Despite year-on-year increases on assets under management (AUM) in the Nigerian pension industry, Nigeria still lags significantly behind peers with assets accounting for far less than 10 percent of the country’s gross domestic product (GDP).
As reported by the National Pension Commission (PenCom), the pension industry’s AUM grew in January 2019 by 13 percent y/y to N8.74 trillion ($28.5bn). Meanwhile, month-on-month AUM increased marginally by 1.2 percent.
Compared with South Africa with AUM accounting for about 70 percent of comparable GDP, Nigeria currently lags its peers with AUM accounting for just 6.8 percent of 2018 GDP.
A report by FbnQuest stated, “They are growing at a healthy rate yet, at just 6.8% of 2018 GDP, Nigeria was relatively late (2004) with its legislation creating the framework for regulated pensions.”
This depicts the lack of depth in the Nigerian pension regulated industry and “in need of greater depth,” analysts at FbnQuest noted.
The PenCom report further showed about 72.9 percent of total AUM were holdings in FGN securities, which amounted to N6.37 trillion with more investments in Federal Government bonds to the tune of N4.48 trillion.
The role of the PFAs in naira debt markets remains pivotal. Their holdings of FGN bonds at end-January represented 45.1 percent of the stock of the instruments at end-year.
Treasury bills on the other hand amounted to N1.78 trillion, accounting for about 28 percent of total FGN securities value.
Meanwhile, bearish trend witnessed in 2018 in the Nigeria equities market has seen the Nigerian pension industry draw back on their holdings on domestic equities.
The share of AUM invested in domestic equities has declined over 12 months from 9.7 percent to 6.6 percent. During the period, the Nigerian All Share Index (ASI) plunged 17.82 percent year-on-year.
“In addition to the uneven performance of the index, the PFAs are drawn to debt securities by their predictability, simplicity and ease of management (when compared with equities),” analyst at FbnQuest explained.
It is not difficult to explain changes in valuations when portfolios are predominantly invested in FGN paper.
The latest PenCom data show a total of 8.46 million scheme memberships, implying an average portfolio of N1.03 million, unchanged from December.
This average should decline now that the PFAs are able to market micro pensions for the self-employed and employees of small firms. The regulator has suggested an increase in AUM over an unspecified time frame of N3 trillion.