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PFAs see opportunities in reviving micro pensions to drive growth in 2021

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Pension Fund Administrators in Nigeria are hoping to put a torrid 2020 behind them by focusing on growing their micro pensions business next year.

Micro pensions are small amounts of money individually saved by low income people, who are often financially illiterate and have limited access to financial services, during working and invested collectively to yield returns.

In an exclusive interview with BusinessDay, Wale Odutola, president of the Pension Fund Administrators of Nigeria (PenOp) said “focus will be on improving the current micro pensions plan structure to drive adoption and meet the industry’s strategic coverage targets.”

“The micro pension plan had only accumulated N44 million about a year and half after being launched, so it has to be structured to attract participants,” Odutola said.

Efforts to build a much stronger retirement benefits package for more Nigerian workers through pensions suffered a slight set back in 2020 amid the Covid-19 pandemic.

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The Pension Fund Administrators (PFAs), who are managers of the pension funds, saw a drop in growth of the fund as well as in new registrations, which has been linked to impacts of covid-19 and other economic headwinds in Nigeria.

The annualized industry asset under management (AUM) growth rate in 2020 was 16.5 percent, 5 percent below the average annual growth rate between 2014 and 2019.

Odutola also hinted that industry registration growth rate was adversely affected by the introduction of NIN as a pre-requisite since July 2019.

“Furthermore, the slow adoption of the Micro Pensions and impact of Covid-19 all contributed to an YTD growth of just 2 percent, compared to a 7 percent average from 2014 – 2019,” Odutola said.

He also noted that attention will be on automating the end-to-end customer journey as well as back-end processes to improve efficiency and customer satisfaction.

As at August 2020, total pension industry assets under management stood at N11.35 trillion and 9.10 million registered contributors, and the industry contribution to GDP at 7.03 percent.

A third quarter 2020 report by the National Pension Commission (PenCom), said the industry recorded a 1.18 percent growth (107,158) in the scheme membership, moving from 9.10 million contributors at the end of the preceding quarter to 9.20 million at the end of the third quarter of 2020.

The growth in the industry membership was driven by the RSA Scheme, which had an increase of 107,312. However, membership of the Closed Pension Fund Administrator (CPFA) Schemes declined by 154 members to 16,971 while the Approved Existing Scheme (AES) membership remained unchanged at 40,951 as at the end of the third quarter of 2020.

Total pension contributions on the other hand grew by N184.68 billion within the third quarter of 2020. Out of this total, the public sector accounted for N117.70 billion or 63.73 percent while the private sector contributed N66.98 billion or 36.27 percent.

The cumulative pension contributions received from both the public and private sectors from inception to the end of the third quarter of 2020, therefore, amounted to N6.37 trillion, up from the N6.19 trillion as at the end of the second quarter, 2020, representing a growth of 2.98 percent.

The aggregate total pension contributions of the public sector increased by 3.76 percent from N3.13 trillion as at the end of the second quarter, 2020 to N3.25 trillion as at the end of the reporting period, while aggregate total pension contributions of the private sector on the other hand increased by 2.19 percent from N3.06 trillion as at the end of the second quarter, 2020 to N3.13 trillion as at the end of the reporting period.

The total value of pension fund assets was N11.56 trillion as at 30 September 2020 comprising of N8.00 trillion of the RSA ‘Active’ Funds (i.e. RSA Funds I, II, III and V); N934.19 billion of the RSA Retiree Fund; N1.44 trillion of the CPFAs Fund; and N1.19 trillion for the Approved Existing Schemes Funds.

A breakdown of the pension industry portfolio as shown in the report indicates that the pension funds were mainly invested in Federal Government Securities, with an allocation of about 65 percent of the total pension assets- with federal government bonds 57 percent, Treasury Bills: 7 percent; Sukuk Bonds: 1 percent while Agency Bonds and Green Bonds: less than 1 percent.

The value of investments in domestic quoted ordinary shares was N585.77 billion, that is 5 percent of Total Assets under Management as at 30 September 2020, indicating an increase of N61.00 billion, that is 11.62 percent compared to the value of N524.77 billion as at 30 June, 2020.