was further favoured when seen against the background of difficulties faced in previous operations without our own air force. For instance, in campaigns such as those of Tanganyika (now Tanzania) in 1959 and of the Congo in the early 60s, Nigerian troops had to be airlifted by foreign air forces to and from the theatres of operations. (Chalto, 1976:21).

Recruitment into the Nigerian Air Force began in 1962. However, it was not until 18 April 1964 that the Legislative Act on the establishment of the Nigerian Air Force was passed into law. This makes the date the official birthday of the NAF. The Act states as follows, ‘There shall be established and maintained in and  for  the  Federal  Republic  of  Nigeria,  an  air  force  to  be  known  as the Nigerian Air Force’. The Act also states that the Nigerian Air Force shall be charged with the defence of the Federal Republic of Nigeria by air. (National Defence Policy 2004).Organogram of the Nigerian Air Force is at appendix v

1.3     STATEMENT OF THE PROBLEM

In 1951, pension benefits were introduced into the public sector taking effects from 1946. It brought about a major attraction for employment in the military. However, at independence in 1960 the Federal Government of Nigeria inherited a non-contributory pension scheme. The pension Act 102 of 1979 was the main legislation  guiding  the  entire  public  service.  In  the  military,  to  qualify  for pension the officer must have served for a minimum of 15 years and gratuity for

10 years. In 1992, it was reformed to a minimum of 10 years and 5 years for pension and gratuity respectively. The non-contributory pension scheme was successful until the advent of the military in 1993.

By the mid nineties payment of pension to retired military personnel became difficult.   The pension scheme became poorly funded or unfunded owing to inadequate budget allocations. Budget releases which seldom came on scheme were far short of due benefits. This situation resulted in unprecedented and unsustainable outstanding pension deficits estimated at over N2 trillion before the commencement of the pension Reform Act in 2004. At the same time  the proportion of pension to salaries increased. During the four year period between

1995  and  1999  the  proportion  increased  from  16.  7%  to  30%.  (Balogun,

2006:21).

These problems really constituted a setback for the scheme as they include non availability  of  records,  uncoordinated  administration,  inadequate  funding, outright fraud, irregularities and conflicting laws, diversion of remitted or allocated funds, presence of ineligible pensioners on the pension payroll and inability to effectively implement budgets and  make adequate provisions. It became imperative to embark on reforms to restore the hope of the pensioners and the entire Nigerian workers. The Federal Government of Nigeria in 2004 brought about a change in the management and administration of pension funds in Nigeria with the enactment of the Pension Reform Act 2004 by the Obasanjo administration. The Pension Reform Act 2004 introduced the new contributory pension scheme in the public and private sectors. The act also brought about the establishment of the National Pension Commission to regulate, supervise and ensure effective administration of pension matters in Nigeria. The commission

was  to   achieve  this  role  by  ensuring  that  payment  and  remittance  of contributions were made and beneficiaries of retirement savings account were paid as and when due. Above all, the commission was to ensure the safety of the pension funds by issuing guidelines for licensing, approving and monitoring the investment activities of pension fund administrators and custodians (Ahmad,

2006: 18)

The  scheme  was  also  to  assist  soldiers  to  save  in  order  to  cater  for  their livelihood after retirement. The reform was also concerned with establishing a system that would ensure that soldiers receive benefits generated by their own savings and not dependent on government subsidies or future generations. The reform  was  to  stem  the  growth  of  outstanding  pension  liabilities  thereby releasing resources to support growth and development of the country. Fully funded scheme would reduce the vulnerability of the pension system to demographic trends and political interference which had adversely affected the old schemes. Furthermore, the soldier had direct control over his/her retirement savings and determines which pension fund administrator manages his accounts.

Contrary to the above submission, the military still have different views about the contributory pension scheme. This has posed series of problems to both the Federal Government and the Military. These problems are looked into as they affect both the government and the military. On the part of the military, they do not see the wisdom in deducting part of their salary as contributory pension. To them, joining the military was enough sacrifice for the government to single handedly fund the scheme. Also, there was this fear that pension fund administrators may also crash like the failed banks of the early 1990s. They questioned the rationale for Pension Fund Administrators to invest their money

without consulting them and wondered if the PFA would not shortcharge them in  declaring  the  investment  returns  arising  from  the  pension  contributions. Lastly, they are worried that there were no machinery in place to try offenders like the Failed Bank decrees since there was no known Failed Pension Decree.

On the side of the government, there exists apprehension on what to do with the different categories of salary and pension arrears pending. Also, despite several military pension verification exercises, there were no accurate data of soldiers that have so far retired since the end of the civil war.  More worrisome was the fact that there were no reliable data about costs, commissions and performances of pension fund administrators. This seriously hampered the development of private and public pension funds in emerging markets. Government was worried at the large sum of money being managed by private pension industries. According to Government, it was extremely important to know how well they have performed in providing high rate of returns, secure and reliable benefits and constraining costs.

The  implication  of  the  above  scenario  poses  a  great  threat  to  both  the government  and  the  military.  To  the  government,  a  poorly  funded  military cannot safeguard the territorial integrity of the nation. A military that has very low morale owing to deductions from their salary is a threat to democracy. In addition, the success of the pension scheme in the military is hinged on their thorough understanding of  the workings of the scheme. On the side of the military, to create an impression that serving in the military does not have a reward on retirement would discourage those aspiring to join the military and erode the much desired confidence in the system. It therefore became expedient

and even compelling to conduct a study on the Contributory Pension Scheme as it affects the Nigerian Armed Forces.

1.4     OBJECTIVES OF THE STUDY

Given the statement of the problem above the research seeks:

i.      To  determine  how  poor  management  and  administrative  lapses  were responsible for the failure of the PAYG system in the military.

ii.      To ascertain the extent to which the members of the armed forces are informed about the operation of the contributory pension scheme.

iii.      To determine how the new pension scheme has eliminated the problem of long delay in payment identified with the PAYG system.

iv.      To determine whether the contributory pension scheme has addressed the incidence of lack of funds inherent in the old pension scheme.

v.      To determine how the Pension Reform Act provided checks and balances that would guarantee safety of contributors’ funds.

1.5     RESEARCH QUESTIONS

In order to actualize the desired objectives of this research, some basic research questions which reflect on the objectives of the study are fielded. The questions in specific terms include:

a.  Were  poor  management and  administrative lapses  responsible for the failure of the PAYG system in the military?

b.  Are  members  of  the  Armed  Forces  adequately  informed  about  the operations of the contributory pension scheme?

c.  Has the new pension scheme eliminated the problem of long delay in payment of pensions associated with the PAYG system?

d.  Has the contributory pension scheme removed the incidence of lack of funds inherent in the old pension scheme?

e.  Has the Pension Reform Act provided checks and balances that would guarantee the safety of contributor’s funds.

1.6     RESEARCH HYPOTHESES

Modern researchers agree that research whenever feasible should proceed from hypotheses. According to them, hypothesis serve as a powerful beacon that light the path for research work (MDI, 2002:5).  Therefore using hypothesis as a framework for this study becomes necessary. In this study, the following hypotheses will serve as aids jointly in finding answers to the research questions raised above and in fulfilling the objectives of the study.

Hypothesis One

H0:   Poor management and administrative lapses were not responsible for the failure of the PAYG system in the military.

H1:  Poor management and administrative lapses were responsible for the failure of the PAYG system in the military.

Hypothesis Two

H0:     Members of the armed forces were not adequately informed about the operation of the contributory pension scheme.

H1:     Members  of  the  armed  forces  were  adequately  informed  about  the operation of the contributory pension scheme.

Hypothesis Three

H0:  The new pension scheme has not eliminated the problem of long delay in payment of pension associated with the Pay As You Go system.

H1:  The new pension scheme has eliminated the problem of long delay in payment of pension associated with the Pay As You Go system.

Hypothesis Four

H0:  The contributory pension scheme has not removed the incidence of lack of funds associated with the pay as you go system.

H1:  The contributory pension scheme has removed the incidence of lack of funds associated with the PAYG system.

Hypothesis Five

H0:  The Pension Reform Act has not provided checks and balances that would guarantee the safety of the contributors’ funds.

H1:  The Pension Reforms Act has provided checks and balances that would guarantee the safety of contributors’ funds.

1.7     SIGNIFICANCE OF THE STUDY

The problem of irregular and non payment of pension to military retirees has been a thorny issue in Nigeria. The introduction of the contributory pension scheme was to eliminate some of the problems experienced in the management and administration of the old pension scheme. However, since the introduction of the contributory pension scheme not much attention was paid to the impact of this  scheme  to  the Nigerian  Armed  Forces. Considering the traditional and central roles of the armed forces in the defense and protection of our territorial integrity, the significance of this study can therefore be viewed from the following perspectives.

i.      When this study is completed, it would create awareness in the military on the positive aspects of the contributory pension scheme as it would have removed all doubts about the efficacy of the scheme.

ii.      It is significant because data that would be generated from the study will serve as a foundation for future research on the contributory pension scheme.

iii.      The study will assist in evaluating the effect of the contributory pension scheme on the military retirees with a view to determining whether it is achieving  the  desired  purposes and  contributing to  policy reviews on pension.

iv.      It  would  assist  in  the  interval  review  of  the  administrative  methods, processes, procedures and mechanisms used for pension delivery with a view to improving their efficiency and effectiveness.

v.      The Government will benefit from the study. It is believed that the level to which any national armed forces is able to project overall national interest  in  its  activities  is  largely  dependent  on  the  level  of  its socialization into  the normative ethos of the particular society. If the military perceives the scheme as very rewarding arising from this study, the Government would have relieved herself of the distraction arising from the fear of military adventurism into governance.

vi.      The study would also remove the long held views by the military that asking them to contribute to the fund shows the total disregard by the Government for their contributions to the nation.

vii.      In addition this research work will be of immense help and support to members of the armed forces at all levels. Finally the society  would benefits as the hope of a well mapped out and reformed pension management will motivate workers in their various organizations.

1.8 SCOPE OF THE STUDY

The study will focus on how to ascertain how poor management and administrative lapses were responsible for the failure of the PAYG system in the military. It will also focus on how to find out the extent to which the members of the armed forces were informed about the operation of the new contributory pension scheme. It will also focus on how the new pension scheme has eliminated the problem of long delay in payment identified with the PAYG system.

1.9 AREA OF THE STUDY

The choice of the six military units is done using random sampling at the rate of one unit per state capital for 36 States capitals including Federal Capital Territory.  The states were now numbered 0 to 35 and the states corresponding to the following numbers were taken as those in the sample: 9, 3, 1, 0 and 8. At the end of the day, the units were in Kaduna, Port Harcourt, Makurdi, Abuja, Calabar and Enugu.

The units were:

i.     2 Recce Brigade, Nigerian Army, Kaduna

ii.     2 Airborne Brigade Nigerian Army, Makurdi iii.     305 Flying Training School, Enugu.

iv.     Nigerian Naval Ship, Pathfinder Port Harcourt.

v.     106 Nigerian Air Force, Camp Headquarters, Abuja. vi.     Nigerian Naval Ship, Anansa Calabar.

The choice of the six military units is based on the fact that they represent the Nigerian Armed Forces that are being studied. Moreover, their locations span across where the Nigerian Soldiers are posted 90% of the time.

1.10   LIMITATIONS OF THE STUDY

This  study  like  most  studies  suffered  some  limitations  that  included  the following:

i.      The research probed and strived to assess the attitude of the military towards the introduction of the contributory pension scheme. This was definitely an assessment that did not prove too successful as the new pension scheme was just introduced into the military.

ii.      Conducting  a  study that revolved  around the  military in  Nigeria  was hardly successful because of the dearth of information on their activities. The researcher was therefore forced to make do with the little information provided to him as most of the documents were top secret and highly classified. This constraint hampered the study from using quantitative parameters in assessing the performances of the pension administrators.

iii.      Contributory  Pension  Scheme  being  a  programme  for  all  Nigerian workers in an area of study in pension administration, the dearth of direct materials and literature on such a subject was evidently encountered.

iv.      The personal interview method of communication of the questionnaire has the limitations that the interviewing situation may change from one situation to another; the respondents may not be dedicated enough and may wish to be motivated.

v.      The questionnaire method of primary data collection had the limitation that its structured nature may compel the respondents to give answers that they do not fully endorsed.

vi.      Furthermore, because of the extensive coverage sought for the work, the researcher  had  to  sometimes  depend  on  people  to  help  with  the distribution of the questionnaire. This also led to the obvious delays in time dimension.

The  study  however,  in  spite  of  all  the above  limitations,  stood  the  test  of relevance, validity and  therefore answered  reasonably well to  contemporary pension problems.

1.11 Definition of Terms

Active Service: According to the Nigerian Armed Forces Act (2004), Active Service reflects the period of service of an officer during his stay in the military. These include war operations and official duties.

Accrued Pension Rights: This is defined as pension and gratuity accrued prior to the commencement of the pension Reform Act. These rights are guaranteed in the new act and will be actually determined for each employee in the public sector transiting to the new scheme (Pension Reform Act, 2004).

Annuity: This is a mathematical term used to express the spreading out of a single regular sum payable over a period of time while considering the time value of money.

Compliance Officers:  A compliance officer is one responsible for ensuring compliance with the provisions of the law regarding pension matters as well as internal rules and regulations of the PFA (National Pension Commission 2004). Corporate Governance: From the perspective of the pension industry, corporate governance embodies the structure and processes put in place for overseeing, managing and administering the pension schemes to ensure stability and other obligations of  the scheme are met (National Pension Commission, 2004).

Death on Active Service: The Armed Forces Act (2004) defines death on active service as that which applies to any military personnel irrespective of rank who died in action during operation. The term also applies to those who died while performing their normal duties.

Defined Contributory Pension Scheme: This is a scheme which specifies the basis on which contribution will be made and the level of benefit that will be provided. Individual accounts are maintained for the participants, the account being credited with their share of contribution and investment returns (Pension Reform Act, 2004).

Distributable Income: This is defined as all income earned by the contributor less reasonable charges and cost on investment transactions.

Exempt Individuals:       The Pension Reform Act 2004 defines this as existing pensioners and workers that are exempted from the scheme as they have 3 years or less to active left to active service.

Final Pay:  Pension Act of 1979 defines final pay in respect of an employee whose appointment is terminated as the amount payable to him for a month (or if he was on a daily rate of pay for 31 days) multiplied by 12 months in respect of the last substantive rank held by him immediately before the end of his service.

Military  Service:  Military  service  is  a  period  of  unbroken  service  in  the Nigerian  Armed  Forces  from  the  date  of  commissioning  to  the  date  of retirement from service except for executive commission / special duty / Branch commission officers whose military services commences from the date of enlistment (Armed Forces Act, 2004).

Occupational Pension Scheme: This is an arrangement that an employer or a group of employers use (s) to provide pension (and sometimes other) benefits for  their  employees  when   they  leave  or   retiree.  (Occupational  pension regulatory               Authority,               (OPRA)               http://www.opra.co.uk

/publications/guides/trustee guide).

Pensionable Emolument:   This is salary attached to the last substantive rank held by a worker and does not include any allowance or fringe benefits received while  in service (Pension Reform Act 102 of 1979).

Pension Fund Administrators: According to Pension Reforms Act 2004, these are administrators duly licensed to open retirement savings account for employees, invest and manage the pension funds in fixed income securities, used and other instruments as the commission may from time to time prescribe.

Pension Fund Custodians: As defined by the Pension Reform Act 2004, these are responsible for ware housing of the pension funds assets.

Retirement Benefit Bond: According to the pension reform Act, retirement benefit bond is a bond that will be issued to those who are currently in employment  of  the  public  service  of  the  federation  and  the  federal  capital territory where the schemes were unfunded, who are not exempted from the new scheme but have worked for a specified number of years, in recognition of their accrued rights under the defunct pension scheme.

Retirement Benefits Bond Redemption Fund: This is a fund established and maintained by the Central Bank of Nigeria where the federal   government pays an amount equal to 5% percent of the total monthly wage payable to employees in the public service of the federation and federal capital city. The total amount in this fund shall be used to redeem any retirement benefit bond issued and payment into this fund shall cease after all retirement benefit bonds have been redeemed. (National Pension Commission 2004).

Risk Rating Institutions: These are institutions that are responsible for rating the instruments that pension funds will be invested in. (National Pension Commission, 2004).

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