Pension: a Retirement Income Strategy for Economic Impel

Many years ago in advanced economies, a company might make a promise to pay pensions without setting aside any funds to support this promise. As these arrangements became more formal, government regulations were established to ensure the promised pensions were available and required that companies put aside the necessary funds to ensure that pensions were paid. Once companies were required to set aside monies to fund their pension promises, it became attractive to invest these funds to earn a higher return that would lower the cost of providing pensions. Without debating the finer points of pension plan law, we can say that pension plans exist to provide post-retirement income to employees. A pension plan is really a number of promises to pay people income after retirement.

In Nigeria, before the Reformed Pension Act of 2004 which gave momentum to contributory pension by both employers and employees cutting across the public and private sectors, the traditional "defined benefit" pension plan is distinct according to a formula specified in the plan documents. This usually takes the form of a percentage of the "best years" of salary. The traditional pension system was only applicable to the public sector. The promise by government to pay pension was a knotty task, leaving pensioners in a state of pity from accrued pensions, in some instances, ranging several years after retirement. That was the norm. However, with the Reformed Pension Act of 2004, employees or retiring employees need not wait endlessly for their pension to be paid, as their contribution is vested in a fund that is managed by professionals (other than government or employers) in the form of investment which yields additional income to the deposits or contributions.

Pension plans are usually considered "patient capital" because of their long time horizon. The types of investments undertaken by a pension fund depend on its objectives and constraints which are provided for in its "investment policy... [continues]

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