Pension assets hit N14.2trn on improved compliance

Nigeria’s total pension assets under management (AUM) hit N14.2 trillion at the end of May 2022, as the number of registrations into the Contributory Pension Scheme rose to 9.7 million.

The assets increased in May by 14 percent year-on-year and 1 percent month-on-month, according to the monthly report released by the National Pension Commission (PenCom).

According to analysts, the growth in AUM is driven by two significant factors: compliance at the micro pension plan (MPP) level by small enterprises and skilled individuals, as well as compliance by large corporates who want to participate in Federal Government contracts.

Seun Babalola, executive director at NLPC Pension Fund Administrators Limited, attributed the growth in AUM to increasing awareness about the MPP, increasing adoption of the plan by small-scale businesses that have not more than three employees, as well as corporate individuals who have seen the need to protect their old age.

“The awareness about micro pension plan is growing, as a good number of affected persons are keying into it,” he said.

According to the PenCom report, as at the first quarter 2022, 18 Pension Fund Administrators (PFAs) have registered 2,897 contributors, bringing the total number of MPP contributors to 76,588 as at March 31, 2022.

It said N34.53 million was credited into the Retirement Savings Accounts (RSAs) of 8,668 MPP contributors in Q1 2022, bringing the total value of the Micro Pension Funds to N263.57 million as at March 31, 2022.

“Having the PenCom certification is pre-condition to qualify to bid for any Federal Government contracts in Nigeria today; that is one reason that is driving compliance,” Babalola said.

Ethelbert Ogu, who works with one of the top three PFAs in the country, said the growth was a result of increased compliance.

“The activities of PenCom through the recovery agents are helping to grow the funds through increased remittance,” he said.

PenCom said following the issuance of demand notices to defaulting employers whose pension liabilities were established by the recovery agents appointed by the commission, the sum of N422.34 million, representing principal contribution (N124.89 million) and penalty (N295.45 million), was recovered from 23 defaulting employers during the quarter under review.

“Meanwhile, six defaulting employers have been recommended for appropriate legal action, for refusing to remit pension contributions of their employees after all administrative actions to make them comply failed,” it said.

Meanwhile, analysts at FBNQuest said the federal government’s bonds were the primary driver of the month-to-month gain, as their value increased by almost N250 billion (+3 percent m/m) to N8.5 trillion, while their share of total AUM expanded by 120 basis point month-to-month to 59.7 percent.

“If we include treasury bills, Sukuk bonds and other agency bonds, FGN securities share increased to around 62.1 percent of total AUM, up from 60.9 percent in April,” they said.

FBNQuest said by way of comparison, Kenya’s Retirement Benefits Authority puts the share of government securities at 45.7 percent at the end of last year, underscoring the need for portfolio diversification of pension funds.

The value of pension AUM held in domestic equities increased by 23 percent y/y (1 percent m//m) to almost N1.1 trillion, taking its share to almost 7.1 percent from 6.6 percent in May 2021.

“Linked to this is the Nigerian Exchange Limited’s All Share Index’s outstanding performance this year, which is one of the best globally. Its 22 percent year-to-date return contrasts with negative returns delivered by many equity markets around the world,” they added.

According to the analysts, the total number of pension accounts increased to almost 9.7 million compared with about 9.4 million in May 2021. This implies an average value of N1.47 million per RSA holder, slightly higher than the N1.33 million in the year-earlier period.

They said: “Although Nigeria’s pension sector has grown remarkably since 2004 when the Pension Reform Act was passed, there is still some ground to cover. Similar to credit access, Nigeria’s pension savings penetration rate (assets/GDP ratio) is still quite low at around 8.2 percent. This compares with a global average estimate of 60 percent, and closer home, 54 percent for South Africa, the agency noted.

“Going forward, we expect fixed income yields to expand by close to 50bps across the curve over the next couple of weeks, due to the tight market liquidity.”

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