Pension Investment Regulation in Nigeria: Opportunity Cost Assessment

Abstract

This study assessed the cost of missed opportunities for profitable equity trading and examined the extent to which current regulations on investment of pension funds in Nigeria affect pension fund values at retirement. The research made use of historical asset return distributions and assessed the effect of the restrictions on the provision of inflation-adjusted returns. Using mean-variance analysis, the study found that the current pension investment restriction policy in Nigeria results in failure to provide positive inflation-adjusted returns to retirees. The analysis also provided estimates of the costs of profitable opportunities foregone. The research recommended raising the current limits on equity investments to accommodate higher equity weighting in boom times, taking into consideration the age profile of plan participants in pension fund investment.