Pension Reform evokes some primary questions: What is a pension system? What is its essence? Why do governments interfere in this area throughout the industrial world and increasingly in developing countries? (Modigliani and Murahlidhar, 2004).2.1.1 The concept of pension Pensions are a form of social security for pensioners. It is meant to serve as a source of supplemental income for retired workers when their current earning power ceases (Modigliani and Murahlidhar, 2004). It has been defined as "a sum of money paid regularly to a person who no longer works due to age, disability, etc., or to his widow or dependent children, by the State, his former employers or from funds to which he and his employers have both contributed" (Onifade, 2001). According to the third edition of the Longman Dictionary of Contemporary English (2000), the word pension is a sum of money paid regularly by a government or company to someone who is officially considered too old or ill to earn money by working. Alternatively, pension can also be defined as the periodic payment to someone who retires from work due to old age or disability (Chinwuba 2004). 2.1.2 The concept of a pension scheme A pension scheme or system, however, is the set of plans, procedures and legal processes aimed at securing and setting aside funds to meet the social care obligation that employers owe to their employees retired or in case of death and disability (NICON, Abuja). It serves as a structured method to provide economic security to an individual when they are no longer able to support themselves. Being a pre-established and well thought out plan, it gives beneficiaries confidence that the promised benefits are properly arranged and will be paid at the appropriate time (Onifade, 2001). It can also be seen as a financial plan through which benefits are provided to the worker whenever they become due according to the rules of the plan (Chinwuba 2004). 2.1.3 The essence and characteristics of pension systems The main purpose of a pension system is to help families achieve an allocation of vital resources by distributing consumption over the course of life, as postulated in the life cycle hypothesis (LCH). This is achieved by transferring resources from working life to post-retirement life when income runs out (Modigliani and Muralidhar, 2004). There are basically three reasons for the existence of pension plans. These are: Social Security, Redistribution and Savings (Modigliani and Muralidhar, 2004).