A Stochastic Actuarial Model of Pension Fund Accumulation Under Political Economy Constraints in Nigeria

This study develops a stochastic actuarial model of pension fund accumulation that explicitly incorporates political economy constraints on contribution compliance, fund governance, and investment regulation in Nigeria, contributing an original institutional-actuarial modelling approach to the pension fund literature. Standard actuarial pension accumulation models assume deterministic contribution schedules, fixed regulatory frameworks, and efficient investment markets, all of which are violated in the Nigerian pension system context due to employer contribution non-compliance, regulatory capture risks, and investment regulation rigidity. This study constructs a state-space model of pension fund dynamics incorporating stochastic contribution streams calibrated from PENCOM compliance data, regime-switching investment regulation scenarios informed by historical PENCOM regulatory amendments, and political economy shock processes estimated from Nigeria's electoral and fiscal policy history. Monte Carlo simulation of 10,000 fund trajectory scenarios over a 30-year horizon generates a distribution of retirement outcomes for representative contributor cohorts. The model is estimated using Kalman filter techniques applied to PENCOM administrative data from 2006 to 2023. Findings reveal that political economy shocks, including contribution holidays during fiscal crises and regulatory investment constraints during reform transitions, account for approximately 28 percent of the variance in projected fund outcomes beyond conventional investment and mortality risk. The study contributes an original political economy-actuarial pension model for Nigeria and recommends constitutional entrenchment of minimum contribution enforcement obligations to reduce political economy risk exposure.

Keywords: pension accumulation, political economy, stochastic model, contribution compliance, Nigeria.