CHAPTER ONE: INTRODUCTION

1.0 BACKGROUND OF THE STUDY

Pension as a scheme is designed to cater for the welfare of pensionable retired workers in both the public and private sectors. The working lives of employees move continuously in one direction, from employment, to growth, to retirement; some are fortunate to save enough money to carry them through retirement, while a majority leave service with little or no savings at all. Ideally, governments and organisations need to identify a way of accommodating and adequately rewarding employees' past efforts through organised pension plans, so that they can achieve the goals of their existence (Gasiokwu & Ohoriemu, 2024). Essentially, this has produced different retirement policy options, including the Defined Benefit (pay-as-you-go) Scheme, the National Provident Fund Scheme and, in particular, the Contributory Pension Scheme, which is designed to be fully funded.

However, some of the existing pension schemes have proven inadequate or ineffective. In Nigeria, accounting guidance such as Statement of Accounting Standards No. 8 (SAS 8) was issued to direct and guide businesses on the determination and reporting of pension and retirement benefits. The literature on pension funding continues to reflect divergent schools of thought, namely the contributory, the non-contributory and the hybrid positions (Odeh & Nwosu, 2024). The contributory position, favoured by most accounting standard-setting bodies and researchers, holds that where employees contribute a percentage of earnings to the plan, they become entitled to receive all or part of the accumulated benefits at retirement, or upon termination of appointment or dismissal (Mustafi, 2022, as cited in Odeh & Nwosu, 2024). The hallmark of the contributory approach is operational efficiency in computation and funding.

A second school of thought, the non-contributory position, holds that employers alone should fund the pension asset, on the reasoning that employer-only funding helps attract and retain qualified and dedicated employees. Under this arrangement, the benefit is defined by a formula, and the pension is paid at retirement either as a lump sum or as a life annuity (Imoh, 2022, as cited in the African Journal of Social and Behavioural Sciences, 2024). Between the two extremes lies a hybrid position, which holds that, on an aggregate basis, the active working employees of a firm should help provide the funds for the firm's pensioners, since the cash flows generated are partly a product of employees' continued efforts and contributions; an obvious limitation of this argument is that it can only hold where current employees are not vastly outnumbered by pensioners (Adegun, Ezechi & Okechukwu, 2024).

Pension accounting has also attracted controversy in the area of actuarial valuation methods used to compute pension costs and liabilities. One school of thought argues that a single, comparable actuarial method should be prescribed across firms, both to support comparability of financial statements and to limit opportunities for earnings management at the expense of pensioners, since flexibility in actuarial assumptions can allow firms to understate pension liabilities and pension contributions, thereby inflating reported earnings (Gasiokwu & Ohoriemu, 2024). A contrasting school of thought holds that firms should retain flexibility to select and switch actuarial valuation methods, since the disclosure choices firms make are shaped by the political visibility of disclosure and the proprietary costs associated with compliance (Ojo & Olulu-Briggs, 2023). Consistent with this, pension policy has increasingly attracted the attention of regulators and researchers as a means of facilitating privately funded retirement income for an ageing workforce in Nigeria and other emerging economies (Oro & Njenga, 2022).

Pension has been defined in various ways. It has been described as an amount contributed by an employer, an employee, or both, that creates a financial fallback for the employee upon retirement, ensuring continuity of income and preventing hardship in old age (Imoh, 2022, as cited in the African Journal of Social and Behavioural Sciences, 2024). In a similar vein, pension is understood as a mechanism through which an employee who has invested years of commitment in the goals of an organisation or government is entitled, upon retirement, to a benefit that reflects that commitment (Hassan & Adegoke, 2024). A pension system, more broadly, functions as an income-security programme that provides regular benefits to beneficiaries, who may be retirees, pensioners, or other dependants (Pillah, 2023).

Notwithstanding this rationale, the various pension arrangements operated in Nigeria prior to 2004 largely failed to achieve their intended aims. These schemes were characterised by poor record-keeping, uncoordinated administration, inadequate funding, outright fraud, irregularities and conflicting laws, diversion of remitted funds, the presence of ineligible persons on pension payrolls, and an incapacity to implement approved budgets and make adequate financial provisions (Ibe & Nnonyelu, 2024). This gave rise to considerable hardship for retired workers, including financial frustration, lack of sustenance, deteriorating health, and in some cases premature death (Okoye, 2024, as cited in Odeh & Nwosu, 2024).

Consequently, the inadequacies and mismanagement associated with previous pension arrangements, and their attendant effects on the welfare of retired workers and the wider economy, have repeatedly prompted calls for reform in Nigeria, as has occurred in other parts of the world. Pension schemes exist, fundamentally, to provide post-retirement income security to employees. Nigeria's earliest pension arrangements date to the colonial era, when they were designed primarily to provide old-age income security to colonial administrators. For decades thereafter, Nigeria operated the traditional Defined Benefit (DB) arrangement, an arrangement that has progressively fallen out of favour even in more developed economies because of its unfunded liabilities and unsustainable long-term financing structure (Gasiokwu & Ohoriemu, 2024).

It is against this background that pension reform became necessary, prompted by the difficulties associated with the administration of the old pension schemes. Under the previous arrangement, the prospects of pensioners remained bleak, as repeated and often degrading verification exercises were carried out by the old pension boards, exercises that compounded the hardship of pensioners rather than resolving it. Many pensioners reportedly died while still pursuing payment of benefits that never materialised, prompting widespread recourse to self-help arrangements for old-age security and, in some accounts, contributing to other social vices (Ibe & Nnonyelu, 2024; Okoye, 2024).

A pension scheme intended to provide for old age has, in this account, instead become a burden on both retirees and government. Nigerian workers who contributed to the growth and development of the country have, in many cases, faced considerable hurdles in securing their retirement benefits. Outstanding pension liabilities and delays in benefit payment have remained a persistent feature of the public pension landscape, a concern reiterated as recently as December 2025, when the House of Representatives passed a motion calling for urgent review of the Contributory Pension Scheme in response to continuing reports of inadequate pensions and rising hardship among retirees (National Assembly Legislative Tracking Forum [NALTF], 2025).

In order to reposition and refocus Nigeria's pension architecture, and to address the problems associated with earlier pension arrangements, the Federal Government enacted the Pension Reform Act 2004, which introduced the Contributory Pension Scheme (CPS) covering employees in the public sector, the Federal Capital Territory, and the private sector. The Act, later amended by the Pension Reform Act 2014, repealed previous legislation regulating pension administration in Nigeria (Gasiokwu & Ohoriemu, 2024). With the weakening of earlier social-welfare arrangements, the Pension Reform Act has as its primary objectives the encouragement of savings among employees so that they are not impoverished in retirement, and the establishment of a uniform set of rules, regulations and standards governing pensions across the public and private sectors of the Nigerian economy (Muslim, 2024). Fundamentally, the reform was designed to ensure that employees receive their entitlements as and when due, and to assist individuals who might otherwise undersave in providing for their livelihood in old age.

The question that remains, and that motivates this study, is what impact the Contributory Pension Scheme has actually had on employee retirement benefits and standard of living. Proponents of the scheme have argued that the CPS reduces the heavy unfunded debt burden inherited from previous arrangements, facilitates more disciplined funding of employer pension obligations, broadens investment opportunities for contributors, adds value to workers' final entitlements, supports the development of Nigeria's capital markets, and promotes national savings and macroeconomic development (Olulu-Briggs, 2023; Adegun, Ezechi & Okechukwu, 2024). At the same time, more recent assessments suggest that, notwithstanding these structural advantages over the old Defined Benefit arrangement, the CPS continues to perform below expectations in practice, with reports of administrative delays, inadequate monthly pensions, and continuing hardship among retirees (Odeh & Nwosu, 2024; NALTF, 2025).

1.1 STATEMENT OF PROBLEM

Managing and administering pension funds continues to pose a major challenge to government in Nigeria, even under the Contributory Pension Scheme. Yet pension, which is meant to guarantee an employee a measure of comfort in the inactive years of life, remains critical to the sustenance of both the individual and the wider society (Pillah, 2023). In Nigerian society today, a large proportion of workers, particularly those in the informal sector, remain outside any reasonable retirement benefit arrangement, while even the formal schemes that exist continue to suffer from gaps in coverage and administration (Olaoye et al., 2025, as cited in the review of pension fund investment literature).

The Nigerian pension system, although considerably more harmonised since 2004 than under the previous fragmented arrangement, still contends with gaps in regulatory reach, particularly in extending coverage to informal-sector workers, and with the challenge of achieving optimal investment returns given the comparatively conservative investment strategies adopted by Pension Fund Administrators (Gasiokwu & Ohoriemu, 2024). Periodic legislative amendments, such as the 2022 bill seeking to amend the Pension Reform Act 2014 to allow retirees to access a larger percentage of their retirement savings account balance, reflect an awareness within the National Assembly that the current framework does not fully resolve the hardship experienced by retirees in accessing their benefits (National Assembly of the Federal Republic of Nigeria, 2022).

Furthermore, the question of how pension obligations should be disclosed continues to generate debate among accountants. Divergent views persist as to whether pension information should be disclosed by way of notes to the accounts, treated as an off-balance-sheet item, or recognised more fully within the primary financial statements (Oyerinde, Fadun & Isimoya, 2025). Added to this, firms in Nigeria are required to comply with applicable pension and financial reporting standards in order for their financial statements to satisfy both external auditors and the disclosure requirements of the Nigerian Exchange and the Securities and Exchange Commission, including disclosure of the pension cost provision made during the year (Oyedokun, Akingunola & Somoye, 2022).

Given the range of difficulties that continue to attend the accounting for, and administration of, employee retirement benefits, it remains unclear how effectively the Contributory Pension Scheme has improved outcomes for employees of quoted firms in Nigeria, and how consistently such firms disclose pension-related information in line with applicable standards. It is against this backdrop that this study evaluates the impact of the Contributory Pension Scheme on employee retirement benefits of quoted firms in Nigeria, examines the relationship between the Contributory Pension Scheme and employees' standard of living, and assesses the relationship between pension costs and firm-level variables, specifically total assets and profitability, among quoted firms in Nigeria (Kantudu, 2008; updated in light of Oyerinde, Fadun & Isimoya, 2025).

1.2 OBJECTIVES OF THE STUDY

Consistent with the research problem, this study was set to achieve the following objectives:

(i) To evaluate the impact of the Contributory Pension Scheme on employee retirement benefits of quoted firms in Nigeria.

(ii) To determine whether a relationship exists between the impact of the Contributory Pension Scheme on employee retirement benefits and standard of living.

(iii) To assess the effects of total assets and profitability on pension funded-status disclosure in the financial statements of quoted firms in Nigeria.

1.3 RESEARCH QUESTIONS

Based on the statement of the research problem and the objectives of the study, this research sought answers to the following questions:

i. What has been the impact of the Contributory Pension Scheme on employee retirement benefits of quoted firms in Nigeria?

ii. What relationship exists between the impact of the Contributory Pension Scheme on employees' retirement benefits and standard of living?

iii. To what extent have total assets and profitability affected funded-status disclosure in the financial statements of quoted firms in Nigeria?

1.4 STATEMENT OF RESEARCH HYPOTHESES

Arising from the statement of the problem, the research objectives, and the research questions, the following null hypotheses were formulated for the study:

(i) The Contributory Pension Scheme does not have any significant impact on employee retirement benefits of quoted firms in Nigeria.

(ii) There is no relationship between the impact of the Contributory Pension Scheme on employee retirement benefits and standard of living in Nigeria.

(iii) There is no significant relationship between pension costs and the two independent variables: total assets and profitability.

1.5 SCOPE OF THE STUDY

This study focuses on the impact of the Contributory Pension Scheme on employee retirement benefits of quoted firms in Nigeria; it determines the relationship that exists between the Contributory Pension Scheme and employee standard of living, and it assesses whether the asset base and profitability of quoted firms in Nigeria affect the funded status of pension assets disclosed by those firms. The time frame for the study covers a ten-year period drawn from the post-reform era of the Contributory Pension Scheme. The sample comprises ten (10) quoted firms in Nigeria, including First Bank of Nigeria Plc, GlaxoSmithKline Consumer Nigeria Plc, Unilever Nigeria Plc, Dunlop Nigeria Plc, Mobil Oil Nigeria Plc (now 11 Plc), Guinness Nigeria Plc, Flour Mills of Nigeria Plc, PZ Cussons Nigeria Plc, Evans Medical Plc, and Nigerian Breweries Plc. These quoted firms, listed on the Nigerian Exchange (NGX), were selected on the basis that they provided the researcher with the requisite data (Nworie, 2024).

1.6 SIGNIFICANCE OF THE STUDY

The significance of this study lies in the importance of pension entitlements to the lives of pensionable retiring workers and those still in active service. This study is expected to be of benefit in the following ways.

First, it reviews the problems associated with earlier pension schemes and examines how the Contributory Pension Scheme could be applied, or improved, to address them.

Secondly, the study is intended to help the National Pension Commission and other parties involved in administering the Contributory Pension Scheme to remain alert to their responsibilities, by promoting efficiency and effectiveness in the scheme's operation.

Thirdly, the study seeks to contribute to restoring confidence among Nigerian workers, by offering insight into the Contributory Pension Scheme and encouraging continued engagement with it.

In addition, the study is intended to serve as a resource for further research and as part of the literature on Nigeria's pension system and its reform.

The study should also be useful in managing pension-related issues more effectively, since the information generated can serve as a basis for more informed decision-making.

Finally, the recommendations advanced in this study are intended to be useful to government in policy formulation and governance.

1.7 DEFINITION OF TERMS

Commission: Means the National Pension Commission, established under the Pension Reform Act.

Custodian: Means a company incorporated under the Companies and Allied Matters Act that has been licensed by the Commission as a Pension Fund Custodian.

Distributable Income: Means all income earned on contributions, less reasonable charges and costs of investment transactions.

Monthly Emoluments: Means the total of basic salary, housing allowance and transport allowance.

Pension Fund: Means an investment fund within the pension scheme intended to accumulate, during an individual's working life, contributions and investment income with the intention of providing income in retirement, whether through the purchase of an annuity or by way of programmed withdrawal, with the possible option of an additional tax-free lump sum.

Pension Fund Assets: Means assets that collectively constitute a pension fund.

Pension Fund Administrator: Means any body corporate licensed by the Commission as a Pension Fund Administrator.

Programmed Withdrawal: Means a product offered by a Pension Fund Administrator for the periodic payment of benefits to a Retirement Savings Account holder.

Retirement Savings Account: Means an account opened by a contributor with a Pension Fund Administrator for the purposes of the Contributory Pension Scheme.

Scheme: Means the Contributory Pension Scheme established under the Pension Reform Act.

REFERENCES

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