Abstract:
One of the issues leading to retirement income inadequacy under the
defined contribution (DC) pension scheme has been attributed to funding gaps.
Funding gaps under DC occur when pension contributions as well as investment
returns are not regularly credited to employees’ retirement saving accounts
(RSAs). In order to determine the effect of funding gaps and life expectancy on
retirement income security, this study investigated how determinants of funding
gaps and life expectancy affect accumulated funds. The findings showed that
employer’s compliance, role of Pension Fund Administrators (PFAs), and years
of remittance defaults have a positive and significant effect on funding gaps. In
contrast, the role of Pension Commission (PenCom) has negative effect on
funding gaps. Meanwhile, further investigation revealed that both funding gaps
and life expectancy significantly accounted for 83.1% of accumulated pension
funds. These findings led to the conclusion that the active roles of PenCom have
assisted in recovering up to 62.5% of funding gaps back to employees’ RSAs in
Federal Universities in Nigeria. Following the adverse effect of the role of PFAs
on accumulated funds, the study recommends that regulatory body should
carefully monitor their activities so as to ensure total compliance that will further
narrow the existing finding gaps of DC.
Keywords: Defined contribution, Funding gap, Retirement income adequacy, Life
expectancy.
