Retirement planning – A history and evolution of retirement (II)

“The disadvantage of men not knowing the past is that they do not know the present.” – G. K. Chesterton

Last week, we saw what some of the direct and indirect triggers of pension schemes were in Europe.  Today we will continue with how retirement benefit schemes started around the same time in the United States and later in Nigeria.

Around von Bismarck’s pension schemes, there were other retirement plans in Europe and across the Atlantic in the United States of America (‘US’, ‘America’). After the American Civil War (1861 to 1865), pensions were paid by the US federal government to disabled or impoverished veterans of the Union as well as to widows of the dead. On the other hand, disabled Confederate veterans were paid pensions by the Southern states. Around the same time as well, municipal employees like firefighters and teachers in some big US cities started receiving public pensions while American Express was the first in the private sector to offer an employer-provided retirement plan in 1875. It was followed by the Baltimore and Ohio Railroad five years later in 1880. By the 1920s, American companies in various industries, such as oil and banking, were promising workers support for their later years. Private pension plans grew steadily thereafter in the country.

The Second World War (1939 to 1945) also led to a rise in the development of retirement plans in the US because government-imposed wage freezes and a general shortage of workers meant that companies had to attract those that were available. Since then, the concept of providing a financial fallback for the elderly caught on in many other advanced and developing nations.

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The retirement age was pegged in the US at 65, due more to economics than health as was the case earlier in human history. The US federal government started creating what would, in 1935, become the Social Security Act, when the life expectancy for men in the country was 58.  President Delano Roosevelt said the Act was intended “to help those who have reached the age of retirement to give up their jobs and thus give … the younger generation greater opportunities for work.” The Great Depression ended in 1939. The post-Second World War boom along with increasing wealth and advances in medicine, made life expectancy in the US reach 70 years by 1960. Medicare health benefits for the elderly were added to the package in 1960. People lived longer and past the retirement age. The elderly had the money to stop working and embrace leisure.

We have come full circle since the days when we worked until we couldn’t, or we died. The few decades that retired Americans lived without working sowed the seed of the idea that we can retire at a certain age, almost without regard to other considerations.

Prior to colonialism, Nigeria, as with most other African countries, didn’t have ‘retirement plans’ in the formal and technical sense of the word. The elderly, like the disabled, unhealthy and the young were simply taken care of by extended families and well-wishers. We were at best, perhaps, like the ancient Greeks that stored olive oil to help ‘fund’ their needs in ill-health and old age, albeit with other assets for us. Being a British colony, Nigeria’s pension scheme started in 1951, with a retroactive effect to 1946, through a Pension Ordinance established by Britain. However, it applied only to British officials serving in Nigeria. Thereafter, various enabling legislations were passed. Pension Acts and Decrees for the military were consolidated into Decree 2 of 1976 by General M. Mohammed and later Decree 103 of 1979 by General O. Obasanjo.  The Basic Pension Decree 102 of 1979 for the civil service pensions was promulgated with a retroactive effect to 1974.

It was in 2004 that the Pension Reform Act, PRA, under then-President O. Obasanjo, was passed into law, becoming the lighthouse of pension management in Nigeria. The PRA 2004 saw to the establishment of the National Pension Commission (‘PenCom’) as the regulator and supervisor for the effective administration of pension matters in the country. It also saw to the establishment of the Pension Transitional Arrangement Directorate, PTAD, to take over the management of hitherto disparate public pension offices. PRA 2004 was repealed, amended, and enacted into PRA 2014 which now governs all pension schemes in our country.

For the private sector, it was in 1954 that the first retirement pension scheme was set up by Nigerian Breweries. This was followed in 1961 with the establishment of the National Provident Fund, NPF, for non-pensionable private sector employees. The NPF was replaced by the National Social Insurance Trust Fund, NSITF, through Decree 73 of 1993. After the enactment of the PRA 2004, PenCom licensed Trust Fund Pensions plc., promoted by NSITF and other institutional investors, as a Pension Fund Administrator (‘PFA’) to manage the accumulated pension funds of NSITF contributors as well as compete with other then-emerging PFAs in the country.

Wars, politics, industrialization, economic depression, and wealth led to the introduction of retirement plans in what are now the developed economies of the West. For most other developing nations like Nigeria, however, it was colonialism in the mid-twentieth century that introduced the concept and formal practice of retirement benefits schemes. Next week we will take up Types of Retirement Benefits Schemes.