An Assessment of the Pension Fund Evolution, Trends and Multifund Structure in Nigeria. (1951 - 2019)

Abstract

The pension sector in Nigeria has undergone several changes from its inception in 1951 when the Pension Ordinance (with retrospective effect from 1946) was introduced in Nigeria but applicable to only the United Kingdom officials posted to Nigeria. The first private pension scheme for employees was in 1954 specifically for the employees of the Nigerian Breweries. The reforms over the years cumulated to the Pension Reform Act of 2014 currently regulating the pension sector in Nigeria which also maintained the contributory Pension system where the employers and employees contributes 10% and 8% respectively of the employee’s emolument on a monthly basis towards setting funds aside to meet up with the future pension liabilities of the employees at the point of retirement. The Pension Commission (PenCom) recently introduced the multi-fund structure as part of the ways of giving the contributors a degree of freedom on how their pension fund contributions can be invested, it created a funding structure divided into four funds namely Fund 1, Fund II, Fund III and Fund IV. Prior to the Pension Reform Act of 2004, payments of retirement’s benefits were often set aside from the budgetary provisions which were often underfunded and resulting in huge pension liabilities for the public sector workers. The attendant effect was the inability of the government to fully meet up its pension liabilities to retirees. It was evident that the Defined Benefits Scheme was not sustainable due to inadequate budgetary provisions, delay in payment, frequent verification of pensioners to ascertain those alive and dead, and accumulation of benefits. Therefore, this paper seeks to assess the level of compliance with the provisions of the Pension Reform Act of 2014 both by the private sector employers and the government, the management of pension funds over the years by the regulatory bodies and to suggest ways of improving the Nigerian pension sector. This paper noted the phenomenal growth in the pension industry in Nigeria from a deficit of N2trn in form of pension liabilities as at 2004 to accumulation of pension assets of up to N4.1trn by the end of 2013 and over N9trn as at March 2019 while the number of registered contributors as at August 2018 stood at 8.27 million. This paper recommends that the pension commission should develop a more robust approach to pension administration in order to expand the scope of cover to the majority of the Nigerians, this approach should take into account the country’s culture, political system, economy and the labour force structure with the aim of delivering a sustainable pension scheme which can provide adequate income at retirement with the ability to withstand political and economic shocks. Furthermore, PenCom should be more pragmatic in dealing with issues of non-remittance and under remittance of pension deductions by both the government and private sector employers and the need to widen the pension net to capture more contributors.