Pension Fund Investment Performance and Retirement Income Adequacy Under Nigeria’s Contributory Pension Scheme

This study evaluates the investment performance of pension fund administrators and examines the implications of fund returns for retirement income adequacy under Nigeria's Contributory Pension Scheme. The CPS was designed to address the failures of the legacy defined benefit pension system, promising contributors retirement income commensurate with their accumulated savings and fund investment returns. However, declining real fund returns driven by inflation, currency depreciation, and narrow investment portfolio composition have raised concerns about the scheme's ability to deliver adequate retirement income at scale. This study uses financial data from the National Pension Commission's published fund performance reports for all licensed PFAs over the period 2018 to 2023, supplemented by a survey of 150 scheme participants across Lagos, Abuja, and Kano. Pension fund performance is assessed using real return on investment, Sharpe ratio, and benchmark comparison. Retirement income adequacy is projected using replacement rate simulations for representative contributor profiles. Regression analysis is applied to identify PFA-level performance determinants. Results reveal that average real pension fund returns have been negative in four of the six years analyzed, significantly eroding the real value of accumulated savings. Replacement rate projections suggest that the majority of contributors at current savings and return rates will retire with inadequate income replacement. The study concludes that the CPS faces a systemic adequacy challenge requiring structural reform. It recommends portfolio diversification into real assets, infrastructure, and equity to improve long-term real returns.

Keywords: pension fund performance, contributory pension scheme, replacement rate, PENCOM, retirement adequacy.