Impact of Contribution Levels on Pension Fund Performance in Nigeria

Abstract

Pensions provide a steady income source for employees after retirement, typically determined by factors such as age, salary, and years of service, and are generally paid monthly. They are essential for retirees' financial security and play a significant role in a country’s economic growth, fostering development within the pension sector. This study examines the impact of contribution levels on the performance of pension funds in Nigeria. Using secondary data from twelve licensed Pension Fund Administration companies over a decade (2012–2023), the research applies a purposive sampling method to identify key factors influencing pension fund performance. It specifically investigates the relationship between financial indicators and pension fund outcomes. Interestingly, the findings challenge the common perception that larger funds with higher contributions naturally have superior investment resources and, therefore, better performance. Instead, while fund size and contribution levels are important, they do not directly determine performance; factors such as governance quality, management efficiency, and economic conditions play a more significant role. Pension funds with substantial contributions may still underperform if poorly managed or heavily invested in low-performing sectors. The study suggests that contribution levels should be evaluated in tandem with the macroeconomic context, ensuring performance expectations are not solely based on fund size.