For every N1000 Nigerians contributed to their pension fund in the last five years, they withdrew about N500, a reflection of Nigeria’s heightened unemployment rate and the retirement crisis that beckon among the citizens of Africa’s top crude producing nation.
Out of the annual average pension contribution of N699 billion reported in the last five years, Agusto & Co.’s newly released 2021 Pension Industry report revealed that withdrawals averaged about N341 billion in the same period. This represents 48.78 percent of the total pension contribution.
This translated to a net annual contribution of N347 billion and accounting for 26.6 percent of the Industry’s AuM growth over the period. The remaining 73.4 percent of average growth was attributable to investment returns earned on the portfolios.
“The growth in the industry’s managed assets has been largely driven by investment returns and additional contributions, to a lesser extent,” Research analysts at Agusto & Co. said.
Retirement Savings Account (RSA) holder who is less than 50 years of age and has not been in any form of paid/gainful employment for a minimum period of four (4) months after formal exit from employment is qualified to apply for 25 percent of the balance in his/her Retirement Savings Account in line with the Regulations for the Administration of Retirement and Terminal Benefits, as gathered from the principles of the Pension Reform Act (PRA) 2014.
Unemployment in Africa’s most populous nation rose to its highest in at least 13 years and the world’s second-highest in 2020. While this mirrors the fragile state of Nigeria’s economic progress it also has future implications. Four in every ten Nigerian parents interviewed in EFInA’s 2020 survey said they depend on their children to meet their needs when they are old and cannot work but with the country’s high unemployment rate, their retirement plan may be in jeopardy.
Out of the 24 million Nigerian adults who told EFInA during its 2020 survey on Access to Financial Services that they did not have pension accounts but were saving for retirement, 11 million or 45 percent said their children were their pension plan.
According to Gallup World Poll, 26 percent of Nigerians said they have no friends, family or anyone to count on to help them if they have any trouble.
Nigeria’s sluggish economic growth which undermines the country’s capacity to create enough jobs to meet the growing number of labour market entrants put the retirement plan of many Nigerian parents at risk. Parents’ dependence on their children to carter for them in their old age is a long-existing perception that has remained unchanged in not just Nigeria but the Africa continent.
Since 2017 when oil-dependent Nigeria emerged from its economic recession, not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining Nigeria’s ability to provide job for its youthful population.
Nigeria’s unemployment rate has more than quadrupled since 2016 when the economy slipped into a recession. A second recession occurred in 2020.
Nigeria’s unemployment rate rose to 33.3 percent in the fourth quarter of 2020, translating to some 23.2 million unemployed people. The figure jumped from 27.1 percent recorded in the second quarter amidst Nigeria’s lingering economic crisis made worse by the coronavirus pandemic.
“Nigeria’s population is expected to grow by as much as 35 million in the next decade, and unless the pace of growth and job creation accelerates, the country will account for a quarter of all people living in extreme poverty worldwide,” Marco Hernandez, World Bank Lead Economist for Nigeria, said.
Agusto & Co., however, envisages continuous growth in Nigeria’s pension assets supported by increased participation on the back of the country’s favourable demography of young adults and rising yields in money market instruments.
In addition, the credit rating agency said it expects an improvement in the performance of the industry as operators compete for a higher return on investments, improved customer service and use of technology for operational efficiency.
Agusto & Co., therefore, projects that the industry’s net assets will hit the N20 trillion mark by 2023, recording an average growth rate of 18 percent (in line with the five-year average growth rate of 18%) in the next three years leading to 2023.
As of 31 December 2020, data from Agusto & Co. showed that the Nigerian Pension Industry’s assets under management (AuM) stood at N12.3 trillion (or $32.3 billion). This represented a 20.6 percent growth over the N10.2 trillion reported at the end of 2019 and an 18.3percent compound annual growth rate over the last five years.
The pension transfer window opened on 16 November 2020 to allow pension RSA holders to switch Pension Fund Administrators (PFAs) once a year at most and no cost. As of the end of the second quarter of 2021 (less than nine months after the transfer window was opened), over 25,600 RSA holders with pension assets over N102.5 billion were reported to have changed PFAs.
“We expect that in the subsequent quarters of 2021, the number of transfers will rise further as more enrolees become aware of the transfer process. In addition, we expect competition to intensify in the pension Industry as PFAs seek to attract new enrollees while retaining existing ones,” Agusto & Co.said.
The rating agency also expects the Industry’s structure to remain relatively unchanged in the short-to-medium term with the top five players leading on the back of good market presence and strong brand recognition.