European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.6, No.6, 2014 116 Pension Administration and Capital Formation in Nigeria: The Challenges Ime T. Akpan 1 , Mfon Sampson Ukpong 2 1.Department of Banking and Finance, University of Uyo, Uyo Akwa Ibom State, Nigeria 2.Department of Insurance, University of Uyo, Uyo Akwa Ibom State, Nigeria Abstract Pension issues affect both public and private sectors of any economy. The primary objective of pension scheme is to ensure the retiree’s standard of living is smoothened after retirement to have normal living. It is also to provide retirement benefit to retirees, moreso, to provide uniform guidelines for administration and payment of benefit. The pension scheme could be funded by contribution(s) either by the employer or the employee or employer/employee contribution. Pension scheme provides retirement benefit including incentives to employees. But despite the vital role of pension scheme to sustain better living after retirement, the scheme is not reasonably sensitized. Particularly, the private sector employers are unable to provide retirement benefits to their retirees, this is traced to weak legitimate laws on pension. Besides earnings on pension funds are not accessible to retirees. In conclusion, effective pension administration and capital formation is capable of industrializing the Nigerian economy. Therefore, it is recommended that defined pension contribution should be encouraged with effective legal backing for maximum result to retirees and growth of the economy. Keywords: Pension administration, Retiree, Retirement benefit, Pension contribution, Investment decision. 1. Introduction The concept of pension has often been a subject of debate. This is primarily because pension issues are connected to many areas of economic and social policies, thus making their reform and administration a difficult task to undertake. Pension scheme was borne out of a desire to help households achieve an allocation of life resources by smoothing consumption over lifespan, thus providing payment that ensures that a retiree’s standard of living is not much different from what obtained in the period immediately preceding his retirement. This is achieved by transferring resources from one’s working life to post-retirement when income dries up (Modigliani and Muralidhar, 2004). Reischaver (1988) in Ugwoke and Ogoegbunam (2013) stated that the primary reasons for a state to provide a pension scheme is the belief that many citizens are myopic, thus lacking the information necessary to enable them accumulate adequate resources for retirement. Moreso, there exist an absence of developed insurance markets owing to informal deficiencies and capital markets that put annuities beyond the reach of the average man. Moreover, among the low income group, their lifetime incomes may be too low to cover minimally adequate consumption levels during their retirement as well as their working years. These reasons necessitated government involvement in the provision of retirement benefits in the form of an occupational pension scheme. The purpose of such scheme is to provide employees regular and stable income after their retirement from service. By extension, it can be considered as an arrangement by an employer or a group of employers to provide pension and sometimes other benefits for their employees when they leave or retire. They also provide benefit to the employee’s dependant if he dies. The pension scheme is usually funded by contributions either from just the employer or from both the employer and employee. The benefits of a good pension scheme are enormous, aside from providing retirement benefits, it also serves as an incentive to employees as well as aiding to attract and retain experienced staff (Clark, 2004). In pursuance of this, a Pension Reform Act was passed in Nigeria in 2004. Some of its objectives include to ensure that workers receive their retirement benefits as and when due; assist improvident individuals save in order to cater for their livelihood during old age; and to establish a uniform set of guidelines and standards for administration and payment of retirement benefits. To this end, this paper shall focus on the administration of this scheme and its contribution to capital formation. The outline of the paper is as follows: Section one covers the introduction, Section two discusses the conceptual and theoretical framework of pension administration and capital formation, Section three presents the research design and methodology. The empirical results of findings are discussed in Section four, while Section five concludes. 2. Conceptual and Theoretical Framework 2.1 Overview of the Pension Reform Act Prior to 2004, when the pension reform act was passed in Nigeria, pension activities were regulated by three bodies namely: Securities and Exchange Commission (SEC), National Insurance Commission (NAICOM) and the Joint Tax Board (JTB). SEC was responsible for licensing fund managers, NAICOM licensed and regulated insurance companies in the country, while the JTB approved and monitored all private pension schemes with enabling powers from Schedule 3 of the Personal Income Tax Decree 104 of 1993 (Bassey, Etim and Asinya,