Pension Reform in Nigeria


Ahmed Makele




The Federal Government of Nigeria and the Federal National Assembly are to be warmly applauded and congratulated on the passing of the Nigerian Pension Reform Act of 2004. A few weeks ago, the new regulator for Pensions, the National Pension Commission (PENCOM) granted licences to several pension fund administrators and  handful of pension fund custodians to begin the receipt, investment, management and administration of defined contributions pensions in Nigeria.


The move by Nigeria to a defined contributions pensions model is long overdue and to be warmly welcomed. Pension provision worldwide today, is to a defined contributions model (i.e. what you contribute is known and defined, but what you receive at the end is not as its subject to a number of variables such as investment performance, interest rates etc) as developed countries acknowledge that with individuals now living longer (even in the third world) and ever more competing resources for the Government purse, individuals in Society will need to provide for themselves in retirement. Employers also have a role to play under the new DC pensions model to ensure that they provide a fixed amount for their employees as part of the employee's benefits package which will constitute a part of the employees retirement provision.


The challenges of Dc pension provision has only just began. Numerous stakeholders all have a role to play. From the government which sets out the regulatory framework to the regulator PENCOM, to financial institutions who will manage and administer contributions, to individuals who need to pay enough into their account to employers who must also contribute an adequate amount for their employees.


The importance of pension provision in Nigeria will continue to grow as individuals begin to place less reliance on family to look after them in old age and begin to face the reality that they need to look after themselves by building a nest egg for the future.


One major challenge to be faced by the pensions industry will be the issue of pension fund governance.Private pensions plans or retirement savings accounts function on the basis of agency relationships between plan members and beneficiaries and the persons or entities involved in the administration or financing of the pension plan,such as the plan sponsor and the plan administrator on the other. Governance provides the structure through which the objectives of a pension plan are set and the means of attaining those objectives and monitoring performance. 


Typical governance issues which will apply range include having in place a governing body, identification of responsibilities, custodian, internal controls, disclosure to members, redress and accountability.


To summarise, governance regulations need to be designed under the guidance of the overriding objective that pension funds are set up to serve as a secure source of funds for retirement benefits. Pension fund governance will be critical to Nigeria's move to a successful defined contributions pensions model.




Ahmed Makele (LLM Cantab).