Introduction
1.1 Background Of The Study
Corporate governance is the administrative arrangement whereby a nation or organization is segmented or broken into administrative units with well-defined roles stated in the constitution as the laws of the country or statute of the organization. The Nigeria nation started as a unit through the emergence of the missionaries and the British traders and its corporate arrangement started with the creation of southern protectorate which metamorphosed into a nation with the amalgamation of the two protectorates in 1914 by Lord Lugard was the governor general appointed by Britain (Esther, 2009). The corporate arrangement led to the introduction of Regional Government whereby Nigeria was divided into three regions namely: the west with headquarters at Ibadan, the East with headquarters at Enugu, and the North with headquarters at Kaduna. The regions increased to four with the creation of Midwest region in 1963 with the headquarters at Benin (Federal Republic of Nigeria constitution of 1990). The federated unit of Nigeria was changed from „region‟to state in 1967 when Gowon Administration divided Nigeria into 12 administrative units called States. It then grew to 19 state structure and finally 36 states, and the Federal Capital Territory Abuja at present. Corporate governance also refers to issues such as transparency, resolution of conflicts and the overall way in which the business in question is run. Governance also includes accountability and anti-corruption measures put in place by various operators or components (Musalem and Palacious, 2004). There cannot be governance in pension fund administration when pension contributors‟ funds are used to meet objectives other than retirement income objective. Corporate governance would be absent if workers‟ pension contributions are used as captive source of finance or lost due to corruption and mismanagement.
Many pension schemes had existed before the Pension Reform Act of 2004 in Nigeria. Ahmad (2006) opines that the first public sector scheme was the Pension Ordinance of 1951 with retroactive effect from January 1, 1946. This law provided public servants with both pension and gratuity. In 1961, the Nigeria Provident Fund was established by the Nigeria Provident Fund Act of the same year. This was replaced by the Nigeria Social Insurance Trust Fund (NSITF) that was created by the NSITF Act, 1993 (Akeni, 2006). The new pension scheme is a contributory scheme, publicly and privately managed. The public aspect is managed by National Pension Commission (Pencom), while the private aspect is managed by Pension Fund Custodians. Every eligible „employee‟ maintains a Retirement Savings Account in his name with the Pension Fund Administrator (PFA) of his choice. The employees always notify their employers of the PFA chosen and the identity of the Retirement Savings Account (RSA) opened. The employees and employers contribute a minimum statutory percentage of the employees‟ monthly emoluments (comprising basic salary, housing allowance and transport allowance) into the Retirement Savings Account of the employees.
The contributions would be managed and administered by Professional Fund Administrators and held in custody by licensed Pension Fund Custodians. At retirement, the amount in the employees‟ Retirement Savings Account would be the total contributions plus income and capital gain earned on the contributions made (Pension Act 2004). However, the public sector pensions were the defined benefit or a Pay As You Go (PAYG) system. They depended fully on government budgetary provisions for funding (Tuner, 2006). But these previous schemes did not provide the needed succour for our retirees. This was buttressed by Young (2007), when he stated that the previous schemes were characterised by fraudulent diversion of retirement pensions and outright nonpayment.
1.2 Statement Of The Problem
The problem that led old pension scheme to failure which was associated with the public pensions schemes include identification of pensioners, determination of amount of entitlements, reconciliation of government overall pension liability for budgetary and planning purpose. While commenting on the public pension debt burden, Balogun (2006) stated that the public pension could not be sustained as outstanding pension deficits amounted to over 2 trillion naira before 2004. Since the introduction of pension schemes in Nigeria, the old pension schemes was characterized by nonpayment of pensioners, embezzlement of the fund by pension officers and the huge amount of pension to be paid which constitute burden on government yearly budget, which then result to the failure of old pension schemes.
Sequel to the failure of old pension schemes, a new contributory pension scheme was introduced by the Pension Reform Act (PRA), 2004. It is aimed at developing a system that is sustainable and had the capacity to achieve the ultimate goals of providing a stable, predictable and adequate source of retirement income for each worker in the country. It is designed to be fully funded (by both the employee and employer), publicly and privately managed and based on individual accounts (Akeni, 2008). A fully funded pension fund is the one that has sufficient funds available to meet all future payment obligations (Cornetts, 2009). This study is therefore faced with the problem of investigating how the best practices in corporate governance affect the effective performance of contributory pension schemes in Nigeria so that it cannot fall like old pension schemes. Against this backdrop, this study examines the effect of Corporate Governance And The Financial Performance Of Pension Fund Administrators In Nigeria.
1.3 Objective Of The Study
The aim of this study is to examine Corporate Governance And The Financial Performance Of Pension Fund Administrators In Nigeria.
Specifically, the study will seek:
- To determine the effect of board size on the return on Asset of pension fund Administrators
- To determine the effect of board composition on the retun on Asset of pension fund administrators.
1.4 Research Hypothesis
H0: There is no significant relationship between board size and return on Asset.
Ho2: There is no significant relationship between board composition and return on Asset.
1.5 Significance Of The Study
This study serves as an evaluation tool to policymakers, pension fund administrators and the government. The findings from this study will aid in decision making by organizations. Also, the study will serve as a resource for further studies.
1.6 Scope And Limitation Of The Study
This study is limited to pension administrators, the variable choose are also limited in results. Hence, the findings from this study may not be applicable to organizations of unsimilar industries.
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