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A Legal Approach of The Contributory Pension System as a Tool for Economic Growth in Nigeria Chapter One: General Introduction

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1.0 BACKGROUND OF THE STUDY The need to secure sufficient retirement income is at the core of every decent government in an ideal society. It was perhaps, this irreducible core that led to the creation of pension and social security systems in our world today, the purpose of which was to guarantee a decent standard of living after retirement from service. No doubt, retirement and pension today, has become a topical issue, one that has engaged the commitment of government, attention of employers and workers not only in Nigeria but also in many developing and emerging economies of Africa, Asia and Latin America.

[1] The situation however is undergoing fundamental changes today, with ageing populations putting strains on public spending. Notwithstanding that there is hardly a single universal solution to the pension challenge, achieving more and better household savings for retirement is one way of increasing retirement security, the greater effect of which will foster rapid economic growth. The legal regime of our pension laws reveal that law as an instrument of social control, plays a pivotal role in creating sustainable systems around our pension scheme here in Nigeria and as such, its far-reaching implications cannot be overemphasized. In view of the above background, the aim of this paper is to review Nigeria’s pension industry and attempt to give a legal approach of the contributory pension system as a tool for economic growth in Nigeria.

1.1 STATEMENT OF PROBLEM Over the years, they have been the need for several pension reforms which is clear from observing the legal regime of our pension scheme. This was necessitated by the myriad of problems that plagued both the Defined Benefit arrangement – Pay As You Go (PAYG) in the public sector and other forms of pension systems like occupational schemes, mixture of funded and Defined Benefit schemes that operated in the private sector

[2]. One of the challenges of the public sector Defined Benefit scheme lied in its dependence on budgetary provisions from various tiers of governments for funding. As reasonably anticipated, the scheme became largely unsustainable. This was due to lack of adequate and timely budgetary provisions. The unintended consequence was the soaring gap between pension fund obligations and revenues, which eventually was a threat not only to economic stability but also crowded out necessary investments in education, health and infrastructure. This was exacerbated by various increases in salaries, which ultimately led to increase pensions and hence undue pressure on government fiscal responsibilities. The Pension Reform Act 2014 (PRA 2014) is the most recent legislation of the Federal Government aimed at addressing the associated problems of the old pension system. This Act repeals the Pension Reform Act No .2, 2004 and enacts the Pension Reform Act, 2014 to continue to govern and regulate the administration of the uniform contributory pension scheme for both the public and private sectors in Nigeria

[3]. The Contributory Pension Scheme (CPS), is a uniform pension system for both the public and private sectors. Similarly, for the first time in the history of the country, a single authority, the National Pension Commission (PenCom) was established in 2004 to regulate and supervise all pension matters in the country. The scheme is being managed by licensed Pension Fund Administrators (PFAs), while the custody of the pension fund assets are provided by licensed Pension Fund Custodians (PFCs). The move from Defined Benefit schemes to Defined Contributory schemes is now a global phenomenon following the success stories of the Chilean pension reform of 1981

[4]. The paradigm shift from the DB scheme to funded schemes in developed and developing countries was ascribed to such factors as increasing pressure on the central budget to cover deficits, lack of long-term sustainability due to internal demographic shifts, failure to provide promised benefits etc. Thus developed countries like the USA, UK and emerging market economies of Chile, Mexico, Nigeria etc adopted the funded pension scheme because it enhances long-term national savings and capital accumulation, which, if well invested can provide resources for both domestic and foreign investment.

[5] In this regard, this paper aims at attempting a legal approach to these problems, examine the current contributory scheme and how it can facilitate economic growth.

1.2 OBJECTIVES OF THE STUDY The objectives of this study would be:

1. To demonstrate the history, nature and scope of the legal regime of pension in Nigeria.

2. To examine the concept of contributory pension scheme in Nigeria

3. To examine how the law can be a tool for shaping pension administration in Nigeria and how, same can FastTrack economic growth.

4. To check other developing countries’ legal framework in a bid to search out experiences that can be learned from them in tackling the challenges of pension administration in Nigeria.

1.3 SCOPE OF THE STUDY This research work covers the subject of pension administration. It therefore deals with the financial industry. However, understanding its wide scope which involves an understanding of legal issues of the subject, there is a dwelling on corporate commercial legal area. It does not however concern itself with the social nor cultural implications of pension and does not dwell on same, unless however, such data in these areas would be needed to prove certain legal implications on the subject matter.

1.4 RESEARCH METHODOLOGY In attempt to pursue a comprehensive and thorough research work, the main research methodology which as diploid is non-doctrinal, using literature review including primary sources (statutes and case law) and secondary sources in the form of articles, journals, textbooks, newspaper articles, lecture notes and internet materials. Also, empirical studies carried out by other authors and institutions are also analyzed from Nigeria and other jurisdictions. This research work was also assisted by frequent discussions with legal authorities who directed the research approach.

1.5 LIMITATIONS OF THE STUDY The limitation of this study is apparent as it relates to limitation and scarcity of readily available data of legal issues and cases in the Nigerian Pension administration and how it concatenates with economic growth, as such the researcher could not find complete data on the level of the manifestation of the legal issues as presented and discussed in this research work

1.6 SIGNIFICANCE OF THE STUDY Evidently, Nigerians have not felt the full impact of the contributory pension scheme regime since its inception in 2004 through the pension Reform Act of 2004. This work comes at such a period for the country haven, adopted the system to note the implications; and for those States that have not adopted the system, to understand the foundation to lay in terms of their laws and make general provisions for the regime in their states in order to avert the current legal frictions that absence of thorough legislation causes. This work raises timely, effective and relevant issues as affecting the pension administration in Nigeria and advances practicable legal solutions to these issues. Since Nigeria runs a system where every stratum affects the other, the legal system indeed has an established relationship with the pension administration system. An analysis of the several legal implications of the contributory pension scheme and how it affects the Nigerian setup is expedient. More so, taking lessons from structured models of countries that have been identified as having the fastest emerging economies, this research work attempts to propose a structure for the legal framework from the issues discussed.

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A LEGAL APPROACH OF THE CONTRIBUTORY PENSION SYSTEM AS A TOOL FOR ECONOMIC GROWTH IN NIGERIA CHAPTER ONE: GENERAL INTRODUCTION. (2018, October 04). GradesFixer. Retrieved September 28, 2021, from https://gradesfixer.com/free-essay-examples/a-legal-approach-of-the-contributory-pension-system-as-a-tool-for-economic-growth-in-nigeria-chapter-one-general-introduction/
“A LEGAL APPROACH OF THE CONTRIBUTORY PENSION SYSTEM AS A TOOL FOR ECONOMIC GROWTH IN NIGERIA CHAPTER ONE: GENERAL INTRODUCTION.” GradesFixer, 04 Oct. 2018, gradesfixer.com/free-essay-examples/a-legal-approach-of-the-contributory-pension-system-as-a-tool-for-economic-growth-in-nigeria-chapter-one-general-introduction/
A LEGAL APPROACH OF THE CONTRIBUTORY PENSION SYSTEM AS A TOOL FOR ECONOMIC GROWTH IN NIGERIA CHAPTER ONE: GENERAL INTRODUCTION. [online]. Available at: <https://gradesfixer.com/free-essay-examples/a-legal-approach-of-the-contributory-pension-system-as-a-tool-for-economic-growth-in-nigeria-chapter-one-general-introduction/> [Accessed 28 Sept. 2021].
A LEGAL APPROACH OF THE CONTRIBUTORY PENSION SYSTEM AS A TOOL FOR ECONOMIC GROWTH IN NIGERIA CHAPTER ONE: GENERAL INTRODUCTION [Internet]. GradesFixer. 2018 Oct 04 [cited 2021 Sept 28]. Available from: https://gradesfixer.com/free-essay-examples/a-legal-approach-of-the-contributory-pension-system-as-a-tool-for-economic-growth-in-nigeria-chapter-one-general-introduction/
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