Nigerian Pension Research Articles

An empirical evaluation of the performance of Nigerian pension fund managers

PurposeThis paper evaluates the risk-adjusted returns, selectivity, market timing skills and persistence of the performance of Nigerian pension funds.Design/methodology/approachAnnual return data of 23 pension funds that operated in Nigeria between 2018 and 2022 were obtained from the National Pension Commission (PenCom). Risk-adjusted return was appraised using the Treynor ratio, Sharpe ratio and Jensen alpha, while the Treynor–Mazuy and Henriksson–Merton multiple regression models were applied to decompose selective and timing skills. Performance persistence was assessed using the contingency table and rank correlation models.FindingsEvidence shows that pension funds deliver excess risk-adjusted returns and exhibit selective skills. However, the evidence does not support the presence of timing skills, and there is overwhelming evidence that good (bad) performance does not repeat.Practical implicationsAn evaluation of the investment performance of pension funds is crucial for ensuring the financial stability of retirees, maintaining economic stability and making informed investment decisions. It serves the interests of pensioners, pension fund managers, regulators and the broader economy. Our evidence that pension funds generate positive excess returns is a departure from most of the literature on managed funds. We recommend that more Nigerians should leverage the pension fund industry to grow their wealth and prepare for retirement.Originality/valueThis study, to our knowledge, is the first to appraise all the key facets of the investment performance of pension funds in the Nigerian context.

Financial Performance Adequacy of Pension Fund Managers in Nigeria

Purpose: Traditionally, the Nigerian pension fund system was based on a defined benefit scheme for the public and private sectors and coincided with serious challenges in the payment of retirement benefits to retirees. These challenges led to the introduction of a defined contribution scheme in terms of the Pension Reforms Act. Since the management of pension fund assets is the sole responsibility of pension fund managers, there is a need to investigate the adequacy of pension fund managers’ financial performance since the change in pension fund regime. The pertinent research question in the study was: To what extent do pension cost incurred, revenue, the inflation rate and total contribution affect benefits paid and cash inflow? The extent to which federal government bonds, securities, total contribution and the inflation rate affect investment income were also examined. Methodology: Autoregressive distributed lag (ARDL) cointegration and multiple regression were used in the analysis of the data. Findings: The results of the study revealed that in both the short-term and long-term analysis, other costs incurred by pension fund management lead to lower benefits paid to retirees. Furthermore, higher administrative costs lead to higher benefits paid, given that increases in administrative costs promote higher inflow contributions, and investing in federal government bonds and, in particular, Treasury bills promotes higher investment income. Thus, securities increase investment income, and the higher the inflation rate, the higher the investment income. Originality/Value: The policy implication signifies a need to reduce pension costs incurred on pension fund management and to encourage more investment in real assets that can militate against inflation.

Effect of Inflation on Pension Fund Investment in Federal Government Securities in Nigeria

This study investigated the effect of inflation on pension fund investment in federal government securities in Nigeria utilizing time series data spanning from 2007 to 2019. Ex-post facto was the research design used in the study. Secondary data for the period were collected from the National Pension Commission Annual Reports and Central Bank of Nigeria Statistical Bulletin. Data collected were analyzed and tested for unit root, using the Augmented Dickey-Fuller test. While Ordinary Least Square (OLS) estimation technique was used to test the hypothesis. The result revealed that inflation rate did not significantly impact on pension fund investment in federal Government Securities in Nigeria. This result implies that pension funds invested in federal government Securities yield adequate return on investment capable of withstanding the adverse effect of rising rate of inflation in Nigeria. This could be that, the volumes of monthly pension contributions channeled into Federal Government Securities actually cover the effect of inflation on pension fund investment in federal government securities in Nigeria. Based on the findings of the study, it was concluded that inflation did not significantly impact on pension fund investment in federal government securities in Nigeria. In line with the findings of the study, it was recommended that Nigerian Pension Industry should continue to advocate that policy makers target reduction in the monetary policy rate and also stabilize the value of Naira in order to enhance actual value of pension benefits in the long run. Also, the National Pension Commission should differentiate the monthly contributions that come into the pension fund investment in the annual report so as to determine the actual return on investment of various securities where pension fund is invested.

“Further Distance and Silence among Kin”: Social Impact of COVID-19 on Older People in Rural Southeastern Nigeria

ABSTRACT Given the new and unprecedented challenges faced by older people during the COVID-19 pandemic globally, this study explored the social impact of COVID-19 on older people in rural Nigeria. Data was collected from 20 older persons using in-depth interviews and analyzed thematically. Findings revealed that the pandemic has limited the rural older people’s social support and social contact with loved ones, leading to their increased poverty and loneliness due to their dependence on intergenerational support. The study recommends creative ways to safely maintain connectedness with older people, and expansion of the Nigerian pension policy to ensure income security for all older people as the pandemic has exposed the unsustainability of dependence on social networks.

Unending Reforms of the Nigerian Pensions Act: The Dilemma of the Pensioners

The dearth of satisfactory retirement plans coupled with poor retirees’ well-being led to the introduction of the contributory pension scheme. Pensions administration in Nigeria dates back to the 1950s. However, with effect from June 2004, a new Pension scheme evolved with the enactment of the Pension Reforms Act 2004. The new Act introduced the new pension scheme in Nigeria, a defined contributory scheme, unlike the old scheme which was mostly derived benefits. Although the new scheme was anticipated to be better than the old scheme as it was expected to remedy the lacuna and shortfalls predominant in the old scheme, there were noticeable errors and it subsequently became imperative to enact the Pension Reforms Act 2014 on 1st July 2014, and there are already agitations for a change. Unfortunately, most retirees or would-be-retirees do not understand the procedures or activities of PENCOM, the Pension Fund Administrators, and other relevant participants in the industry. This is made worst by the lack of education in this regard until workers are on their exit year. This research is carried out to assess the glitches occasioned by the different reforms of the Nigerian Pension Act. This paper has examined the preparedness and fears over retirement. It is advocated that the continuous or unending reforms of the Pensions laws in Nigeria, coupled with the fraud exposed by the National Assembly in 2012 with the new Pension Scheme, only adds up to the dilemma of the Pensioners.

The Lifecycle Hypothesis and the Nigerian Pension Industry: A Review

The Lifecycle Hypothesis and the Nigerian Pension Industry: A Review

A Review of the Tax Regime Under the Nigerian Pension Reform Act, 2014

The Nigerian Pension Scheme has passed through several legislative reforms since 1951, the extant pension scheme being the Uniform Contributory Pension Scheme, which is regulated by the Pension Reform Act, 2014 (“PRA, 2014”), which repealed the Pension Reform Act, 2004 (“PRA, 2004”). The PRA, 2014makes it mandatory for employers and employees in both the public and private sectors to contribute towards the retirement benefits of employee, and also makes provision for voluntary contribution by the employee to augment the employee’s savings for retirement. The PRA, 2014 also addressed the sundry issues bedeviling the Nigerian pension system under the previous pension regimes, one of which, was the tax regime under the Nigerian pension scheme. This thesis examines the various reforms that have taken place in the Nigerian pension system, especially in the area of taxation, the taxability of pensions (including cross-border taxation) under the PRA, 2014, and the extent to which the measures provided under the PRA, 2014 towards achieving the objectives of the Nigerian contributory pension scheme, especially in relation to taxation, has impacted in the Nigerian pension scheme, as well as the Nigerian economy. This thesis finds that ordinarily, pension contributions, including the incomes earned thereon, are tax exempt. Under the penultimate regime (PRA, 2004 era), voluntary contributions of employees were taxed when withdrawn within 5 years from the date the voluntary contribution was made; however, it is only the ‘income earned’ from the voluntary contributions that is taxed under the PRA, 2014. Furthermore, the provision for tax under the PRA, 2014 is essentially aimed at discouraging employees from making withdrawals from the pension funds at short intervals of lodgment, given the objective of the scheme - which is to provide employees with a means of securing a good standard of living upon retirement; and to curb the use of the pension to avoid tax payment in Nigeria. Although the PRA, 2014 has reasonably impacted on the Nigerian pension system by ensuring that the major objectives of the pension scheme in Nigeria are achieved, there is still need for improvement in the area of tax administration. In the course of this research, reference will be made to some statutes, case laws (including foreign case laws), as well as text books and articles from renowned authors.

Strategic Role of Pension Fund Administrators in Motivating Contributors’ Interests in the Nigerian Pension Scheme

The focus of this research was to determine the strategic role of Pension Fund Administrators (PFAs) in motivating contributors’ interests in the Nigerian pension scheme. Effort was made to ascertain the extent of payment of pension benefits to contributors as and when due and to also ascertain the level of payment of interests and bonuses to the contributors on funds invested as and when due. The study utilized structured questionnaire to obtain data from active Retirement Savings Account (RSA) holders and pensioners based on their perceived interests on pension matters in Nigeria. A total of 168 RSA holders and 149 pensioners were purposively and randomly selected for the study within the South-West region of Nigeria. From the application of the regression technique, the data analysis revealed that prompt payment of pension benefits and contributions by PFAs significantly influence contributors’ motivation in the pension scheme. Also, the result showed that payment of interests and bonuses on pension funds invested has a significant effect on the contributors’ satisfaction with the pension scheme. Therefore, the study recommended that PFAs should devise means to educate the beneficiaries on the modalities for calculating pension allowances so as to improve their customer service initiatives for increased market share, and to regularly update the RSAs of beneficiaries with the interests and other bonuses from pension investments.

Inflation Risk Factors and Contributory Pension Wealth: Reflections on Nigeria’s Old-age Poverty

Purpose of the article: Nigeria’s shift to the Defined Contributory Scheme (DCS) is more or less questionable in terms of providing economic security for the senior citizens and preventing old age poverty. The 2004 and 2014 pension reforms sought to conform to pension theory; yet, there could be greater critical risks such as inflation risk factors. This study therefore examined how inflation risk factors impact pension wealth in Nigeria. Methods: The Structured Autoregressive Distribution Lag (ARDL) to the co-integration approach is employed to determine the relationships between inflation risk factors and investment returns of selected Nigerian pension fund administrators for the period 2009–2014. Scientific aim: This study sought the evidence to support the impact of inflation risk factors on pension wealth in Nigeria following the switch to the DCS based on the theoretical link between the investment returns and inflation rate. Findings: Inflation and world oil prices adversely affected the asset returns of pension funds management bourgeoning vulnerabilities to old age poverty. Conclusions: Pension wealth of Nigerians at the cumulating phase is at high risk to inflation risk factors, and is reasonably justified with the negative relationship with the exchange rate factors and world oil prices. The study suggests that inflation, exchange rate risk, and world oil price risk must be strategically tackled with farsighted multi-faceted fiscal and monetary measures to reduce social insecurity and vulnerability to old age poverty. The government should consider promoting the flotation of inflation-indexed bonds and urgently consider imposing a guaranteed returned pension plan (GRPP) to reduce the inflation risk in the accumulating phase of the DCS, while workers should consider increasing their contributions to mitigate inflation risk factors. Insurance life annuities can also provide inflation insurance linked to inflation-indexed bonds.

Appraisal of the Nigerian Pension Scheme

Appraisal of the Nigerian Pension Scheme

Effect of Inflation on Stochastic Optimal Investment Strategies for DC Pension under the Affine Interest Rate Model

In this paper, we seek to investigate the effect of inflation on the optimal investment strategies for DC Pension. Our model permits the plan member to make a defined contribution, as provided in the Nigerian Pension Reform Act of 2004. The plan member is free to invest in risk-free asset and two risky assets. A stochastic differential equation of the pension wealth that takes into account certainly agreed proportions of the plan member's salary, paid as a contribution towards the pension fund, is presented. The Hamilton-Jacobi-Bellman (H-J-B) equation, Legendre transformation, and dual theory are used to obtain the explicit solution of the optimal investment strategies for CRRA utility function. Our investigation reveals that the inflation has significant negative effect on optimal investment strategy, particularly, the CCRA is not constant with the investment strategy since the inflation parameters and coefficient of CRRA utility function have insignificant input on the investment strategy.

On the Effect of Inflation and Impact of Hedging on Pension Wealth Generation Strategies under the Geometric Brownian Motion Model

This work investigates the effect of Inflation and the impact of hedging on the optimal investment strategies for a prospective investor in a DC pension scheme, using inflation-indexed bond and inflation-linked stock. The model used here permits the plan member to make a defined contribution, as provided in the Nigerian Pension Reform Act of 2004. The pension plan member is allowed to invest in risk-free asset (cash), and two risky assets (i.e., the inflation-indexed bond and inflation-linked stock). A stochastic differential equation of the pension wealth that takes into account certain agreed proportions of the plan member’s salary, paid as contribution towards the pension fund, is constructed and presented. The Hamilton-Jacobi-Bellman (H-J-B) equation, Legendre transformation, and dual theory are used to obtain the explicit solution of the optimal investment strategies for CRRA utility function. Our investigation reveals that the inflation have significant negative effect on wealth investment strategies, particularly, the RRA(w) is not constant with the investment strategy, since the inflation parameters and coefficient of CRRA utility function have insignificant input on the investment strategies, and also the inflation-indexed bond and inflation-linked stock has a positive damping effect (hedging) on the severe effect of inflation.

Nigerian Pension Scheme and Poverty Reduction in Nigeria: An Empirical Assessment (2004-2015)

This study employed econometric time series analysis to examine the effect of pension scheme contributions into the retirement saving accounts of employees on national, urban and rural poverty levels. Secondary data for the period 2004 to 2015 were collected from the National Pension Commission (PenCom) Annual Reports, National Bureau of Statistics and Worldbank. The study applied the Ordinary Least Square (OLS) regression technique in which variations in national, urban and rural poverty levels were regressed on pension contributions into the retirement saving accounts of employees, gross national income, population growth and unemployment rate. The diagnosed results revealed that pension contributions have no significant effect on national, urban and rural poverty levels. The findings also suggest that 60.19%, 63.05% and 65.37% variation in national, urban and rural poverty level respectively were as a result of joint changes in pension scheme contribution I to retirement savings account of employees, gross national income and population growth. The negative relationship between pension contribution and poverty level validates the life-cycle hypothesis, which envisaged that a good operational pension scheme has the potential of reducing poverty most especially among the elderly population, which in turn affects the general poverty level of a country. On the basis of the findings, Federal government of Nigeria should intensify the efforts to ensure wider coverage of the pension scheme to the lower tiers of government: States and Local Governments Areas. The National Pension Commission should strengthen its surveillance on the private sector to ensure full compliance with the provisions of the Pension Reform Act of 2014. Finally, there should be sustained promotion of wider publicity of the activities of National Pension Commission with the objective of educating and enlightening the general public on the implementation of the contributory pension scheme.

Effect of Extra Contribution on Stochastic Optimal Investment Strategies for DC Pension with Stochastic Salary under the Affine Interest Rate Model

In this paper, optimal investment strategies for defined contribution (DC) Pension, with extra contribution are studied. Our model permits the plan member to make a defined extra contribution, as provided in the Nigerian Pension Reform Act of 2004. The plan member is free to invest in risk-free asset, and in two risky assets. A stochastic differential equation of the pension wealth that takes into account certain agreed proportions of the plan member’s salary, paid as contribution, and extra contribution towards the pension fund, is presented. The Hamilton-Jacobi-Bellman (H-J-B) equation, Legend transformation, and Dual theory are used to obtain the explicit solution of the optimal investment strategies for constant relative risk aversion (CRRA) utility function. We observed that the plan member will increase the proportion of his wealth to be invested in bond and stock and will reduce the proportion to be invested in cash.

The anatomy of pension fraud in Nigeria: Its motives, the management and future of the Nigerian pension scheme

The study determined how the administration of the Pension Scheme could be perked up in Nigeria through effective management that would reduce fraudulent practices apparent in the scheme. By following the precept of library research via the survey design, a 5-point Likert Scale questionnaire was designed to educe primary information about pension matters from a sample of 435 knowledgeable respondents. The collected data were presented and analyzed. Three hypotheses were formulated and tested based on Multiple Regression Analysis models with the aid of Minitab version 17. The findings show that, despite the provisions of the Act (the Pension Reform Act - PRA), intents for committing Pension Fraud have not reduced to a significant extent. Also, the accumulated assets of pension funds have not been adequately diversified into profitable investment alternatives. Therefore, we recommend that, among other things, amendments should concertedly be made to the PRA to at least discourage acts of pension frauds by instituting severe punitive measures for culprits, while simultaneously inculcating moral ethics among public servants in Nigeria.

An Appraisal of the Concept of Trust in the Nigerian Pension Reform Act 2014

An Appraisal of the Concept of Trust in the Nigerian Pension Reform Act 2014

The Effect of Longevity on Pensions in the Nigerian Pension Scheme

The old pension scheme pension were based on length of service and on a percentage of final salaries. In the new pension scheme contributions are invested till retirement. Accumulated contributions are used to purchase pension at retirement. The paper looks at the effect of longevity on the annuity values at retirement and the consequent pensions. Three lives age 25, 35 and 45 with 35, 25 and 15 years to retirement are considered. Five Life Tables with life expectancies of 13.48, 14.43, 15.61, 17.98 and 19.51 years at age 60 each were considered. We find that the new pension rate is considerably less than the old rate for each Life Table and longevity increases annuity value, thereby reducing pensions. The percentage goes from 100% to 82.8% taking the Life .Table with the least life expectancy as a base and for a life aged 25.The same result follows for each life considered,

Analysis of Investment Decision by Nigerian Pension Fund Administrators (PFAs)

Decisions taken by Pension Fund Administrators whether to invest in a particular asset class or not depend upon relative importance of different factors. The relative importance of these factors and the interactions among decisions taken by PFAs has remained unknown to the contributors. Therefore, this study is designed to examine factors affecting investment decision in PFAs. This research work examined the factors that influence investment decisions in Nigerian PFAs. The study also evaluated investment decisions in Nigerian PFAs based on both qualitative and quantitative factors. Primary data were used for this research, which were generated through the use of questionnaire. Simple random sampling technique was used to select respondents from five PFAs in Nigeria. Data collected were analysed using factor analysis. The result of the study indicates that three factors were considered by PFA managers when making investment decisions: Economic, Risk and Security of real estate factors. The study concluded that National Pension Commission should be a bit flexible in its regulatory restriction of investment areas of PFAs to enhance a better investment decision making process. The study therefore, recommended that PFAs should use reward structure to ensure accountability of those that are in charge of investment decision making. Key words: Investment; Decision making; Pension Fund Administrator; Factor analysis; National pension commission

Nigerian Pension Reform 2004-2010: Great Leap or Inappropriate Policy Design?

This paper analyses early results of the 2004 Nigerian pension reform. At the beginning of 2010, the new system of privately managed, funded pension accounts covered around four million Nigerians in a country with a workforce of around 50 million people. The study focuses on shortcomings of the new system. Most crucially, the reform has failed to contribute to basic social security in old age for the majority of Nigerians employed in the informal sector. Moreover, the minority of covered workers are also likely to experience problems. The study demonstrates in a model calculation that the funded accounts have so far produced negative real returns for pension savers. It is suggested that shortcomings of the current system are unlikely to be addressed by reform within the existing paradigm and that alternative policies, such as noncontributory universal social pensions, should be considered to expand basic social security in the Nigerian context.

The Nigerian pension system: Reform and expectations

Before the adoption of the new pension scheme in 2004, Nigeria's social security provision for the retired and aged was awkward. Most private sector establishments did not accord any priority to their retired workers after years of service. The newly introduced contributory pension scheme is seen as an important social security system that could address both structural and institutional dysfunctions in the country's social security obligations. This article examines, therefore, some salient issues about the scheme and people's expectations of it. By assessing its benefits and challenges, the article underlines the need for a strong structural and institutional framework to achieve the objectives of the scheme.