Actuarial Analysis of Retirement Adequacy Under Different Accumulation Strategies for Nigerian Informal Workers

This study provides an actuarial analysis of retirement income adequacy for Nigerian informal sector workers under alternative savings accumulation strategies, addressing the significant pension coverage gap for this population segment. Nigeria's contributory pension scheme covers fewer than 10 percent of the working population, leaving the vast majority of informal workers, estimated at over 80 million individuals, without formal retirement provision. This study develops a microsimulation model of retirement income accumulation for representative informal worker cohorts in agriculture, petty trade, artisanal crafts, and transport in Oyo, Kaduna, and Imo States, calibrated using household income survey data for 2020 to 2023. Five accumulation strategies are modelled: savings bank deposits, mobile money savings, stock market investment through collective investment schemes, real estate, and PENCOM's micro-pension program. Replacement rates, probability of retirement adequacy, and resilience to contribution interruption are computed for each strategy. Findings reveal that micro-pension with equity investment linkage produces the highest replacement rates with acceptable risk for workers with 25 or more years of accumulation, but cash-flow constraints make consistent contribution difficult for the bottom income quintile. Mobile money savings and real estate accumulation show moderate replacement rates with lower contribution consistency requirements. The study concludes that a portfolio approach combining micro-pension and mobile savings offers the best retirement adequacy outcomes for most Nigerian informal workers. It recommends a government-matched contribution scheme for low-income informal workers.

Keywords: retirement adequacy, informal sector, micro-pension, accumulation strategy, replacement rate.