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The opportunities and challenges of the new pension scheme for financial institutions in Nigeria (2004-2011)
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Determined to solve the numerous problems of the hitherto unfunded defined benefits pension system in Nigeria, the federal government in June 2004 introduced a contributory pension scheme. The new pension system is to be based on individual retirement saving account managed by private financial institution. This makes it imperative to examine the opportunities and challenges presented by the new system to financial institution, task undertaken in this paper. Among opportunities, it was established that new pension system would result in increased demand for life insurance policies and annuities from insurance companies. The major challenge of the new pension system is its potential to create a yield problem in the money and capital market, as pension fund bid up stock prices in Nigeria shallow capital market and saturate the money market with liquidity at a time declining public sector borrowing requirement. The adverse implications of a prolonged yield problem in the money and capital market for pension entitlement under the new system call for urgent measures to deepen the capital market and maintain macroeconomic stability.