A former Governor of Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo, has urged Nigerians to demand good governance and accountability from political leaders. Soludo made the call at “The Big Ideas Podium’’ with the theme “Nigeria: The Economics of Failure’’ of the African Heritage Institution (Afri-Heritage) in Enugu on Tuesday. He said that the…
“PENSION in the United States is generally guaranteed! Most people are participating in a defined benefit plan. In this plan, one’s retirement benefit is based on the person’s years of credible service, age, and the average of the person’s highest three or five years of salaries. Nevertheless, some employers have defined contribution plans for their employees in which the employees and employers contribute a specific amount or percentage of the salary per pay period or as defined.
Generally speaking, retirement is not imposed on people. It is pertinent to note that people may choose to work longer after being eligible for retirement based on a combination of age and years of service. Some people work five to ten years longer after being due for retirement. Many educators who are eligible for retirement, have not chosen to retire yet for several reasons.
In some cases, I have met some teachers who came back to teach full-time after two or more years of their retirement. In other cases, many retired educators are teaching as substitute teachers thereby earning additional income.
But regardless of the pension plan, in the United States, retirement is a risible stage in one’s life and people take years to plan for it. As people approach retirement, they look forward with ambivalence to the day they will voluntarily retire after toiling for decades in the workforce. The ambivalence stems from the fact that life in retirement is unknown relative to the routine schedule one had during employment. One may not know what to do with the excess time on hand. Thus, some people have gone back to work after retirement. However, the uncertainty has never been about receiving the defined pension benefits.
In fact, the pension benefits are as certain as death because the retirees’ livelihood and dignity of life depend on the steady monthly flow of the pension benefits. The significance of ensuring payment of benefits to pensioners is enormous. Both at the micro and macro levels, the steady flow of pension benefits is seemingly salient. Therefore, any potential failure in the pension system is quickly corrected. The pension plans are designed not to fail. However, if the systems falter, there are mechanisms in place to remedy the situation.
For instance, Texas State government is currently intervening to remedy the Dallas pension problems. The Dallas Morning News recently reported with a caption, “Government to the rescue in Texas? That rarity could solve Dallas’ failing police pension,” explaining the willingness of the state government to work out plans that will ultimately bail out the failing pension funds of the Dallas police and firemen. It said, “Leaders in Dallas and Austin have worked out a compromise plan to fix the Dallas Police and Fire Pension. The fund has a hole of roughly $3.7 billion, which has created a financial crisis that threatens the retirement of thousands of workers and the future of the city.”
The action is being taken to ensure that the pension benefits are available to the police and firemen in Dallas when they retire. The federal and state governments, as well as municipalities, take great measures to ensure that retirees are not left in the cold. Secondly, spending resulting from the pension benefits significantly impacts the economy.
The pensioners use their benefits to pay for goods and services. The expenditures from the retirees help sustain employment in various sectors. A recent report by the National Institute on Retirement Security, “Pensionomics 2016: Measuring the Economic Impact of Defined Benefit Pension Expenditures,” found that the economic gains associated with expenditures of pensioners based on their pension benefit are sizable with “large multiplier effects.”
The report found that “the retiree spending of pension benefits in 2014 generated $1.2 trillion in total economic output, supporting some 7.1 million jobs across the U.S.” On the multiplier effects, the report found, “Each dollar paid out in pension benefits supported $2.21 in total economic output nationally.” Measuring the “economic impact” and “economic effects” of all pension benefits nationally, the report further said, “Each taxpayer dollar contributed to state and local pensions supported $9.19 in total output nationally. This represents the financial value of long- term investment returns and the shared funding responsibility by employers and employees.”
Without a doubt, it is in the interest of the government to promote a condition where retirees live out their lives in dignity and not in poverty. Thus, there are other government programs that assist retirees who meet certain income threshold. So, besides the traditional pension benefits, retirees in America enjoy the social safety net, which is a collection of benefits and services provided by the federal, state, other institutions. The intent of the social safety net is to prevent individuals from falling below a certain poverty level.
Also, some retirees may receive Social Security and Medicare benefits in addition to their pension benefits. While Social Security is a government program that provides monetary benefit to individuals with no income or certain level of income, Medicare, which is generally for those who are 65 years or older, is a federal government health insurance program. Medicaid is yet another joint federal and state health program that helps low-income people for the payment of custodial care and long-term medical care expenses.
Decency requires every country to protect its most vulnerable individuals such as children and the aged. Nigeria should protect these groups of individuals. In the second part of this piece, I will discuss the pension issues in Nigeria and their human and economic consequences.