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This research work reviews the impact of the contributory pension scheme on the Nigerian economy. The study employed the survey approach, while the linear regression statistical tools were used to test the research hypotheses, thus, it was revealed the contributory pension scheme has become impeccable tool for economic development of Nigeria. Also we found a significant relationship between the contributory pension scheme and investment in domestic quoted equity. In addition, it was established that the direct investment in domestic quoted equity have low impact on the economy due to strict measure or restriction put in place by the regulator (Pencom) to safeguard the erosion of owners fund. Based on these findings we recommended that Pension fund should be efficiently managed by the PFAs and transparent to create confidence in the scheme that shall result in economic development.


1.1 Background of the Study
The impact of the contributory pension Scheme (CPS) in the Nigeria economy since its inception cannot be underestimated. This can be attested to from the drastic reduction in external borrowings and from numerous developments in capital projects embarked upon and executed by the government since the enforcement of PRA 2004 and the level of accessibility to funds by the reputable/quoted companies as well as government to meet their financial needs especially long- term funds.
The essence of the contributory pension scheme (CPS) is not only to ensure individuals have access to his/her retirement benefits as and when due or to promote saving culture in economy, but essentially to serve as long- term source of fund for government and quoted companies in order to meet their long term financial needs, which the short- term source of finance cannot meet or solved.
However, the enactment of the Pension Reform Act in 2004 by then Olu-Obasanjo administration and its acceptability and enforcement in the F.C.T, public and private sector of the economy have transformed most real sectors and speed – up the completion of capital projects as result of easy
accessibility to long- term fund through Contributory Pension Scheme. Though, many scholars will certainly criticize the impact of the contributory pension scheme (CPS) in the Nigeria economy, but this work is to critically review its impact in the Nigeria economy, basically how the scheme have help in the development and growth in the gross domestic products as well as creation of employment.
The impacts of the contributory pension scheme have been seen in the reduction external debt/borrowings, increase in developmental projects executed, strong capital market capitalization and financial institution turnaround or re-engineering.
The contributory pension scheme (CPS) is governed by the Pension Reform Act. Recently, the operating Pension Reform Act 2004 was repealed to reflect and accommodates the exigencies of grail areas that were not in the previous Act. This action warrant the amendments to essential areas of the Pension Reform Act 2004 to ensure total compliance with the new pension Reform Act 2014 that was signed into law in July, 2014.
Pension is the regular stipend or an amount that is expected either monthly or quarterly basis through any mode of withdrawal s/he chooses at point of retirement to ensure the retiree could still be able live within the standard of living as at when s/he was working.
Therefore, pension scheme has been in existence prior to emergence of the nation as practiced in the development countries. Its sole purpose is to ensure that retirees (i.e individual who have worked) have/can access its retirement benefits as and when due and promote saving culture.
The pension framework started with establishment of the National provident fund (NPF) that was operational for years before the emergence of the National Social Insurance Trust Funds (NSIFT) which covered essentially the private companies with mandate to deduct certain percentage of workers emolument and employers’ quota and remit the total contribution to insurance companies via NSITF. The process was not transparent and efficiently managed due to the lack of Investment guidelines and strong regulatory agency to monitor the activities of the then scheme; metamorphosed to the enactment of the Pension Reform Act
2004 that birthed the contributory pension scheme. The birthed of the pension reform in June 2004 dismantled NSITF, the detail of the PRA 2004 will be review in the next chapter. The Act elaborates strict measure of compliance and punitive approaches. It specifies contributory rates for both employers and employees which individuals are expected to open a retirement savings account where the pension benefits can be remitted. The act empower pensions fund administrators to mobilize funds and efficiently manage the pool of funds through investment in financial instruments in appropriate ratios as specified by the regulator i.e National Pension Commission to avoid reckless investments by the Pension Fund Administrators to avoid capital erosion.
Essentially, the impact of the contributory pension scheme have been seen and felt in the Nigeria economy through:
(a) Rapid growth in the gross domestic product
(b) Reduction in external debt/borrowings
(c) Creation of employment
(d) Strong source of long- term fund to finance capital projects and good avenue for easy access to funding for quoted companies and government.
(e) Transparent and efficient management of retirement benefits to ensure workers retire comfortably.
(f) Cultivate strong/mandatory saving cultures in the economy.
(g) Strong reserve mechanism.
1.2 Statement of the Problem
The contributory pension scheme since its embracement by the concerned entities and possible enforcement to make it operational in the economy witnessed serious set back due to unacceptable dynamism and non- conformity by various sectors. With the success recorded in the industry so far within the short- period of operation in the economy, cannot be compare with desire result pre-supposed to have been attained assuming all affected entities, individuals and states that are yet be enact a bye- law to back its operational and enforcement embrace the scheme. Therefore, the problem of enforcement of the enacted law/act becomes imperative as there
is no strong task force or sanctions even though there are paper enacted sanctions for those individuals, entities and government parastatals that refused to embrace into the scheme; but there has been no significant implementation of the act on the affected. This nonchalant attitude on the part of the regulatory agency has really encourage most affected entities to evade or circumvent the scheme that could have serve as a pool of funds for long- term source of funds for infrastructure development, provision of social amenities and other economic growth greed.
On the other hand, the quoted companies probably complied not because they really want to but as an operational requirement for them to remain in the floor of capital market, but what happen to unquoted companies in which most of them employ large active workforce of the population that have refused to embrace the Scheme. Most of them become compelled to comply because either they require a compliance certificate for contracts bidding, otherwise after then they discontinued to remit for the employees, thereby create unfunded accounts. The Pension Fund Administrators might follow up to recover the unremitted sum; but they are not
empowered by the law to compel the employer to pay or remit for the employees. Though, the new Act provides that such companies should be reported to the regulator in the event of non- remittance of pension contribution over a certain period of time (not specific) but most Pension Fund Administrators give a grace period of six (6) months of discontinuity. However, the basic question we should be asking is that, how many of these defaulters have been persecuted or tried is the law court? This reveals the lackadaisical attitude of the regulator in enforcing the provision of the Act.
Apart from the non- enforcement of the act on the part of the regulator and no strict compliance by the most unquoted companies and government parastatals/states, there is low sensitization and dissemination of information by the Pension Fund Administrators to the public. The investment apparatus set-up by the regulator also constraint the Pension Fund Administrators to really invest the pension funds in real economy to boast the economy growth and development. The National Pension Commission (PENCOM) has strictly set –out percentages of funds under
management (FUMS) to be invested in various sectors or markets or financial instruments to guide against Pension Fund Administrators taking unreasonable risk that will erode the pool of funds. As we can reconnect the trends in the capital market during the economics recession where Nigerian capital market and the global market experienced a down- turn in funds. The impairment of funds cannot be overemphasized because of its negative impact on the economy, therefore, the strict measure is put in place by the regulator to safeguard the individuals funds ie pension benefits or fund.
In this research work, we practically endorse the approach of strict enforcement of the act on all concerns to continue grow the pool of funds that will reduce the existing cost of capital in the market. Because if we have a growing pool of fund it will affords the economic sectors to easily have access to relatively cheap funds to finance their long- term projects that will have positive impact on the economy. There should also be a taskforce and compulsory annual renewal certificate expect of all unquoted and quoted entities to produce in order to remain in operation. It should
be given equal jurisdiction of taxation backing to remedy the set- back and evasion of compliance and non- remittance for those entities or employer that have set in.
The process of bye-law in the states, local governments should be short- cut with timing of the Act. The PFAs should be empowered to send the names of non- complied employers to the industrial counts and not the regulators that are inefficient.
1.3 Purpose of the Study
The main objective of this study is to examine the input of contributory pension scheme on the Nigeria economy. Specifically the study focuses to:
i. Determine the impact of contributory pension scheme (CPS) in economic development of Nigeria.
ii. Review the impact of the act in compelling all concerns to embrace the scheme.
iii. Compare the issue in the formal operative scheme and the now contributory pension scheme (CPS)
iv. To find out whether employers comply with the scheme
v. To ascertain the import of setting investment limit for the Pension Fund Administrators is the management of funds.
vi. To find out how the new PRA, 2014 will positively impact in the continuous growth of pension funds in the economy.
vii. To ascertain whether the enactment and migration from NSITF to CPS has really resulted is transparency and efficient management of pension’s funds in Nigeria.
viii. To ascertain the process and management of pension funds that creates economic impact and development growth.
ix. To evaluate the effectiveness of contributory pension scheme in Nigeria
x. To review the connectivity among the organs in the scheme.
1.4 Research Question
Having defined the background to the problem and purpose of the study it is believed that practical answers will be provided to the following question at the end of the study;
1. Does contributory pension scheme affect the development growth of Nigeria economy?
2. How does the new pension scheme different from the operated scheme i.e NSITF or the government defined benefits?
3. Do regulator and other organs in the scheme perform their duties according to the pension policies or act?
4. To what extent has contributory pension scheme affects the Nigeria economy and prospective millennium development goals?
5. How does the attitude of employers affect the management of contributory pension scheme?
6. What should be done or put in place to compel all concerns to embrace the scheme?
7. How does frequent amendment is the pension perform Acts affect the impact of contributory pension scheme.
8. What should be done to ensure strict compliance in all sectors?
1.5 Research Hypothesis
In order to find answers to the questions above this hypothesis is formulated for test.
H1. There is no significant relationship between the contributory pension scheme and the gross domestic products in the Nigeria economy.
1.6 Significance of Study
This study will be of aid to a lot of people. It is believed that the results of its findings will be far reading to the following categories of people. The PFA managers and PFC managers; It will avail them the opportunity of knowing how employers could react to enforcement of the pension scheme on them, the cost implications.
The auditors will find the result of this study also useful is the course of performing their professional duties in terms of reporting on the financial statement of PFAs and PFCs, especially the investment limit and also the complied employers as regard to contributory rates and regular remittance the financial analysis and economic policy makers
will be acquainted with the impact of pension perform Acts on the contributory pension scheme and their multiplier effect on the economy.
More importantly, the need for strict compliance and observance of the pension reform Act or polices rate applicable and regular remittance with objective by the pension manager will revealed.
1.7 Scope of the Study
The research work intends to cover the relevant pension perform Act and the evolution of pension scheme in Nigeria and its impact in the economy the wide coverage of the pension perform Act of 2004 and 2014 with critical analysis of its implication and impact of the contributory pension scheme in the Nigeria economy.
However, in-depth analysis of data of pension fund mobilization per licensed pension funds Administrators in Nigeria since inception of the contributory pension scheme in 2004 to date. This will reveal the prospect and potential investment for economic growth. It will also look at legal framework and duties as enacted in the law i.e PRA 2004 & 2014 of each
organ for transparent and efficient management of pension scheme in Nigeria.
The survey of the study covers the economy of Nigeria as relate to the adoption and implementation of the PRA 2004 and 2014 in the remittance of pension funds or contributions of employers and employees regularly to the Pension Fund Custodians (PFC) for onward investment by the PFA that stimulates economic impact. The study revolve around the available financial resource at the researcher disposal, the analysis essentially focus on the organizations and government.
1.8 Limitation of the Study
This study as a matter of fact is supposed to the thorough and elaborate without persimmon, but the following problems were encountered.
TIME CONSTRAINTS: This time of approval of the project topic and submission of the completed which was so short forced to limit the study to only organic framework of the contributory pension scheme in Nigeria.
FINANCIAL CONSTRAINTS: A successful conduct of this work depends on finance which was not forth coming considering the present economic readily of the day.
LACK OF MATERIAL: It is unfortunate considering the infancy of the pension industry that most operators’ management do not understand the need for research students to use their financial records, as a result, they tend to be uncompromising when it comes to obtaining relevant information and data, without pre-empting them it is believed that the uncompromising attitude of library staff affect the conduct of this study is terms of getting receivable marketer.
1.9 Definition of Terms
The following terms used in this work are defined as follows:
1. Pension Scheme: An arrangement by which an employer and, usually, an employee pay into a fund that is invested to provide the employee with a pension on retirement.
2. Annuity: A series of payment made at stated interval until a particular event- usually the death of the person receiving the annuity – occurs.
3. Contributory Scheme: A scheme in which active members are required to make contributions toward the cost of their benefits.
4. Defined contribution Scheme: Also know as a Money purchase scheme – a scheme where the individual member’s benefits is determined solely by reference to the contributors paid into scheme by or in behalf of the member and to investment return earned on those contribution.
5. Funding: The provision in advance for future benefit n advance for future benefit liabilities by setting aside money in a trust, which is separate from the employer’s business, to finance the payment of pension.
6. Investment: The process by which contributions and net income of a scheme are used to increase the value of pension fund assets by means
of cash deposits, the purchases and sale of equities, bound’s property and other assess as authorized by the trust dead and by law.
7. Pension Act: An Act of 2004 & 2014 for the regulation pension schemes, which provides for preservation of benefits, a funding standard in the case of defined benefits schemes, disclosure of information, the duties and responsibilities of PFA, PFC and National pension commission and a pension commission and pension Board to supervise the operatory of the Act.
8. Unfunded Scheme: A scheme under which advance financial provision for the payment of benefits is not normally made.
9. Pension: Is a fixed sum to be paid regularly to a person, typically following retirement from service.
1.10 Organization of the Study
This study id divided into five sub-headings. The first chapter was on the introduction in which we have overview, statement of problem, the purpose of the study, significance of the study, organization of the study,
scope of the study, limitation of the study, hypotheses, research question and definition of the terms were all discussed.
The second chapter dealt with the reviews of contribution of related literature on the impact of contributory pension scheme in the Niger economy and its related pension reforms Act as well as duties of organism the scheme.
The third dealt with research methodology and tools utilized in the study. It explained to research designed, sample procedure/sample size determination, data collection techniques and data analysis method.
Furthermore, chapter four deals with presentation of data analysis and interpretation of data so collected also include the hypothesis testing and findings for better decision.
Finally, chapter five presents the summary, conclusion, and suggested recommendation of the research.

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