Nigerian Pension Reform 2004-2010: Great Leap or Inappropriate Policy Design?

Abstract

This paper analyses early results of the 2004 Nigerian pension reform. At the beginning of 2010, the new system of privately managed, funded pension accounts covered around four million Nigerians in a country with a workforce of around 50 million people. The study focuses on shortcomings of the new system. Most crucially, the reform has failed to contribute to basic social security in old age for the majority of Nigerians employed in the informal sector. Moreover, the minority of covered workers are also likely to experience problems. The study demonstrates in a model calculation that the funded accounts have so far produced negative real returns for pension savers. It is suggested that shortcomings of the current system are unlikely to be addressed by reform within the existing paradigm and that alternative policies, such as noncontributory universal social pensions, should be considered to expand basic social security in the Nigerian context.