SYSTEMATIC PENSION PLAN AND ITS PAYOUT PHASE IN FEDERAL UNIVERSITIES IN NIGERIA

Abstract

Accumulation phase of Defined Contribution (DC) pension represents a critical period where the regulator and DC beneficiaries need to monitor how contributed funds are invested to grow into sufficient funds for old age security. However, more critical in DC pension is the payout phase which has to do with different actuarial models for converting the accumulated funds into streams ofretire ment income. This has not received much research efforts. This study combines the two phases by modeling accumulated funds for retirement income options. Data for employees’ salaries for different grade levels were collected from one of the federal universities in Nigeria. The salaries data collected were used to compute accumulated funds while the 1983 Individual Annuity Mortality Table for males’ lives were used to determine annuity rates from 4% to 6%. These rates were used to convert the accumulated funds into annual pension withdrawals for prospective annuitants. The findings revealed that annuity rates decrease with increasing age at any given rate of interest and age. Also, retiring employees with phased withdrawal options have more annual pension income for short payout duration than those with extended years in payout. The study recommends among other things that retiring employees need to ensure that their monthly pension contributions are remitted to their retirement saving accounts as and when due in order to accumulate sufficient funds for retirement.