EFFECTS OF PENSION CHARACTERISTICS ON FIRM VALUE OF PENSION FUND ADMINISTRATORS IN NIGERIA

Abstract

This study was on effects of pension characteristics on firm value of pension Fund administrators in Nigeria. Two objectives were raised which included; To establish the impact of selected pension fund characteristics on the financial performance of pension funds in Nigeria and to determine whether a relationship exists between the Impact of the Contributory Pension Scheme on employee retirement benefits and standard of living. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Nigeria pension scheme in Enugu. Hypothesis was tested using Chi-Square statistical tool (SPSS).

Chapter one

Introduction

1.1Background of the study

As at December 2017, Nigeria had N7.5 trillion of pension funds. One year before that, as at December 2016, Nigeria’s pension assets stood at N6.1 trillion (Odey, 2018). This means that pension funds grew about 18% in just one year. Nigerian pension funds are steadily increasing which is causing the rapid expansion of the pension industry in Nigeria. Pension funds play a very important role in the Nigerian Economy. They are an important stimulus to capital markets as they are reinvested in the different sectors of the economysuch as Domestic shares, Federal Government of Nigeria Securities, Treasury bills, Agency Bonds. The funds are also invested in foreign shares. Pension funds have stimulated the development of capital markets in a way similar to banks.(Oluoch, 2013). Biobele (2015) also recognised that pension funds are vital for advancing the economy through the investment of current retirement savings. In Nigeria, pension funds are privately managed by Pension Fund Administrators (PFAs) whose activities are monitored by the National Pension Commission (PenCom). In the past, Pension schemes have always been non-contributory and came from budgetary allocations. (Fapohunda, 2013). Due to the complete reliance on administration, regulation and funding by the government a lot of issues arose such as diversion of remitted or allocated fund, existence of ghost pensioners on the pension’s payroll, non-availability of records, unskilled administration, inadequate funding and delay or lack of payment after retirement (Sule & Ezugwu, 2009). The Pension Reform Act 2004 was created to address these issues by introducing introduced the Contributory Pension Scheme which is funded through monthly deductions from the employees‟ salaries and the contributions by the employer.

Statement of the problem

It is important for pension funds to be managed in the most effective way possible so that they can yield good return on investments for pensioners in the future. Pension funds need to measure their financial performance against long-term optimal benchmarks (Oluoch, 2013). There are certain pension fund characteristics which indicate good financial performance of pension funds. This study hopes to address this problem by giving all interested parties insight on the financial performance of pension funds and the pension fund characteristics that have an impact on the financial performance of pension funds in Nigeria.

Objective of the study

The objectives of the study are

1. To establish the impact of selected pension fund characteristics on the financial performance of pension funds in Nigeria.
2. To determine whether a relationship exists between the Impact of the Contributory Pension Scheme on employee retirement benefits and standard of living

Research hypotheses

The following research hypotheses will be formulated

H₀:   there is no impact of selected pension fund characteristics on the financial performance of pension funds in Nigeria.

H₁: there is impact of selected pension fund characteristics on the financial performance of pension funds in Nigeria.

H₀²: there is no relationship exists between the Impact of the Contributory Pension Scheme on employee retirement benefits and standard of living

H₂: there is relationship exists between the Impact of the Contributory Pension Scheme on employee retirement benefits and standard of living

Significance of the study

The significance of this study is germane considering the important of pension entitlements in the lives of pensionable retiring workers and those in active service. This study will be of immense benefits in the following ways

Secondly, this study would help the commission and other parties involves in the new administration of Pension Scheme to be alive to their responsibilities by ensuring efficiency and effectiveness in its operations

Also, this study will serve as useful information for further research work and as a useful literature on Nigeria Pension Scheme and its reform.

Scope and limitation of the study

The scope of the study covers Effects of pension characteristics on firm value of pension Fund administrators in Nigeria

The researcher faces the following constraints:

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

However in the midst above mentioned limitation the researcher devotedly ensured that the purpose of the study was actualized.

1.8 Definition of terms

Pension Fund: Means an investment fund within the pension scheme which is intended to accumulate during an individual working life from contribution and investment income with the intension of providing income in retirement from the purchase of an annuity or in the form of a programmed withdrawal, with the possible option of an additional task free cash lump sum being paid to the individual.

Pension Fund Administrator: Means any body corporate licensed by the Commission as a Pension Fund Administrator and includes the Nigeria Social Insurance Trust Fund.

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