PENSION REFORMS AND CAPITAL FORMATION DEVELOPMENT IN NIGERIA 1981-2013
O. Eke,1 A. K. Onafalujo,2 Y. A. Soyebo3
1Department of Banking and Finance, Lagos State University, Lagos, Nigeria,
2Department of Insurance, Lagos State University, Ojo, Lagos State, Nigeria
3Department of Banking and Finance, Lagos State University, Lagos, Nigeria,
This study examines the influence of pension reforms on capital formation development in Nigeria from 1981-2013. The study is motivated by the low fixed capital formation relative to peers while also noting the complimentary gap filling role of pension funds on national savings (Svn) which contemporary studies are yet to focus. The study adopts granger causality technique for the short run study, impulse response and variance decomposition techniques for the long-term study. Pre-reform period (1981-2004) was compared with the post-reform period (2005-2013) for structural change impact. A major finding is that pension fund asset does not granger cause gross capital formation (Gcf) in the full sample and the post-reform periods, while it does in the pre-reform era. The Gcf forecast error was absorbed by Svn and gross domestic output (Gdp), with insignificant impact from Pension assets (Pa), thus inconsistent with economic development theory. The result suggests that the contributory pension fund does not ‘pass through’ capital formation post-reform, which further suggests that the fund is largely being deployed to financing government recurrent expenditure, a claim the Nigerian Association of Pension Operators alluded. Being a long-term growth fund, the study recommends that the Federal Ministry of Finance should instructively mandate Pension Commission (PENCOM) to strategically adopt risk-based approach to regulate that pension outputs be invested on economic and social infrastructures that have regenerative impact through capital formation development process.
JEL Code: O16 H54 J32 I32
Keywords: Capital formation Development, Pension assets, Pension reforms