Intergenerational Risk Transfer in Public Pension Systems: An Actuarial Analysis of Nigerian Pension Reform

This study develops an intergenerational risk transfer framework to analyse the distributional and risk-sharing implications of Nigeria's transition from a pay-as-you-go defined benefit pension system to a funded defined contribution regime under the Pension Reform Act, contributing an original actuarial political economy analysis of pension reform. Pension reform fundamentally reshapes how demographic, investment, and longevity risks are distributed across generations, yet this intergenerational risk transfer dimension has received limited actuarial attention in the Nigerian context. This study constructs an overlapping generations model of the Nigerian pension system, calibrated to demographic projections, wage growth data, and investment return histories from 1990 to 2023. The model computes the generational accounts of workers under both the pre-reform defined benefit system and the post-reform defined contribution system for cohorts born between 1950 and 2000. Risk sharing properties are assessed using the variance of net retirement income across generations under stochastic demographic and investment scenarios. Findings reveal that the transition to defined contribution substantially shifts demographic and investment risk from the government to individual workers, reducing intergenerational solidarity but eliminating the fiscal liability associated with the underfunded defined benefit system. Transitional cohorts born between 1960 and 1975 bear the highest transitional costs due to limited DC accumulation time. The study contributes an original Nigerian intergenerational pension risk framework and recommends supplementary government minimum pension guarantees for transitional cohorts to limit the welfare costs of pension system reform.

Keywords: intergenerational risk transfer, pension reform, overlapping generations model, defined contribution, Nigeria.