AN APPRAISAL OF THE PENSION REFORM ACT IN NIGERIA
Abstract
This study gave a theoretical scrutiny of the Nigerian pension fund. Specifically, the study examines the historical development of pension and pension fund in Nigeria, a certain aspect of the Pension Reform Act 2004 and the current Act of 2014, potential regulatory opportunities for the investor on the investment of pension fund in Nigeria, pension fund and economic growth, and pension fund net assets value. This study is a desk research, and secondary materials were reviewed from related and relevant literature. The study observed that part of the problems of low capital formation to drive investment is attributable to the non-inclusion of the informal sector in the 2004 pension scheme. Given the number of registered contributors which stood at six million, twenty-five thousand one hundred and seventeen (6,025,117) employees in both private and public sector representing only about 11% of the total labour force in Nigeria with about N170 million population, and the current inclusion of the informal sector in the scheme, the implementation of the Pension Reform Act 2014 should be strictly pursued. More so, by the inclusion of the informal sector in the scheme and the formulation of the responsive regulation to facilitate the conversion rate into the scheme, the prospect of boosting the capital fund, that is, capital formation will be high. This suggests that there will be more long-term capital available for the execution of capital intensive projects.
CHAPTER 1 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria’s general economic reform program has created significant opportunities in the financial services sector, particularly in the banking industry. Asset management is also another financial sector that has faced major changes, opening up a range of opportunities for foreign investors. Similarly, reforms to Nigeria’s pension fund scheme have created new large pools of assets that require active management. Current reforms will substantially widen investment opportunities and make funds available to new asset classes and sectors of the economy. The Pension Reform Act (PRA) of 2004 changed the standard pension model in Nigeria from defined benefit schemes to defined contribution schemes. The need to have long-term savings amongst employees for retirement and to establish a unique set of regulations for both the private and public sector employees were among the basic objective of the reforms. Notably, since inception, the pension industry has accumulated assets of $25bn (Leriba, 2014). As at October 2014 the National Pension Commission (PenCom), says that the country’s pension assets have hit N4.6 trillion (News Agency of Nigeria [NAN], 2014). While as at October 2015 a report quoting the Director-General (DG) of PenCom Mrs. Chinelo Anohu-Amazu posits that the Contributory Pension Scheme (CPS) which kick-started in 2004 has now hit over N5trillion [$27bn] (Iloani, 2015). Under the pension scheme, employees are obliged regulatorily to maintain a Retirement Savings Account (RSA) with their chosen pension fund administrator (PFA) into which contributions from both the employee and employer are deposited. Furthermore, the recent 2014 Pension Act, section (4) (1) stipulates that the rates as pertaining the monthly emolument shall be a minimum of 10% by the employer and a minimum of 8% by the employee. Subsection (2) stipulates that upon agreement between the two parties, the rate can be revised upwards, from time to time, and the Commission shall be notified of such revision. Interestingly, there has been considerable progress in the membership and contributions to the pension schemes. The total scheme membership has increased by 17% between September 2011 and September 2013(Barungi, 2014). Additionally, there has been an upturn in the private and public sector contributions by 7.15% over the same period (Leriba, 2014). With a growth rate of 30% over the last four years, total pension contributions are estimated to hit $100bn by 2020 according to the African Development Bank [AfDB] (Barungi, 2014). Though such projection has a healthy implication, however, the foremost issue is that in the light of the huge funds invested in retirement savings, there are growing concerns that there are few channels to deploy this money to the benefit of the real economy of Nigeria. Regulatory restrictions and investing limits are may inhibiting further growth potential and competitiveness in the pensions’ industry. However, there may be attractive opportunities emanating from the regulations and also from the limited channels to deploy the pension funds. These have compelled the need to examine the regulatory opportunities for investors on the investment of pension funds in Nigeria. Also, because extant literature makes reference to the PRA 2004, there is the need to update prior studies by drawing attention to current PRA 2014 with its accompanying opportunities and potentials. In the light of this, this study gives a theoretical appraisal of the Nigerian pension fund. Specifically, the study examines the historical development of pension and pension fund in Nigeria, the Pension Reform Act, supervision/regulation on the investment of pension fund in Nigeria, pension fund and economic growth in Nigeria, pension fund net assets value.
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