Abstract
The study assessed the technical efficiency of pension fund administrators in Nigeria using Stochastic Cost Frontier Model to generate efficiency scores for each of the eleven (11) selected pension fund administrators from a population of twenty-one (21). Panel data gathered from the annual reports of the selected pension fund administrators and the National Pension Commission were analysed using the maximum likelihood technique. The result showed that inefficiency, in varying degrees, existed in the selected fund administrators due to input costs on labour, equipment and premises and the mean and median efficiency scores were about 75% and 72% respectively. While the most efficient pension fund administrator recorded inefficiency score of 0.077, the least efficient pension fund administrator had inefficiency score of 0.388. The study concluded that increase in profitability, number of contributors, engaging in open fund investment activities and merger and acquisition reduce operating cost. It was therefore recommended that there should be a regulator-initiated merger and acquisition in the industry to eliminate waste, with positive impact on investment income. Besides, the regulatory agency should ease and expand transfer windows for existing contributors to transfer their pension contributions from an inefficient pension manager to efficient one to engender competition in the pension industry.
Highlights
IntroductionThis is because the relationship between output and input factors of production can be expressed in a functional form, and their parameters can be estimated based on the available data from the National Pension Commission (PENCOM) and financial statements of the Pension Fund Administrator (PFA). Under the new contributory pension scheme, potential contributors are meant to choose pension fund administrators that will manage their pension fund contributions
There are many problems associated with defined benefits (DB) pension scheme in Nigeria which are identified by Abade (2004), Orifowomo (2006), and Odia & Okoye (2012) as the inefficiencies of the institutions saddled with the responsibilities of managing pension funds, retirees not receiving monthly pension as at when due and having to go through rigorous verification processes before the receipt of their gratuities, pensions and other retirement benefits, and corruption of pension institutions officials that misappropriated the pension fund provided by government to offset pension liabilities
This study used Cobb-Douglas Stochastic Cost Frontier Analysis to assess the technical efficiencies of Pension Fund Administrator (PFA) in Nigeria. This is because the relationship between output and input factors of production can be expressed in a functional form, and their parameters can be estimated based on the available data from the National Pension Commission (PENCOM) and financial statements of the PFAs
Summary
This is because the relationship between output and input factors of production can be expressed in a functional form, and their parameters can be estimated based on the available data from the National Pension Commission (PENCOM) and financial statements of the PFAs. Under the new contributory pension scheme, potential contributors are meant to choose pension fund administrators that will manage their pension fund contributions.
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