Contributory Pension Funds and Capital Market Development in Nigeria
Keywords:
Pension Contribution Fund, Public Sector Contribution Fund, Private Sector Contribution Fund, Pension Fund Investment Asset, Capital Market DevelopmentAbstract
Despite some positive feedback, the Nigerian capital market struggles to effectively mobilize capital for critical economic sectors. This study explores the impact of contributory pension funds on the development of the Nigerian capital market from 2004 to 2023, employing an ex-post facto research design. The study focuses on the entire range of contributory pension scheme elements and capital market development indicators within this period, including public sector pension contributions, private sector pension contributions, and pension fund investments. Using the Autoregressive Distributed Lag (ARDL) model and Multiple Regression with Error Correction Mechanism (ECM), the study reveals that public sector pension contribution funds have a positive and significant impact on market capitalization in Nigeria. In contrast, private sector pension contributions show a positive but insignificant effect, while pension fund investments have a negative yet significant influence. These findings underscore the substantial role of pension contributory funds in shaping the development of the Nigerian capital market. The study concludes that while public sector pension funds significantly enhance market capitalization, private sector contributions and pension investments require more nuanced approaches to maximize their potential. Based on these conclusions, the study recommends several policy measures: For public sector funds, it is essential to strengthen governance structures, ensure adequate funding, and promote transparency to strategically leverage these funds for economic growth. For private sector pension schemes, regulatory incentives should be implemented to encourage a more significant role in market dynamics, with an emphasis on long-term investments and innovation. Pension fund managers should adopt a comprehensive investment strategy that balances short-term gains with long-term market stability, emphasizing diversification, risk management, and Environmental, Social, and Governance (ESG) considerations.