THE IMPACT OF CONTRIBUTORY PENSION SCHEME ON THE NIGERIAN PUBLIC
Abstract –
This research work is focused on the assessment of
the impact of Contributory Pension Scheme to Nigerian
Economic Development with relevance to Pension Fund
Manager. The objective of this study was to examine how
contributory pension scheme influence the Gross Domestic
Product (GDP) in Nigeria. More so, this study is aimed at
suggesting the best reliable way for tackling or handling the
fear that the funds or Retiree Savings Account (RSA)
contribution can be mismanaged by the existing trustees. The
main problem of the study was centered on the nature and
effect of risk prevailing in the pension assets management.
The researcher designed the study using survey design and
sample size was taken as 30 and 70 for both staff and
customers respectively. Data were collected from both primary
and secondary sources and analyzed using percentage. The
researcher adopted correlation analysis for testing secondary
data and ANOVA for the primary data. The result of correlation
analysis using t-test revealed that Contributory Pension
Scheme (CPS) has significant impact on the GDP while the
result of ANOVA revealed that risk prevalent has positive effect
on the pension fund management. The researcher therefore,
recommends that the Pension Fund Administrators should
invest in less risky portfolio to enhance prompt payment of
pension to retirees.
CHAPTER I. Introduction1.1 Background of the Study
n employee who has worked for an organization
for some years is entitled to some benefits which
could be in form of gratuity and pension payable
to such employee by its employer at the time of
retirement. Pension is viewed as a sum of money paid
regularly to a person who no longer work because of old
age, disability or retirement or to his widowed or
dependent children by the state, former employers or
from provident fund to which he and his employer both
contributed.
The pension system prior to 2004 was
characterized with many problems which make the
payment of the retirement benefit a failure in Nigeria.
Koripamo-Agari (2009) and Yunusa (2009) pointed out
that the major weaknesses of pension scheme was lack
of adequate and timely budgetary provision coupled
with rising life expectancy, increasing number of
employers, poor implementation of pension scheme in
the private sector due to inadequate supervision and
regulation of the system and too many private sector
employees were not even covered by the form of
pension scheme.
These problems associated with payment of
pension in Nigeria necessitated the government during
Obasanjo regime could be reformed or reviewed which
gave birth to the pension reform Act of 2004. Elumelu
(2005) posits the 2004 Pension Reform Act established
a uniform contributory; private sector managed and fully
funded pension system for both the public and private
sector of the country.
The Pension Reform Act 2004 was also
established to address the manifested loopholes in the
old defined benefit pension scheme and provide
adequate resources to retirees after retirement from the
service. The large capital pool demands that there
should be sound and uniform investment decision
making to ensure that value is added to Retirement
Saving Account (RSA) contribution. Investment is
normally done in the presence of numerous risk mostly
political, markets and economic in nature. Investment
and market analysis of these Pension Fund
Administrators (PFAs) are always propelled to ensure
that there is safeguard and safety of these pension
assets. The fund accounting organ of PFAs record every
bit of inflow and outflow of pension assets in and out of
the entity fund.
The aim of the research paper is to assess
primarily, the impact of investment decision on pension
assets in the modern contributory pension scheme in
Nigeria taking Legacy Pension Manager Ltd, Abuja,
2010, as a reference of the study.
1.2 Statement of the Problem
Although the new reform is guided by the key
principles of sustainability, accountability, equity,
flexibility and practicability, there is also this fear that
funds or Retirees Savings Account (RSA) contributory
can be mismanaged by the existing trustees. Also, risk
of a given portfolio determines the return thereof. Some
pension fund administrators do not have the necessary
risk management profile while some fail to pay regard to
An Assessment of the Impact of Contributory Pension Scheme to Nigerian Economic Development
Global Journal of Management and Business Research Volume XIII Issue II Version I
482
Year 2013 © 2013 Global Journals Inc. (US)
rating signals needed to making sound investment
decision.
The decision of investment managers of the
pension fund administrators who are responsible for this
process impact greatly on the contribution value due to
employees (fund owners). Sound investment and
efficient management of the huge pension fund assets
has great implication on the economy. The spread of
large accumulated fund to the capital and money
markets are employment opportunities creation.
From the forgoing, the following specific
problems will be studied:
• The impact of fund investment and management on
the contributory fund and the Nigeria economy as a
whole.
• The status of the fund assets regulation and
framework.
• The nature and effect of risk prevailing in the
pension assets.
• Monitoring and documentation of status report by
the contributors.
1.3 Objectives of the Study
The main objective of this study is to assess the
investment and management of contributory pension
scheme fund with a view to determining its contribution
to the economy through the investment of excess pool
of fund in the capital and money markets and creation of
employment opportunities.
The specific objectives are:
i. To examine how Contributory Pension Scheme
influence the Gross Domestic product (GDP).
ii. To examine how the risk prevalent in pension fund
investment affects pension management.
1.4 Research Questions
i. How does contributory pension scheme influence
Gross Domestic product (GDP) in Nigeria?
ii. To what extent risk prevalent in Pension Fund
Investment affect Pension Management in Nigeria?
1.5 Research Hypothesis
i. Hypothesis I –
H0: Contributory Pension Scheme has no
significant and Positive effect on Gross Domestic
Product (GDP).
ii. Hypothesis II –
H0: The Risk Prevalent in Pension Fund
Investment has no significant Effect on Pension
Management.
1.6 Significance of the Study
Every country faces many choice is dealing with
micro and macro-economic issues. These choices are
made daily in more or less coordinated ways with a long
or short term perspective. The Pre-pension Reform Act
2004 was a “Pay As You Go” (PAGA) pension scheme
faced with a lot of challenges that gave birth to the new
contributory pension scheme. The significance of this
work therefore can never be overemphasized as it will
avail the stakeholders the necessary and basic
understanding on how their mutual interests are
protected.
The contributors would have a grasp of how
their Retirement Savings Account (RSA) funds are
managed by Pension Fund Administrators (PFAs) and
safe custody by Pension Fund Custodians (PFCs) and
its effect on the economy.
It is also of importance to Pension commission,
PENCOM and the government at different levels as it
provide avenue to overcome the short-comings in the
modern system.
New pension scheme came into existence in
- Consequently, this is undoubtedly a new horizon
that calls for detailed research. Pension fund accounting
us a new area that needs input from scholars, hence,
this study will help other researchers with interest in
pension.
1.7 Scope of the Study
This study is on the issue of pension
administration in Nigeria from 2005 to 2010. However,
the area of coverage of the study of Contributory
Pension Scheme, its operation and problems,
provisions, operation mechanisms and most centrally,
the management of contributory fund and its effect on
the economy. Specifically, the work will be restricted to
new pension scheme: Contributory Pension Scheme
with particular reference to pension fund administrator,
taking Legacy pension as a case study.
1.8 Limitation of the Study
The major limitation experienced in this study is
the Pension Fund Administrators itself. Most of the
information provided by the Legacy Pension Manager
required explanation as to the reason behind such
activities and actions. Nevertheless, there is always
solution to a problem the problems were to an extent
surmounted.
There is also a limitation to textbooks, Journals
and other materials in the library which are relevant to
the research work. I have to source for some materials
outside the library.
In addition, there was insufficient time for the
study. In fact, it is very difficult for a student to go for a
research work at the detriment of his lectures. This
affects the expected quality of the research work.
Furthermore, inadequate finance has an effect
on this research work due to the current situation of the
economy which makes prices of things very high viz-avis the cost of transportation the pension fund
administrator to obtain relevant materials to this
research work were very expensive.
However, the challenges were brought under
control to ensure the success of this work.
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