\\

Declaration
I here by declare that the paper entitled pension policy and its execution a survey of Adigrat town
private service giving firms submitted in partial fulfillment of the requirements for the award of
the degree of accounting to the college of business & economics, Adigrat University, through the
department of accounting, is my original work and has not been presented or (Submitted) by any
body in this university

Name of the student__________________ Signature____________ Date____________

1
 Certificate of approval
This is to certify that this paper entitled pension policy and its execution in Adigrat town private
service giving firms submitted in partial fulfillment of the requirements for the award of the
degree of accounting, to the college of business & economics, Adigrat University, through the
department of accounting, done by EKUBAY GEBREEGZIABHER, ID NO. EBE 01/66/06 is an
authentic work carried out by his under our guidance. In our view, the work is original effort of
the candidate & all materials used for the project work have been duly acknowledged.

Name of the advisor___________________ Signature_______________ Date______________

Name of the Co-Advisor_______________ Signature_______________ Date_______________

2
 Acknowledgements
The accomplishment of my study has made possible through the assistance, guidance and
support of many individual to whom I owe a debt of gratitude. As it is impossible to make a
whole list of individuals, I would like to make a particular mention of some.

It is with heartfelt gratitude that I thank my principal advisor Mr.________________

for_____________ diligence in advising & pointing me to the right direction right from the
inception of this research till its completion.

3
Table of contents

4
 List of tables
Table Page No

Table3.1. Creating awareness on pension contribution..

Table3.2. Bureaucratic nature of the agency

Table3.3. Life of pensioners..

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 List of figure
Figure Page No

Figure3.1. Service giving firms in Adigrat 2009E.C

Figure3.2. Educational Background of the firms and agencys employees..

Figure3.3. Agencys staff commitment.

Figure3.4. Lack of information on pension contribution

Figure3.5. Social security as a human right..

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 List of appendices
Appendix Page No

Appendix-1- Questionnaire

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 Abbreviations and Acronyms
DB Defined Benefit

DC Defined Contribution

ILO - International Labor Organization

ISSA International Social Security Association

OECD Organization for Economic Co-operation and Development

PAYG Pay-As-You-Go

SERPS State Pension and State Earnings Related Pension Schemes

ABM Automatic Balancing Mechanisms

PEOSSA Private Organization Employees Social Security Agency

NSF National Saving Fund

VAT Value Added Tax

SSNIT Social Security and National Insurance Trust

NPF National pension Fund

NGOs Non Governmental Organizations

GDP - Gross Domestic Products

PSPF - Public Sector Pension Fund

SPSS Statistical Package for the Social Sciences

PSPS Public Service Pension Scheme

FPF Federated Pension Fund

CPS Contribution Pension Scheme

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Abstract
The main source of income for the government is collections made from business and personal
income taxes, pension contributions by citizens and other sources. Failure to pay income tax or
to contribute pension by the citizens results in collapsing the overall service giving activities of
the country. Therefore, this paper focuses on the problems faced in pension policy execution by
the private service giving firms Adigrat. Most of the time the service giving sector is the area
where firms run their business underground economy and not stable in a specific area. The
objective of the study is to investigate the factors and the sources of the failure of the service
giving firms Adigrat. For the study, questionnaires were distributed to the private service giving
firms in Adigrat town and to the private organizations employees social security agency northern
Region Eastern Adigrat Branch office. A survey of 30 firms and an agency were selected for the
study. Quantitative method of study is used to collect the data and the descriptive method used
for the study. Quantitative method of study is used to collect the data and the descriptive method
used for the analysis of the study. The study shows that up on licensing the firms, there was no
enough orientation given to them, no follow-up by the responsible body. Besides, firms attitude
of trying to be rich in illegal ways and not being willing to be incorporated in the pension system
were the major issues. Clear link should exist among the offices of trade and industry, Inland
Revenue, investment bureau, municipality, the private organizations social security agency
northern area office, other related offices and firms so that problems occurring will be solved
easily and hindrances can be cleared in advance.

Key word: Failure to be incorporated, pension contribution, policy execution

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CHAPTER ONE

INTRODUCTION
1.1. Background of the study

Inability to work is beyond control of the individual. Injury or other sickness may occur
despiteevery precaution and the weakness resulting from old age, a natural event. Hence, a
person may lose his means of income when he is unable to work. What will the happen to this
person and his dependents for their sustenance? They will face harsh living conditions since their
means of survival has come to an end. Employee security, wellbeing and stability are of primary
importance in any program of manpower management. The policy of employee security is to
provide for assurance of a reasonable income, Job security, and removal of employee financial
worries. It is the objective of employee security policy not only to protect the employees
interests but also the interests of his family (Rudrabasavaraj et al, 1979, cited in Abebe, 2003).

The aftermath of the second world war saw a rapid increase in the number of countries which
introduced - or extended their existing social security measures. At the same time, many
countries had achieved -or were in the process of achieving - independence and , as part of their
reconstruction efforts, wished to broaden social protection for their citizens. It was not possible
to rely exclusively on collective or individual efforts of workers or employers to organize
comprehensive coverage on a national basis and the state had to take the lead (ILO, 1998).

Social security schemes which cover the formal sector as well as general schemes which are
financed out of general revenues have suffered as the result of economic decline experienced by
developing countries over the past decade or so, and sometimes as the more immediate
consequence of programs of structural economic adjustment. As the experience of the developed
countries has shown, the presence of a reasonable social safety net for all individuals and
households enlarges and strengthens the labor force of a country, adds to its capacity to promote
growth and to accept change, and underpins a greater degree of political and social stability
(ILO, 1993). Furthermore, entitlement to adequate level of social protection is recognized

1
explicitly in the several international declarations dealing with the matter and in the various
international labor standards on social security and related issues which have progressively.

Enhanced the benefits and entitlements which all members of the community have the right to
expect (ILO,1998).

Pension schemes throughout the world are in a state of upheaval. On one hand, the developed
countries are contemplating new architecture for the financing of pension outlays. This will
require careful thought and the development of a new consensus. But on the other hand the
overwhelming majority of the worlds population is without some form of income security in old
age or disability. Extending the coverage of pension schemes (and all other forms of social
security), improving their governance, and ensuring that the design of the schemes is both
economically efficient and compatible with internationally accept human and social values
(Gillonetal, 2000, cited in Abebe, 2003).

Pension coverage in Ethiopia

As per the presentation held on 24/3/2004E.c the coverage of the social security worldwide looks
like the following:

Of the total population of the world 25% gets social security and above average of the
population gets no coverage.
In developing countries below 10% of the society gets social security.
In developed countries 90%-100% of the society gets social security.
In Ethiopia it is only 1% coverage.

1.2. Statement of the problem

It is known that major source of Income for Ethiopian government is collected income tax from
employees of government institutions, NGOS, private organization and pension found
Contributions that make by citizens. Now,the Ethiopian government encourages all citizens
working in Governmental institutions, NGOS & private organizations to be involved in the
pension scheme. But as per the preliminary study of the researcher w conducted in trade &
industry as well as social security agency, Number of service giving firms and registered &
become operational for investment is 1203. In thus, those numbers of firms that included in the

2
pension policy to date is 451; i.e752 will not incorporate in the pension system. This, the gab will
be crystal- clear, i.e752/1203x100 = 62% will not incorporate in the pension program stipulated by
proclamation number 715/2003E.C.

The Researcher conducted from two corners.

1. From the social security agency (Organizational perspective) and

2. From the firms perspective (the business in the operation) which will suppose to adhere
the pension policy.

The intention to do this study is that as we know pension plays an important role to increase the
actual income and investment of once country, but doesnt to achieve this goal. So the motive to
study this problem is to assess the execution of pension policy that pertain to social security and
challenges in incorporating potential firms and, suggest recommendations after analyzing the
data obtain. To this end, this study was aimed at searching answers to the following questions.

1.3. Research questions

The questions for the study will be:

Why the private employees, social security agency northern region office has not
incorporated the service firms in the pension policy?
What are the causes for the firms lag that to be incorporate in the pension policy?
What are the problems of pension policy in the firms day to day operation?

1.4. Objective of the study

1.4.1. General objective:

General objective of the study is to assess pension policy execution in private service giving
firms and challenges in incorporating potential firms according to the pension policy of the
country.

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 1.4.2 .Specific objective
The study will have the following specific objectives

1) To assess the pros & cons of the social security as to why it has not incorporated firms
which are supposed to be included in the pension policy.
2) To review the cause of firms that made them lags to be incorporated in the pension
policy
3) To study the problems of pension policy in the firms day to day operation

1.5. Significance of the study

The study may create awareness & reveals as to what extent the country has to promoted social
security services & as to what is to done concerning the subject area of the research. Besides, the
researcher believes this study will enable to identify the basic problems in the current practice of
social security in Ethiopia & forward practical solution in Ethiopia & forward practical solution
to alleviate the problems. To the end, the findings of the research may attract the attention of the
concerned officials to see for better efficient and effective social security policy. It may evoke &
encourage professional to study about the problem in a wider scope & contribute relevant &
constructive ideas about social security schemes in Ethiopia. Hence, the identification of the
problems & their possible solution may contribute to employees to have clear picture of pension
system.

1.6. Scope of the study

The scope of this project is constrained to pension policy & its execution in private service
giving firms in Adigrat town.

Therefore, data analysis & interpretation of findings was based on the policy execution,
problems to incorporate private service giving firms in the pension policy & international social
security systems. Mainly the quantitative is used as the method of data collection & descriptive is
used as the method of data analysis. The research was carried on the data source of the Bureau of
urban development & trade industry Tigray, in land Revenue and FDRE private organizations
employees social security agency northern region eastern zone Adigrat branch office.

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 1.7. Limitation of the study
Since the data was collected from Bureau of urban development and trade and industry
investment core process,In land revenue & private organizations employees social security
agency northern offices, the study does not belong to other offices of Tigray region. Besides, the
data collected ranges up to the date of January 10, 2009E.c, so that the firms licensed late of the
duration were not considered. Moreover, it has a methodological limitation in that the researcher
used quantitative research, because the study wants to discover the major causes of firms not to
be incorporated in the pension policy.

The other limitation of the study is shortage of relevant literatures & reports of empirical studies
may be due to inadequate relevant studies have conducted or reports of conducted studies are not
easily available to readers. For that reason, the Literature of the paper is limited. Getting some of
the firms owners/representatives who were out of the town was also difficult. For that reason, the
data collection took the researcher unnecessary time.

1.8. Organization of the study

This research paper is organized in four chapters. The first chapter is concerned with
introduction, chapter two is deals with the review of the related literature. Chapter three focused
on the present, analyze & discussion of the data gathered from the questionnaires, & the facts
from documents. Finally, the fourth chapter presents the summary of the finding, conclusion and
recommendations of the study.

1.9. Research methodology

1.9.1. Description of the study area

Adigrat is the larger town in Tigray and also has experienced some of Ethiopias faster urban
growth in this decade since independence with a population shooting from 90,658 In 2008
E.C.and it will expect in 2009 E.c. to 95,358. The town lies 897 km north of Addis Ababa, In
Ethiopia highlands. According to the report, the main advantages of investing in Adigrat may be
summarized as follows.

- A pleasant temperate climate and great agricultural potential

5
- Availability of skilled staff through the presence of universities.

- Location of numerous natural resources

- Has big ceremonial days: like, Meskel.

TheTigray investment authority operates as the official licensing body for all domestic
investments & works to facilitate all arrangements and administrative functions with foreign
investors after they have been issued an investment license by the federal Ethiopian investment
commission.

In Adigrat, up to Augest 30/2008 E.C there were 1203 licensed service giving firms only 451 will
operational &752 were on pre-Implementation. Of the 1203 operational firms, only451 firms will
Incorporate in the pension policy. The 752 firm or 62% of the firms will not incorporate in the
pension system.

1.9.2. Data sources & types

The data utilized in the study was gathered from various sources. The data were qualitative and
quantitative. The data sources were from primary & secondary. The mainly used data source was
primary data. It was gathered from the bureau of urban development and trade and industry core
process of investment, private employees social security agency & in land Revenues of Tigray
region. The secondary data sources include the information from documents such as
proclamations, decrees, orders, directives by authorities, statically abstracts & the works of their
researchers.

1.9.3. Survey Design and Data collection

The survey to collect the primary data had been carried based on questionnaires distributed to
those service giving firms who were operational and not incorporated in the pension system and
to the employees of private employees social security agency of northern office.

The questionnaires were distributed to the 30 private firms and private organization employees
social security agency population of the study. According to the data collected from Bureau of

6
urban development and trade & industry investment core process, there were 1203 licensed
service giving firms. Among those, 752 were not incorporated in the pension system.

The data was collected using questionnaires. The objective of the questionnaire was to facilitate
the analysis of the operational service giving firms which were not incorporated in the pension
system.To focus the responses and to facilitate the analysis, the questionnaire was built by
questions and categorizing the respondents.

The questionnaire was prepared for the private service giving firms employees & to the
employees of private employees social security agency northern office. The questionnaire
distributed for Employees has four sections whose main targets are described below.

Questions1-4 are concerned with find out the demographic of the respondents

Question 5-11 of the agency were about that basic information of the respondents on the pension
Implementation. And question 5-12 are mainly concerned with find out the reasons that the firms
lag to be incorporated in the pension system. And questions 12-16 are concerned with pension
policy problems for firms day to day operation.

1.9.4. Data analysis method

The data gathered through the mentioned methods was processed & analyzed using the Spss
(statistical package for the social science) software. Statistical tools such as; percentages,
averages, and cross tabulations were used.

1.9.5. Sample size determination

The total population that is licensed of the pension policy in 2009 E.C in Adigrat town private
firms are 1203, from those, 451 are incorporate in the pension policy, and 752 are not incorporate
in the pension policy. So, the researcher used sample from those incorporated and not
incorporated in the pension policy that is 30 private firms and the private organization
employees social security agency northern region eastern zone adigrat branch office.the total
population that the researcher was took from 30 private firms is from the categorization of the
following, and which included both incorporated and not incorporated private firms in the
pension policy and which contained 50% and 50% respectively of the sample total population.

7
That is; From Top part pension payers-10 employees.

From Middle part pension payers-10 employees.

From Bottom part pension payers-10 employees.

And also the total population that was took the researcher POESS Northern Region Eastern zone
adigrat branch office is 10 employees.

Therefore, the total population or employees used the researcher of both private firms and
FDREPOESS Northern Region Eastern Zone Adigrat branch office is 40 employees.

The total population size is not smaller and controllable, the researcher used simple random
sampling techniques of data collection. Accordingly, the researcher distributed questionnaires to
those selected population.

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Chapter Two

Literature Review

2.1. Overview of Social Security

Institutional social security exists in almost all countries today. However, there is much variation
between countries with regard to the levels of protection, scope, coverage and effectiveness of
the system in place. As a group, the developed countries have the most advanced social security
systems. The concept of social security originated in Europe towards the end of the last century,
and had developed considerably in Europe. North America and Australia even before the Second
World War. Today, the OECD countries have comprehensive systems which typically cover all
the relevant contingencies, extend to practically the while population, and operate effectively and
efficiently. Social expenditure including both cash transfers and the provision of health and
education services now represent more than 25 percent of the gross domestic product of OECD
countries and, in many countries, absorb more than 60 percent of the total public expenditure,.
Health and education are among the largest single employers-public or private-in the
industrialized economies (ILO, 1993).

With very few exceptions, institutionalized social security in the developing world is of
relatively recent origin having appeared only after the Second World War, following the
emergence of several independent states at the end of the colonial era. In general, social security
systems in developing countries do not cover the full range of contingencies, exclude appreciable
proportions of the population, and have serious shortcomings as regards their operation. Large
numbers of people in these countries have therefore to rely on family, communal or social
networks when they encounter difficulties (ILO, 1993).

Pension is a fixed income received by a worker after retirement. Pension is usually a stream
payment made in form of annuity to a retired employee. There is also retirement plan where the
benefits in form of accumulations can be withdrawn in lump-sum upon retirement. Generally,
there are two types of pension plans; Defined Benefit (DB) pan and Defined Contribution (DC)
plan. Defined Benefit plan is a pension plan where the retirement benefit is calculated based on
last salary, years of employment, retirement age and other factors. Usually in this pension plan,

9
the benefit is paid in form of annuity. Meanwhile, defined contribution plan is a retirement plan
where each worker possesses own individual account and the retirement benefit is based on
employers contribution and investment return. Generally, a worker in this plan can withdraw his
retirement benefit in form of lump-sum of cash. Due to demographic changes and increasing
pension spending, pension systems around the world are in flux conditions (Disney and Johnson,
2001). This condition is caused by uncertainties or inherent risk that affects the pension scheme.
The existence of risk will also affect the pension expenditure. Among the risks that the sponsor
of pension plan particularly in DB plan is exposed to, are demographic risk and salary risk
(Disney and Johnson, 2001).

2.1.1. Pension in Africa

The urgent issue for pension reform in Africa is not only the need to introduce social protection
systems to help alleviate demographic pressures, poverty amongst the elderly and provide
support for household headed by grandparents following the HIV AIDS pandemic and regional,
conflicts. In addition there is a vital need for reform of existing pension systems in the region,
the cost of which is often crowding out spending on other key areas (such as health and
education). Coverage of these systems is low under 10 or often under 5 percent of the
population) and usually only for civil servants or a minority of relatively highly paid workers in
formal sector employment, making for highly regressive systems, with cross-subsidies required
from indirect taxes (usually VAT) as pension payments from these systems frequently exceed
contributions (Stewart F. and J, Yamro, 2009).

2.1.1.1. Poverty Alleviation

Pensions play an important role in poverty alleviation of the elderly one of the most vulnerable
groups in any society, particularly older women. Yet, according to the ILO, only one in five
workers is covered by adequate social security schemes, whilst the World Bank (Holtzman, Hinz
(2002) point out that 85% of the worlds population over 65 has no retirement benefit at ali.in
Sub-Saharan Africa less than 10% of the older population has a contributory pension (Palacios,
Pallares- Miralles, 20000).

10
Indeed, older persons can often act as de heads of household, caring for relatives infected with
HIV/AIDS and looking after orphaned children. Around 30% of households in sub-Saharan
Africa are headed by a person aged 55 and over, with over two-third of these households
including at least one child under the age of 15 (Help Age International 2006a)). Over 60% of
orphaned children in Namibia, South Africa and Zimbabwe, and 50% in Botswana, Malawi and
Tanzania, live with their grandparents (United Nations, 2007).

Receiving and sharing a pension cements intergeneration relationships and makes the elder more
integrated into communities, rather than feeling like a burden on their families. The following
examples of the positive social impact which pension can have are taken from Help age
internationals Social Protection Facts and Figures (Help Age International (2006b)).

Pensions reduce the poverty gap ratio by 13% in South Africa and increase the income of the
poorest 5% of the population by 50%; families receiving a pension are 11% less like to become
poor; girls living in household with an older woman who receives a pension are 3-4 centimeters
taller than girls in households with older woman who do not receive a pension. In Tanzania,
where there is no pension, out of 146,000 children orphaned by HIC/AIDS, only 1,000 attended
secondary school, because their grandparents could not afford the fees. In Zambia, a pilot cash-
transfer scheme to older people caring for orphans has improved school attendance (Help Age
International (2006b)).

For Africa, the fiscal cost of providing a universal non contributory social pension to all of the
elderly has been estimated at 2 to 3 percent of GDP, a level comparable, to, or even higher, than
the levels of total public spending on health care in some countries (Kakwani and Subbarao,
2005).

2.1.1.2. Alleviating Government Costs

In addition to social pensions being affordable for many emerging economies, developing funded
pension systems can also reduce government expenditure, thereby releasing funds to direct to
other key policy challenges and initiatives. The reform of unsustainable pay-as-you-go (PAYG)
pension systems can help reduce the fiscal burden that such schemes place on the population, and
indeed avoid burdening future generations. Such concerns are greatest in countries with high
levels of labor market informality, as is the case in developing countries in Africa and elsewhere,

11
as large groups of the population may not have access to the pension system but support in
indirectly via tax system. Spending of pensions (particularly on pensions for civil servants and
other special schemes) has increased enormously in the region, and is crowding out spending on
other deserving programs (Yamro J. 2008).

To give one African example, civil servants in Uganda are covered by the public service pension
scheme, run by the public service pension fund. Despite the name, the system is financed directly
from the government budget; there are no statutory contributions. Civil servants can retire at the
early age of 45, vesting periods are only 10 years, the benefit accrual rate is 2.4% per year, the
reference wage for pension calculations is the last salary and benefits are indexed to wages. A
similar scheme covers staff of the armed forces. By contrast, the civil service scheme in
Botswana now operates on a fully funded, defined contribution basis, with no burden on the rest
of the economy except the contribution rate of the government which is transparent (Yamro J.
2008).

2.1.2. Pension Systems in sub-Saharan countries

Most sub Saharan African countries do not have meaningful publicly managed pension and
social security systems, though some from of pension coverage is available in a limited number
of countries. Where benefits are offered to formal sector workers, they are provided either by
public service pension schemes (the public sector being by far the largest employer in most
countries the region), national (usually mandatory) schemes covering private sector workers
(which may also cover the public sector), occupational schemes managed by employers other
than the government and individual/ personal pension schemes (usually offered by insurance
companies on a voluntary basis) Stewart, F, and J, Yermo (2009).

2.1.2.1. Overviews of pension system in selected African Countries

Botswana

A universal, Old Age Pension System, was initiated in Botswana in 1996. Coverage extends to
all citizens over 65 years of age residing in Botswana. The costs are born by the government,
adjusted periodically according to changes in the cost of living.

12
The fund public sector employees scheme the Botswana Public Officers Pensions Fund
(BPOPF)- was reformed in 2001, moving from a b to a DC arrangement. The fund has
experienced strong growth as most public servants exercised their potion to join the fund.

Occupational pensions are also growing, with assets having reached the current market value of
around P33 billion of Botswanas 790,000 labor force, around 300,000 is in private, formal
employment. Yet 84% of these workers do no have any occupational pension coverage, with
around 33% of public workers also not covered, and there is little evidence of supplementary
saving in individual products to close this gap (Srewart, F. and J. Yermo, 2009).

Gambia

Current pension schemes in the Gambia are: (i) the public service pension scheme (PSPS) which
covers government employees (civil servants and uniformed services); (ii) special provisions for
National Assembly members, Local Government Authority employees and District Chiefs; (iii)
the federated pension Fund (FPF) which covers non-government public sector employees; (iv)
the National Provident Fund (NPF) which covers private sector employees; and (v) a number of
registered Occupations Schemes. The Social Security and Housing Finance Corporation
(SSHFC) manages the FPF, the NPF and other housing finance schemes (Stewart, F, and J.
Yermo, 2009).

An estimated 135,000 workers a majority of the estimated size of the formal sector labor force-
participate in mandatory pension schemes and of these about 18,700 are members of the PSPS
and the remainder are in private sector schemes. However, given the importance of agriculture
and the informal sector in the Gambian economy, the coverage rate in term of the estimated total
labor force is only about 20 percent. Active members of the PSPS represent about 14 percent of
workers covered by all mandatory pension scheme, about 2.8 percent of the estimated size of the
labor force and 1.2 percent of the Gambian population. The benefit structure and qualifying
conditions are similar for the PSPS and the FPS. Yet while these schemes share such similarities,
there is no mechanism that we are aware of to facilitate mobility of workers and portability of
accrued rights between the public sector schemes.

13
Pension benefits are a key part of the remuneration package for civil servants, the military and
police in the Gambia. Such deferred compensation is an essential part of the incentives to recruit,
retain, motivate and reward public servants. In this way, an assessment of the PSPS cannot be
isolated from a broader assessment of overall public servant compensation and other incentives
for public officials. This is of particular importance in the Gambia given the anticipated Civil
Service Reform Program (Stewart, F. and J. Yermon, 2009).

Ghana

There are currently two mandatory pension schemes in Ghana: the Social Security and National
Insurance Trust (SSNIT), which is the main system and covers employees in the private sector,
civil and public servants, professionals, traders, artisans, farmers and self-employed; and a small
scheme, which is currently phasing-out, and only covers military, police, and a few civil
servants, but used to cover all civil servants in the past. In the aggregate both systems cover less
than 10 percent of the labor force in Ghana, and cost already around 1.5 percent of GDP
(Stewart, F. and J. Yermo, 2009).

Kenya

The retirement benefits sector in Kenya is composed of the civil service scheme, the National
Social Security Fund (NSSF), occupational schemes and individual pension schemes, with a
coverage rate of around 15% of the workforce (10% or 800,000 members of the NSSF, 3% in the
civil service scheme in 1.5% occupational schemes and 0.5% covered by individual retirement
benefit schemes).

The NSSF is a public provident fund established under an Act of Parliament. It covers employed
persons, traders, the self-employed and, since 2004, some workers in the informal sector. It is
mandatory for all employers with at least 5 employees to enroll their members, but open to all
other individuals mentioned above. Members of the scheme contribute 5% of monthly earnings
up to a maximum of 200 shillings a month, which is the contribution rate for those earning more
than KShs. 4,000. Employers pay 5% of payroll, with subject to a maximum of KShs. 400. Self-
employed persons contribute 5% of their monthly earnings, with no minimum or maximum
earning limits for contribution purposes. With effect from June 2007, members of NSSF can top

14
up their savings at any point in time with any amount that is less than or equal to HShs. 1,000.
Old-age pension benefits are available to those aged 55 who have retired from insured
employment. They are available at age 50 if the person is not in insured employment. New and
existing retirees can receive their benefits as a lump sum.

There are no legal rules for employee or employer contribution levels. A typical plan requires
employees to contribute at a rate of 5% of salary and employers to contribute 10%. Employees
must be allowed to pay additional voluntary contributions to the plan without any limit (although
contributions are only tax-deductible up to a limit). The total of employee and employer
contributions is tax-deductible up to the limit of the lower of KShs20,000 shillings or 30% of
salary. All investment income earned by tax registered retirement benefits schemes is tax-free.

Retirement benefits schemes are run by trustees. Half of the trustees are nominated by the
members, and half are nominated by the employer. All trustees are required to engage the
services of an assets manager for the management of their assets. A reform in 2005 abolished the
possibility for workers to withdraw all their assets before reaching the normal retirement age.
Since then, workers can only withdraw their employers portion of contributions if they have
been members of the scheme for less than one year, and if the vesting rules allow them to make
such a withdrawal. They can withdraw their one contributions before reaching the age of 55 if
they are withdrawing from a retirement benefits scheme. With effect from January 2008, they
will also be allowed to assign their savings as mortgage security.

In 2007, there were around 1357 active occupational pension schemes, of which approximately
10% were DB schemes. The majority of schemes are pension schemes as opposed to provident
funds. As of 2006, pension fund assets amounted to around 250bn KES (c$3.5bn). investment
restrictions include up to 70% in domestic and regional shares, 15% offshore and 30% in real
estate.

In terms of personal pension arrangements, 14 individual, DC-type pension schemes exist, which
cover less than 1% of the population. They are mostly offered by insurance companies and are
available to anyone. They are attractive to those workers whose employers do not offer a pension
plan and to the self-employed. In May 2007, the Zimele Personal Pension Plan, a voluntary
retirement savings arrangement for all public-and private-sector workers, was introduced. It will

15
be managed by the private firm Zimele Asset Management Company. The plan operates on the
basis of pooled funds. Contributions and investment income are exempt from tax. Amana
Personal Pension Plan is the only other individual retirement benefits scheme that is similarly
structured to the Zimele Personal Pension Plan.

The pension system in Kenya has been supervised by the independent Retirement Benefits
Authority (RBA) since 2000, which oversees the 1997 Retirement Benefits Act, which brought
regulation, protection and structure to the pension industry. The RBA continues work to develop
the industry and train trustees (Stewart, F. and J. Yermo, 2009).

Mauritius

According to Stewart, F. and J, Yermo 2009,pension system in Mauritius consists of a universal,

non-contributory Basic Retirement Pension, two mandatory, income-related pension schemes for
the private sector (National Pension Fund and National Savings Fund) which are administered
by the public sector- and a number of voluntary schemes providing supplementary income.

The Basic Retirement Income is a universal, non-contributory pension funded by government

taxation. It provides a minimum income guarantee for the elderly, covering all persons over 60
resident in Mauritius. The monthly retirement income provided is Rs1500 (1999/2000). Benefits
are index linked, with a 5-year adjustment to prices. Payments increase for the very old (85s, 90s,
and 100s). Around 150,000 beneficiaries are covered (around receiving old age benefits, the
remainder widows, invalids and orphan benefits). Public sector employees (civil servants) are
covered by a separate scheme, which has been criticized as being overly generous vs. the private
sector schemes, providing 66.7% of final salary for 33.3 years of employment.

In terms of occupational pensions, membership of the National Pension Fund Scheme (NPF) and
National Savings Fund (NSF) is mandatory for all private employees with one month lifetime
employment.

The NPF is a partially funded scheme requiring 9% contribution (13.5% for the sugar sector),
whilst the NSF is a fully funded scheme requiring 2.5% contributions. Benefits are paid from age
60 and are points based. The government also guarantees a minimum pension obligation (Rs 218
2000) to those who have made a one-time/ one month contribution to the fund. NPF- aims at

16
33.3% replacement rate of average lifetime earnings for 40 years of employment but is said to
no be meeting these expectations and is likely to deliver only a 15% replacement rate. The
average payout from the fund in 2000 was Rs 522 per month (218 minimum pensions + 423 NPF
average).

The NSF is a DC scheme paying lump sum benefits only. The NPF and NSF are administered by
the public sector. With assets amounting to around 19% of GDP, 17% in the NPF and 2% in the
NSF (World Bank 2004). Around 220,000 employees are covered by the scheme (c15,000
employers) with around 36,000 beneficiaries receiving payment.

Around 1000 voluntary, occupational pension scheme are also in operation. Most of estimated
25,000 members are highly paid workers (coverage estimate at around 10%); either in schemes
insured and/or administered by insurance companies of self-administered superannuation funds.
C0ontributions to the schemes are made by employers only- usually at a rate between 12-19% of
earnings. The schemes are predominantly DB based, with benefits paid out as pensions or lump
sum (insured funds only) of the 25,000 members 13,500 are in insured funds are 11,500 in
registered superannuation funds. Funds are said to be low cost (possibly as sponsoring
companies absorb some of the costs of larger funds).

Mauritius is facing a demographic transition much sooner in its development cycle than other
upper income and high income countries have experienced. The share of its over 60 populations
is expected to more than triple in the next 50 years. The unfunded universal scheme and the civil
service scheme are therefore becoming an unsustainable financial burden on the government.
Declining benefits from the contributory scheme and a lack of a regulatory environment for
private savings (discouraging private savings through the formal financial system) are
jeopardizing living standards in retirement. In addition public sector management of the private
contributory schemes does not deliver maximum returns, whilst private sector savings are
unlikely to grow given the lack of regulation and development of domestic financial markets.

The government therefore recognizes the need for reform of the pension system, and has held a
widespread debate on the topic in recent years, including a comprehensive World Bank (2004)
review of the system issued in 2004 which recommended the following:

Reduce fiscal risk by modernizing the basic Retirement Pension;

17
 Render the system more equitable (through continues, and possibly higher transfers to the
poor, maximize return for contributors);
Render the system more efficient (by diversifying risk and enabling resource allocation);
Improve transparency in management through introduction of regulation and a
supervisory agency for pensions;
Introduce flexibility in the system, especially regarding the retirement age.

Nigeria

According to Stewart, F, and J. Yermo 2009, the Contributory Pension Scheme (CPS), which was
established by the Pension Reform Act 2004, is contributory, fully funded, DC, privately
managed and based on individual account. Existing private sector pension schemes are allowed
to continue provided there is evidence to show that the pension scheme is fully funded at all
times, any shortfall will be made up within 90 days, pension funds assets are segregated from the
assets of the employer/company, the pension funds assets are held by a licensed Custodian and
the scheme is specifically approved by the National Pension Commission.

Membership in the CPS is compulsory for all public sector employers (except diplomats) and for
those private sector employers with 5 or more employees. Retirement Saving Accounts are set up
for all covered employees under the CPS. Some groups of employees are exempted from the
contributory pension scheme, for example those who, at the coming into force of the Pension
Reform Act 2004 are covered by a different pension scheme, which existed before the
commencement of the Pension Reform Act 2004 and who have 3 years or less to retire. Public
services employees and private sector employees pay a minimum of 7.5% of their gross monthly
earnings. Employers also pay a minimum contribution of 7.5% and may pay the full 15%
themselves. Military personnel pay a minimum of 2.5% of their gross monthly earnings and their
employers pay 12.5%. the gross monthly earnings comprise basic salary, housing allowances and
transportation allowances. Voluntary contributions are allowed. Contributions may be revised
upwards by agreement between the employer and the employee. The National Pension
Commission must be notified of this revision.

Upon retirement the member has a choice as to how to receive his retirement benefits:

18
 Programmed monthly or quarterly withdrawals, based on life expectancy;
Annuity for life purchased form a life insurance company (with monthly or quarterly
payments);
A lump sum, provided that the amount left after that lump sum with drawl is sufficient to
permitan annuity or programmed withdrawals of at least 50 per cent of the employees
annual preretirement salary

If the employee retires before the age of 50, a maximum of 25% of retirement savings can be
withdrawn as a lump sum (six months after retirement and the individual cannot re-enter the
workforce). All retirement savings account holders who have contributed for 20 years are
guaranteed a minimum pension as specified by the Government on the recommendation from the
Pension Commission. Additional or voluntary lump sum contributions into the RSA cab be
withdrawn before retirement or attainment of the age of 50 years.

Contributions to the new pension scheme are tax free. Investment income is taxed. Benefits are
exempted from tax. Early withdrawals (withdrawn from voluntary additional contributions) are
taxed.

Pension funds can only be managed by pension fund administrators who have obtained a license
from the National Pension Commission. The employee is free to choose an administrator.

Custodians hold the employees assets and execute transactions for the employee. The Pension
Reform Act provides that administrators may only charge clearly defined and reasonable fees.
Pension funds and assets can be invested in:

Bonds, bills and other securities issued or guaranteed by the Federal Government and the
Central Bank of Nigeria;
Bonds, debentures, redeemable preference shares and other debt instruments issued by
stock listed corporations;
Ordinary shares of public limited companies listed on the stock exchanges with good
track records having declared and paid dividends in the preceding five years;
Bank deposits and bank securities;
Investment certificates of closed-end investment fund or hybrid investment funds listed
on a Stock exchange with a good track record of earning;

19
 Units sold by open-end investment funds or specialist open-end investment funds listed
on the stock exchange recognized by the Pension Commission;
Bonds and other debt securities issued by listed companies;
Real estate;
Such other instruments as the Commission may prescribe.

Nigeria was the first country in sub-Saharan Africa to introduce a pension system based on
Chilean style, individual, funded accounts. The questions which arise from this experiment are
whether the infrastructure was and is in place to support the operation of such a system and
even if so whether it is appropriate for a country such as Nigeria. There has been some
criticism that the country was a different level of development to Chile when the reforms were
introduced (in terms of economic, social and pension system development) and that there was a
lack of governance, records, financial institutional capacity and market development. Moreover,
as 90% individuals work in the informal sector, the new system is unable to meet the
fundamental goal of providing most Nigerians with access to formal social security programs.
Some have therefore argues that Nigeria still needs a basic social pension-which the Chileans are
introducing through reforms to their own system.

Uganda

Uganda operates a provident fund system; covering permanent employees aged 16-54 in firms
with more than 5 workers. Voluntary participation is also possible, with a separately run
(generous) scheme for government employees (the Public Sector Pension Fund- PSPF). The
scheme is funded with 5% contributions from employees and 10% from employers (no
maximum or minimum earning levels apply for contribution purposes). Benefits are paid from
age 55 in the form of a lump sum equal to total contributions plus accrued interest (which is
determined based on the rate of return of the National Social Security Fund investments). In
recent years the government of Uganda has expressed strong interest in reforming the provident
and public sector pension funds.

20
2.2. Ethiopia Pension Policy
The Private Organizations Employees Social Security Agency (POESSA) was established on 24 th
June, 2011 with the major objective to provide permanent employees of private organizations
with reliable and sustainable social security and encourage personal savings among them. The
main reasons for its initiation were:

Internationally,

Ethiopia is a member the International Labor Organization (ILO) and International Social
Security Association (ISSA). It is also signatory to their conventions
Social Security is a human right
Social Security is a poverty reduction strategy

Nationally,

The right to social security is stipulated in the FDRE Constitution article 90 (1)
It is part of the countrys Social Policy
The rapid expansion of the private sector
The Growth and Transformation plan of the country

It was established with the following clear and specific Principles:

The Insurance Principal: Benefit sharing and risk pooling

The portability of Rights: an employee moving from government employment to private
sector employment, from private sector employment to government employment or
towards self employment will be entitled to social security provided by the scheme as
long as he/she continues contribution to the fund.
The Tri-partite leadership principle: The scheme will be led by a board comprising
representatives from the government, employers and employees.
The Mandatory Principle: In accordance with legislation number 715/2011, all parties to
whom the scheme is applicable must be members (Abraham, 2011).

Private organizations required to be covered by the scheme are:

21
 Organizations established prior to the enforcement of this legislation and did not provide
their employees with provident fund or pension scheme.
If the majority of the employees decide to be part of this scheme despite prior existence
of a provident fund or pension scheme in the organization.
Business, industrial, agricultural, construction, charity and social services organizations
or any other legally formed private organizations or institutions established after the
proclamation came in to effect will be part of this scheme. The scheme is not applicable
on political and religious organizations (Abraham, 2011).

Modality of Pension Collection

The Ethiopia Customs and revenue Authority and Regional Revenue collection bodies
have been given the mandate to collect pension contributions.
Private organizations are required to deduct pension contributions from all employees up
on paying salaries every month.
Private organizations must transfer monthly contributions by both employees and the
organization to legally mandated bodies collecting pension contributions within 30 days
of paying last months salary (Abraham, 2011).

2.2.1. Documents that should accompany Pension Contribution Declaration

Preliminary Documents:

Electronic and Hard copy document containing employees full name, Tax Payer Identification
Number, Salary, employee-employer contribution, name of the employer and tax payer
identification number.

Documents to be submitted monthly:

Name of the private organizations, Tax payer identification number, gross salary paid to all
permanent employees, total amount of contribution of the employee, total amount of contribution
by the organization and changes in salary of Employment and termination details of an employee
accompanied by bank account number must be submitted.

Benefits of the Pension Scheme:

22
 Old age pension
Sickness pension
Work injury pension
Survivors pension

Benefit Amount

Old age and Sickness benefits:

For ten years of service, an employee is entitled to 30% of the average salary paid in the last 36
months of employment. An additional 1.25% will be added each year for service spanning more
than ten years.

Work Injury Benefits:

Not considering service years and age, the injured will be entitled to 47% of his/her monthly
salary received before the month during which the injury occurred.

Survivors Pension:

Out of the pension entitlement of the deceased:

Spouse will be entitled to 50%

Children will be entitled to 20%
Parents will be entitled to 15%

NB. All Permanent employees and those hired with no limited amount of time in private
organizations must be part of the scheme.

Employees with right to join the scheme up on expressed consent

Employees in religious organizations

Employees in political organizations
Informal sector employees

Required Documents for registration to the scheme

Private Organizations:

23
 Document of establishment and/or license of operation from relevant government body.

Private Organization Employees:

Personal and family records form

Letter of employment
Other relevant information necessary for registration

Updating information on Profile Changes:

Liquidation, assimilation, separation, confiscations changes in name of the organization

and etc.
Termination of employment, change in salary, marriage, divorce, children, the death of
registered survivors of the employee in question and etc.

2.2.2. Time Frame to submit registration and updated profile Change

documents:
All registration and change documents need to be submitted to the agency within 60 days after
the employee is hired or after the changes in question have occurred.

Notice:

Tax identification Number must be presented when submitting registration and profile
change documents
Individuals who were employed by a private or government organization after entitlement
to previous pension payment has been guaranteed, can continue to receive both their
current salary and previous pension payment.
A private organization employee who had become entitled to pension payment before
retirement age and becomes re-employed in the private or government organization, will
be entitled to pension that will consider his previous service combined with his
current/future service years.
Pension contribution to the scheme will commence on 8 July, 2011 (Hamle 1, 2003 E.C.)
Private organizations must make the contribution using forms available at tax collector
offices where they pay their taxes as of 7 August, 2011 (Nehase 1, 2003E.C.).

Amount of Pension Contributions:

24
Based on the gross salary of the employee

Period employees Employers Total

July _2011-June_2012 5% 7% 12%
July_2012-June_2013 6% 8% 14%
July_2013-June_2014 7% 9% 16%
July-2014 7% 11% 18%

2.3. Main Features of pension Schemes

2.3.1. Optimal financing of social security pension schemes

The International Social Security Association (ISSA) is the worlds leading international
organization bringing together national social security administrations ands agencies. The ISSA
provides information, research, expert advice and plat forms for members to build and promote
dynamic social systems and policy worldwide (Robert L. Brown, 2008).

2.3.1.1. Voluntary versus Mandatory

Most national social security systems appear at first blush to be mandatory. However, there can
be a number of ways that this feature is depreciated. For example, some systems do not require
contributions from workers until their earnings achieve a defined level. This may encourage
workers (and their employers) to shift into the cash economy. This will be reinforced if the
systems provide some guaranteed minimum benefit or provides significant benefits for very short
periods of attachment. Other systems allows drop-out periods because of military service,
disability, child rearing and so on without any commensurate decrease in ultimate benefits.
Again, such features will only create incentives for negative action amongst the workers. I say
this as a result of the fact that I view a mandatory systems as superior since it negates anti-
selection (Robert L. Brown, 2008).

25
2.3.1.2. Individual account versus commingling or risk
The primary purpose of a social security retirement income security system is to minimize the
probability that retirees live in poverty. In that regard, the design of the social security system
should be one that mitigates risk as much as possible in the goal of achieving income security.

For retirement income security, these risks include: investment and investment expense risk,
interest rate risk, inflation risk and longevity risk. In each of these four categories, commingled
systems achieve superior expected outcomes than individual accounts; some through the
effective application of the law of larger number, other through the efficiencies of scale.

In a commingled social security system, all participants (and this could represent the entire work
force) share these risks. In an individual accounts system, the individual carries all of these risks
unilaterally. Further, a large commingled fund can hire extremely good investment management
at low per unit cost. Such large funds can also participate in private placements not available to
most investment funds. These factors truly matter.

Finally, at retirement, the individual worker must either manage his or her one retirement or buy
an individual annuity. We have already indicated the higher cost involved in having to purchase
your retirement annuity from the private sector because of higher administrative costs and the
anti-selection factor. Perhaps the only scenario that could be worse is managing your own
account and your own longevity risk. In a country where the achievement of retirement income
security is a combination of public schemes, a fully-funded individual account social security
system provides absolutely no diversification overall given that the majority of private-based
benefits can be expected to be defined contribution, and fully-funded (Robert L. Brown, 2008).

2.3.1.3. Public versus Private

How much of the provision of retirement income security should be the responsibility of the
government and how much should be left to private/individual initiative?

The answer to this will certainly vary based on local culture. It is doubtful that the Scandinavian
countries would ever have the low asocial security replacement rations common in the United
States, for example (or vice versa). Further, the discussion of what is public and what is private is

26
often murky. If private retirement savings have measurable tax incentives (as is most countries)
then is this not the same as public participation? And, many of these tax incentives have a
regressive impact. This aspect is often missing in the average debate on these matters. One
design feature that actuaries should all agree to is that the mix of public and private should also
lead to a diversity of plan designs and financing methods. There are times when Defined Benefit
plans are superior. There are times when Defined Contributions plans shine (James, S.et al.
2008).

There are times when Funding is advantageous and times when PAYGO is clearly superior. So a
mix of designs should be preferred because of the advantage of diversification.

All private individual Savings (and Individual Accounts in Social Security) are, by definition,
fully-funded and Defined Constitution. Private employer-sponsored employment pension plans
can be either DB or DC, but should be fully funded at any moment since the sponsor can
disappear economically at any moment. In many countries, notably the United States and the
United Kingdom, employer-sponsored pension plans have shifted significantly over the last
twenty years from DB to DC. Thus, in those countries, all the private-sector pension eggs are in
the fully-funded/DC basket. So, at the least, one would not want to top this off with a Fully-
funded/DC social security system. This would go against all economic logic of the advantages of
diversity. So, a partially funded or PAYG DB social security system seems preferable in this
regard (Robert L. Brown, 2008).

2.3.1.4. Automatic Balancing Mechanisms

Many social security systems around the world (e.g. Canada, Brazil, Sweden, Germany and
Japan) have introduced Automatic balancing Mechanisms into their systems. These are meant to
return a plan to sustainability when external forces create a non-sustainable balance of
contributions and benefits. It seems advisable that such ABM should react towards these
imbalances by sharing the pain as equally as possible between workers and retirees. Only one of

27
the above systems does this at the moment (Canada) and it can be shown that under normal
circumstances even the Canadian ABM hits retirees harder than workers. This does not seem
preferable as retirees normally have no way to respond to reduced benefits and reduced standards
of living (Robert L. Brown, 2008).

2.3.2. Pension Coverage

As per the report of the Director-General of the International Labor Organization in the
International Labor Conference, 80th session, 1993, the nature and extent of social protection can
vary significantly between different sections of the population within a given country. The
starkest contrast is to be fund in the developing countries, where most people who are not wage
earners in the urban formal sector do not enjoy protection, other than whatever public assistance
may exist. In the industrialized countries the self employed are generally subject to compulsory
protection, either under schemes applying to other sections of the population or under special
schemes catering specifically for the self-employed. Typically, the self-employed are not insured
against unemployment of or work injury and, where their pension and sickness insurance
arrangements are separate from those of employees they tend to provide more modest benefits
(ILO, 1993).

Another section of the economically active population that has often tended to have a different
and generally superior-standards of protection is the public service. Schemes for public service
workers, notably pension schemes, existed in many countries before the introduction of social
security for employees in general, so it was not uncommon for them to remain outside the newly
created general schemes, special schemes for public servants are still to be found in many
countries, particularly in the developing world; the trend in industrialized countries has been to
extend the general social security legislation to cover public servants and to convert their special
schemes into complementary schemes. This has been seen as desirable, not only from the point
of view of equity, but also to ensure adequate protection for workers moving between the public
service and other employment (ILO, 1993).

According to the presentation of Ato Teshome Megersa on 24 June, 2011, about origin of
pension and its coverage in Africa, the coverage of social insurance schemes in some African
countries looks like the following;

28
 Social Insurance Schemes
S/N Country Social Insurance Scheme (Benefits) Coverage
Old age/Retirement, invalidity/Health, 8
1 Egypt Survivors, Maternity, Sickness, Employment
injury, Medicare/health service, Unemployment
benefit
Old age/retirement, Invalidity/Health, 4
2 Ethiopia Survivors, Employment injury. (Maternity, (7)
Sickness, Medicare/health service will be
covered by others). In the near future Heath
insurance
Old age/Retirement, Invalidity/Health, 7
3 Ghana Survivors, maternity, Sickness, Employment
injury, Medicare/health service.
Old age/Retirement, Invalidity/Health, 9
4 South Survivors, Maternity, Sickness, Employment
Africa injury, Medicare/health service, unemployment
benefit & Family benefit.
Old age/Retirement, Invalidity/Health, 8
5 Mortania Survivors, Maternity, Sickness, Employment
injury, Medicare/health service & family
benefit.
Old age/Retirement, Invalidity/Health, 9
6 Mauritius Survivors, Maternity Sickness, Employment
injury, Medicare. Health service,
Unemployment benefit.

2.3.3. Challenges to pension policy execution

2.3.3.1. From private firms perspective

According to the revisionist view of savings, people cannot optimize complex inter temporal
problems. They adopt simple rules of thumb and ignore time/varying incentives Bounded
rationality implies people collapse the future to a single period-save now or tomorrow. But
People have non-linear preferences and prefer to defer to tomorrow choices that should be made
today Framing choices implies that people go for the standard or default option rather than

29
what is best for them implies greater role for compulsion, paternalism in saving choices, framing
options the right way (Johnson, 2005).

Comments on the revisionist view

Obviously people do not solve complex recursive problems in their head!

People rely on advice- if the advice is bad, then so is decision
How do people process what is good advice? (for example: they may treat the default
option as information)
Evidence on lack of saving is not per seevidence of irrationality (e.g. saving is affected by
the presence of a public programme).
We can examine some cases where people face choices (e.g. take-up of private pension
benefits) and search for evidence of inconsistency or irrationality

2.3.3.2. From the social security agency perspective

Reasons for people not join their occupational pension plans

A significant minority of people who are covered by a pension plan do not take-up the offer- they
prefer to buy a personal pension. This coulde by myopia and/or a preference for current
consumption (thereby they do not have to pay employee contribution). But they forgo employer
contribution and (on average) more generous prospective entitlements. But accrual structures of
DB plans are back loaded and expected quitters may be better off in a portable pension plan.
Moreover, after job search they may find a better job and subsequently join a pension plan, if
offered (Johnson, 2005).

Actuaries, economists, investment managers, and financial engineers face a common challenge
to find efficient solutions to the pension problems caused by aging populations around the world
(Zvi Bodie, 2008).

2.3.4. Opportunities of pension policy

2.3.4.1. Social Security Benefits

The international labor organization convention No. 102 of 1952 has set up minimum standard of
social security. The convention distinguished 9 types of benefits (ILO), 1976).

30
Old Age Pension: This is a regular payment given to a person in return for the service he has
rendered up to his age of retirement. At present the retirement age in many countries is between
55 and 65 years. In the industrialized countries, it is 65 and above. There is also age limit for
who ask for early retirement. Many developed countries have achieved universal coverage for
this benefit.

Invalidity Pension: This is a payment for a person who has been retired because of sickness and
is unable to continue work for not fulfilling the medical conditions required. This has to be
proved by board of doctors.

Survivors Pension: The payment made to the family of the deceased. The survivors can be
children, spouse or the parents either.

Employment Injury Benefit: refers payment given to a worker who has suffered from an
occupational injury until he revives. It also covers the medical expenses. If the injury does not
enable the injured to continue his work, a regular payment will be given,

Maternity Benefit: Comprises the medical care provided for a pregnant woman both post and
prenatal period and allowances of maternity leave.

Sickness Benefit: This kind of benefit refers to the coverage of medical expenses made by a
worker who is suffering from is suffering work.

Family Allowances prefer: refers to payments made 16 families with dependent children either
by employers or by government, primary to promote the welfare of the children.

Medical Benefit: This kind of benefit provides free medical services for people especially for
individuals who are covered.

Unemployment Benefit: Is a benefit provided who are capable of working but are incapable of
obtaining a suitable employment. Spending on their economic development, countries are
expected to have one or more of these social security benefits for their people. They should be
enacted in statutes as rights conferred to the people.

The administration of social security schemes is usually the responsibility of an autonomous

social security institution or of a government department. The autonomy of social security

31
institutions is usually confined to administrative matters, as decisions concerning coverage,
benefits and contributions normally remain the prerogative of the parliament, acting in most
cases through the relevant government department (ILO, 1993).

It is customary for the social partners to be involved in the administration of autonomous social
security institutions, either on a bipartite basis or, along with government representatives, on a
tripartite basis. In many of the former socialist countries, trade unions had responsibility for
administering parts of the statuary social security system: this practice, however, has been
discontinued in various countries in recent years, owning to political changes and redefinition of
the role of trade unions.

The amount of pension payable when the member retires is dependent upon the amount of
money paid in to the scheme: how well the investment founds perform: and the subsidy by the
government. Social security schemes receive contribution income from both insured persons and
their employers. Income may also be derived from special taxes to support the social security
scheme. The government may also make a contribution related to insured persons or employees
contributions (or both), it may make a payment related to expenditures on certain benefits or an
administration, or in some cases even a general subsidy. Normally, the government guarantees to
make funds available should the income of the scheme be in adequate to meet its expenditures
(ILO, 1997).

The basis for contribution depends on the types included in the scheme. The invested assets of
pay-as-you-go social security schemes are unimportant source of income because the assets
accumulated are relatively small and are used primarily to provide benefits during economic
downturns. In funded schemes, however, the invested assets are an important source of income
(ILO, 1997).

2.3.4.2. Pension Systems as Part of Social Security

The economic freedom and financial security old age and retirement are of major concern main
aim of pension is to give a reasonable amount of financial security to the retired employee.
Rudrabasavaraj, 1979, enumerated the following advantages of pension plans. They:

1. Attract and retain employees.

32
 2. Attract better class of people who stay with the organization, this helps in reducing
turnover and recruitment costs.
3. Permit retirement of the superannuated employees.
4. Improve employee morale.
5. Permit retirement of the superannuated employee.

A pension plane, which is one part of social security, is a program set up by an employer, a
labour union, or a government that provides regular income payments meeting the conditions set
forth in the plan. There are three universally accepted conditions: these are; age, disability and
death (Gove, 1980). A person or survivors pension for his dependents upon his death. Although
these three kinds of benefits are referred to pension as a whole, they cover the three benefits
embodied in the social security. In earlier times a pension was viewed as a gratuity or reward for
loyal service to an employee (Hosking, 1968).

The retirement system enables individual employees to live dignified. Satisfying and secure life
during the retirement system helps to release more of the creative energy and efforts of personnel
making if possible more effective daily and long term performance in the service for which they
are employed (Ukeje, 1962). A person who spends his working life as an employee should have a
privilege of getting an adequate pension on his retirement from services (Marthur et al, 1981).

In his book titled personnel management, Edwin Flippo (1984) emphasized that effective
retirement programs will reduce employee uncertainty, minimize worries about health, reduce
the tendency to miss ones old job, enables a more satisfactory arrangement of retirement
income, and increase the amount of social participation on the part of the retiree. In Britain, state
retirement pensions go back to 1908(Prest and Barr, 1985). In the United States, even non-
contributory pensions were transformed from gratuities to legally enforceable corporate
liabilities (Pigors and Myers, 1981).

Pension plans differ from country to country on the basis of economic development. Modern
attitudes to old age and increased levels of unemployment have led in a number of countries to
legislation, which provides for flexible retirement. In other words, there may be no specified
normal retirement age, but rather a range of ages during which retirement is permitted. As
emphasized by international social security association (1988), in Canada, a retirement age from
60 to 65 has been implemented with a deduction in the accrued pension for persons retiring

33
before age 65. In France, the normal retirement age was simply reduced from 65 to 60. Higher
levels of unemployment have led to the development of pre-pensions where by older workers can
retire early and receive periodic payments until they are eligible to receive old age pensions
(Pigors and Myers, 1981).

2.3.4.3. Pension Scheme Classification Criteria

There are two broadly types of social protection for the elderly. The first comprises benefits that
are available to everyone, either universally or subject to a means test. Such benefits are financed
from general state revenue and constitute a form of social assistance (a social floor). The second
type is an entitlement restricted to people who together with their employers or independently
contributed to a pension fund during their working life. Such protection is in the nature of social
insurance (ILO, 2000/2).

Aside from this basic distinction, pension schemes also differ depending on how they are
organized, their conditions of entitlement to benefits and their outcomes.

How pension schemes are organized basically depends on four sets of alternative policy options,
namely, PAYG vs fully funded schemes, defined contributions vs. defined benefits, public vs.
private administration, and mandatory vs. voluntary participation. Current or planned reforms
typically consist in shifting from one of those options to another.

i) Pay-as-you-go vs Funded Schemes

In PAYG schemes, the retirement pensions paid out over a given period are financed from the
contribution paid over that same period by those in employment (employees and employers). In
funded pension schemes, the contributions are paid into a fund from which capital and interest
accrued are then used to pay out pensions. Where funding is individual, the contributions of each
participant are paid into a personal account from which the capital plus interest accrued is paid
out in the form of a lump sum or an annuity upon the participants retirement. There are also
collectively-funded schemes, in which pensions are financed from the capital and interest
accrued to all the participants in the scheme. In this case, the amount of individual pensions

34
depends on criteria such as seniority, length of contributory service and age at retirement (Wolk,
Tearney and Dodd, 2000).

ii) Defined-benefit vs. Defined-Contribution Schemes

Under some pension schemes, benefits are determined in advance, e.g. as a percentage of a
persons earnings over a number of reference years for example, the last 10 or 20 years of work
or as a percentage of lifetime earnings. In order to ensure that the scheme can afford to pay its
defined benefits when the time comes, rates of contribution may need to be adjusted periodically
in the light of demographic, actuarial or economic considerations. Conversely, other schemes
predetermine depends on the specified rates (s), the number of years of contributory service and
returns on investment (Wolk, tearney and Dodd, 2000).

iii) Voluntary vs. Compulsory Schemes

Participation in insurance as opposed to assistance-schemes may be compulsory by law or left to

the discretion of those eligible. Experience suggests that effective social protection presupposes
compulsory participation, since people with the lowest incomes may not be inclined to join a
pension scheme voluntarily and those with the highest may not see the need, thereby depriving
the schemes of its contributions. As a result, basic schemes are typically mandatory. Where
available, supplementary schemes-the other pillars mentioned above-may be voluntary or
compulsory, depending on national practice.

Pension Schemes Have Three Main Objectives:

Protection against poverty in old age;

Provision of a retirement income, usually expressed in terms of an appropriate
replacement rate for the earnings lost at the point of retirement;
Protection of this income against the subsequent erosion of real living standards as
the result of inflation.

The public pension schemes of most developed countries are based on the PAYG system:
benefits are partly universal flat-rate (as a protection against low incomes in old age), and partly

35
related to earnings near the point of retirement (i.e. defined benefit). Such schemes are obligatory
and government guaranteed; in effect, they are government to take whatever action is necessary
(i.e. raise taxes or contributions) to ensure that benefits are paid as they should be, including any
increases needed to keep pace with inflation. The advantage of PAYG schemes is that
contribution rates, particularly during the years before the schemes have acquired a measure of
maturity, are lower than they would be in, say, a fully funded scheme, since it is not necessary to
build up a capital reserve (ILO, 1993).

2.5. Conceptual Framework

The owners of the firms (Investors) and the agency are the prominent independent variables that
influence the intermediate variables (causes of not incorporated), Manual related dalliance, firms
related failures, consultant related delays, and equipment related delays, and material related
delays. The effects of the failure are the dependent variables. These effects are Refusal to
register, less pension coverage and violence of law.

Dependent
Independent Variable Intermediate Variable
Variable

Factors of Refusal

1. Less known how of pension policy

2. Selfishness
3. Irresponsibility

Refusal to register

36 No pension coverage

Violation of law
 The inventors
Source of Refusal
(Firms)
1. Bad image on the legal issue
2. Running cost

3. Firms didnt Need pension

Chapter Five

Conclusion and Recommendations

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