No Thumbnail Available



Journal Title

Journal ISSN

Volume Title




The history of pensionschemes in Nigeria started with the 1951 Pensions Ordinance. In 1979, the then Military Government established a Defined Benefit Scheme (Old) for civil servants. The scheme failed to meet its objective due to maladministration and lack of funding, resulting in non¬payment of benefits to workers on retirement. Consequently, the government established the Pension Reform Act 2004 (current), a Defined Contribution (DC) plan, aimed at remedying the shortcomings of the old one. Shortly, complaints adorned the media that the 15 percent contribution of the current plan was not enough to provide meaningful benefit after 35 years of service.The main objective of this Study is to design Hybrid Plan as possible Pension Plan for Nigeria. Specifically, the Study focused on: (i) to compare the monetary benefits between the old and the current pension schemes; (ii) to compare the adequacy of the current scheme with those of eight other developed and developing countries’ pension schemes selected from five continents; (iii) to determine effects of the Pension Risk Factors (Mortality and Interest Rate Volatility); and (iv) to design three new pension plans. The population for the study was Nigerian employees grouped into seven by Nigeria’s National Salaries, Incomes and Wages Commission (NSIWC) as at July 2010. Four groups were randomly selected for the study. Replacement Ratio data for the eight countries whose pension plans were to be compared with that of Nigeria were obtained from 2012 publications of International Monetary Fund and Organization for Economic Cooperation and Development. The schedule for calculating pension benefits under the old scheme was obtained. Such schedule does not exist for the current scheme. Actuarial method for estimating such benefits was used. The pension benefits of the two pension schemes were then compared. Replacement Ratio was calculated for the current scheme to compare its adequacy with those of the eight countries whose Pension Replacement Ratios had been obtained. Assumed simulated interest rates, salary incremental and annuity values were used and combined with mortality functions. The results showed that: (i) the ratio of gratuity paid by the old and current schemes was 3.5 to 1, while that of pension benefits was 2.3 to 1, implying that the old scheme paid at least twice as the current; (ii) the eight other countries had adopted the World Bank's (1994) three-pillar pension models in their respective reforms while Nigeria has the mandatory Defined Contribution plan for workers and no social security or voluntary plan for either formal or informal sectors; (iii) increase in interest rate increased the amount available for purchase of annuity while decrease in mortality rate improved life expectancy and hence annuity rate resulting in decrease in amount of pension receivable; (iv) three pension plans, namely, Minimum Guaranteed Money Purchase Plan, Cash Balance Plan and Hybrid Plan were designed for the formal sector and a Mandatory Collective Personal Plan was also proposed for the informal sector. The study concluded that the Hybrid Plan had higher replacement ratio, even at 20% volatility, than others. It was therefore recommended that the Hybrid Plan with higher replacement ratio be adopted by Nigerian Government for its workers.