• Saturday, December 02, 2023
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Pension funds thirst for bonds unquenched

Pension funds thirst for bonds unquenched

Fund managers in the country’s pension sector have sustained an appetite for higher returns in Federal Government Bonds, which rose by N399 million in June 2023 to N10.4 trillion.

In a recent note, FBNQuest analysts said latest data from the National Pension Commission (PenCom) showed that total asset under management (AUM) of the regulated pension industry experienced robust monthly growth of 4.1 percent to nearly N16.8 trillion as at June 2023.

The analysts noted that excluding money market securities whose share of pension fund assets decreased by N168 billion month-on-month to N1.6 trillion, almost all the major asset categories accounted for the month-on-month increase of N654 billion.

Notably, FGN bonds, which typically account for the largest share of PFAs’ AUM at 62 percent in June, increased by N399 million to N10.4 trillion.

They said: “A major factor underscoring the rise in the value of share of FGN Bonds is increased supply of FGN paper due to the market this year, due to its higher domestic borrowing target of N7 trillion compared with around N4.4 trillion in 2022.

“In response to mounting inflationary pressure, the monetary policy committee raised the policy rate by 25 basis points to 18.75 percent during their recent meeting last month. Consequently, bond yields have increased by roughly 60 basis points since then.”

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PFAs’ investment in corporate bonds also increased by around N160 billion to N1.9 trillion, taking its share of pension AUM to around 11.2 percent.

Investments in domestic equities also increased by almost N150 billion to N1.3 trillion, implying a value share of 7.6 percent.

This notable rise in equity investments can be primarily attributed to investors’ positive response to market reforms implemented by the new administration after the President’s inauguration on May 29.

Although the industry has continued to deliver steady growth, efforts are still required to address the relatively low penetration rate compared to global benchmarks, FBNQuest said.

Michael Oyebola, an analyst at Money Counsellors, while reviewing the performance of the pension industry at the end of June, described it as a significant achievement.

“In a significant achievement for the Nigerian economy and its citizens’ financial security, the country’s Pension Fund Retirement Savings Accounts (RSA) have crossed the 10 million mark and assets under management are now N16.76 trillion.”

He said this milestone is based on the latest available data to June 30, 2023 from PenCom, the industry regulator.

According to him, it has taken three and half years to cross the mark and does mark a momentous step forward in the country’s efforts to enhance retirement planning and social welfare for its workforce.

“The number though is far from PenCom’s 2020 vision which, in its 2021 Annual report stated its vision is to have 20 million contributors by 2020,” he said.

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Nevertheless, the data revealed a consistent upward trend in the number of Retirement Savings Accounts over the past decade, he added.

From 4.54 million contributors, called RSA holders, in 2010, the figure rose to N6.95 million in 2015, N9.22 million in 2020 and 10.01 million at the end of 2023.