Prospects and challenges of the 2004 Pension Reform Scheme in Nigeria: some lessons from the Chilean experience.

Abstract

Over the years, existing pension schemes in Nigeria were bedeviled by many problems; the most prominent of these problems included the inability to pay pension to retirees as and when due, and the huge pecuniary and non-pecuniary costs associated with the implementation/administration of the schemes which evidently made them unsustainable. This led to the Pension Reform Scheme in the country in 2004. This paper examines the prospects and challenges of the 2004 Pension Reform Scheme, drawing from the Chilean experience. The major prospects of the new pension reform scheme include: increase in liquidity in the economy which is expected to have favorable multiplier effects on the value of interest rate, investment types, availability of funds for organizations and infrastructural development; development and deepening of the Nigerian capital market; and increase in aggregate savings which is expected to pave the way for rapid and sustainable economic growth and reduction in poverty and inequality in the country. The major challenges of the new scheme include: high transition costs, high commissions that are most likely to be charged by the profit-maximizing Pension Fund Administrators, which would tremendously reduce the percentage of the return on workers' investment; and possibility of the minimum pension guarantee creating a substantial contingent liability for the government. It is apparent, however, that the prospects of the new pension scheme far outweigh its challenges. Therefore, the paper concludes by advising that efforts should be made by all stakeholders to maximize the prospects of the new scheme and minimize its challenges.