• Thursday, April 18, 2024
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Drop in FX earnings, domestic equities impact pension growth

Drop in FX earnings, domestic equities impact pension growth

…as net asset hits N19.76trn February

The net asset growth in Nigeria’s pensions rose to N19.76 trillion at the end of February 2024, as against N19.53 trillion in January 2024.

This was a N228.94 billion difference between January and February 2024, as against N1.17 trillion growth recorded between December 2023 and January 2024, which analysts say may have been impacted by foreign exchange (FX) earnings by Closed Pension Fund Administrators (CPFAs) and returns on investment in domestic equities.

Read also: CBN rate hikes boost bonds’ allure for pension funds

Analysts at Pension Nigeria said the performance of Pension Fund Administrators (PFAs) in Nigeria for month of February 20024, was red for most PFAs for fund 1 and 2 while Green for most PFAs for Fund 111 and IV

They said, “if you have been monitoring your RSA via your PFAs moble APP or RSA statement, as you should, at least on monthly basis, you could have noticed a drop in the balance of your RSA as at the 29th of February 2004 compared to the balance as at 31 January 2024, if you are in Fund 1 or 2, for most PFAs.”

According to the analysts, the monthly drop in performance for February 2024 is most likely due to the drop in the stock market, which was experienced in February 2024. These affected PFAs differently

“It is necessary to note that the NGX Pension Index and NGX Pension Broad Index both also returned negative for the month of February 2024, where NGX Pension index was -2.82 percent , while NGX Pension Braod index closed at 1.06 percent

“The NGX Pension index tracks the performance of equity securities that meet the profitability and dividend payment criteria, with the total capped at 40 stocks , and The NGX Pension Broad index tracks the performance of equity securities that meet the profitability and dividend payment criteria, with no limit or cap on the number of stocks that can be included”.

CPFA are pension schemes in the private sector existing prior to the introduction of the Contributory Pension Scheme (CPS) in June 2004, which were allowed to continue as CPFAs, subject to guidelines issued by PenCom.

The companies are required to have operated a fully funded existing pension scheme with assets of at least N500 million. A condition precedent on the issuance of a CPFA license is that the company must possess the requisite capacity for the management of pension fund assets and show that it had managed its pension scheme effectively for at least five (5) years prior to the commencement of the CPS.

The CPFAs operate mostly as Defined Benefits Schemes with a guarantee from the sponsor companies over any funding deficit.

The Pension Reform Act, 2014 foreclosed new entrants into the CPFAs. Commencing 1st July, 2014, all new employees of the sponsor companies are required to join the CPS and open Retirement Savings Accounts (RSAs) with a PFA of their choice. Furthermore, an existing employee still reserves the right/option of pulling out of the CPFA to join the CPS.

The Closed Pension Fund Administrators (CPFAs) licensed by PenCom includes Chevron CPFA Limited; and Nestle Nigeria Trust CPFA and Nigeria Agip CPFA Limited.

Others are Progress Trust CPFA Limited; Shell Nigeria Closed Pension Fund Administrator Ltd; and TotalEnergies EP Nigeria CPFA Limited.