FX earnings, domestic equities drive growth in pension assets

The nation’s pension sector in January 2024 saw a record high of N1.17 trillion growth in pension assets to N19.53 trillion, from N18.36 trillion in December 2023, following growth in foreign exchange (FX) earnings by Closed Pension Fund Administrators (CPFAs) and returns on investment in domestic equities.

Closed PFAs, which are existing schemes before the establishment of the Contributory Pension Scheme (CPS) in 2004 made earnings largely from dollar denominated investments to N552.18 billion in January 2024.

Ibrahim Buwai, spokesperson at the National Pension Commission (PenCom) who confirmed the significant increase in pension assets January said “the growth was driven by growth in foreign exchange rate”.

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Oguche Agudah, chief executive officer, Pension Fund Operators Association of Nigeria (PenOp) said on Wednesday that pension assets grew by N1.75 trillion between December 2023 and January 2024, at a rate of 6.4 percent in the space of one month.

Oguche said several factors contributed to this growth, pointing domestic ordinary shares, foreign ordinary shares, government debt securities, corporate debt and cash held by pension funds accounted for almost 93 percent of this growth.

He noted that the value of ordinary shares held by pension funds surged by over N360 billion between December and January. “This was driven by a bull run in the NGX as the All share Index reached another milestone.”

“Further highlighting this, he noted that the increase in allocation to domestic listed equities by the pension funds from 8.56 percent to 9.89 percent impacted total assets.”

Oguche said foreign ordinary shares played a role in the surge, stating that the devaluation of the Naira meant the revaluation of foreign assets upwards, leading to a growth in value of foreign assets held by CPFAs by over N118 billion

He further stated also that despite the performance of listed equities (both foreign and domestic), fixed income securities also played a significant part in this surge.

“ Both federal government securities and corporate debt securities increased by N219 billion and N291 billion respectively. This growth in asset value is as a result of a push by the Nigerian government to mop up liquidity, offering high yields on government securities as it seeks to combat inflation.”

The Unaudited Report on Pension Funds Industry Portfolio for the period ended 31 January 2024 shows that CPFAs grew its assets from N1.944 trillion in December 2023 to N2.496 trillion in January 2024, showing an increase of N552.18 billion.

This is as other existing schemes grew from N2.10 trillion in December 2023 to N2.21 trillion in January 2024, an increase of N104.78 billion.

PenCom said the total net pension asset in United States Dollars is valued at $14.39 billion at an exchange rate of N1, 356 to a dollar.

The data further shows that when compared to previous months, the increase in net pension assets in January is the biggest in years. The total pension asset growth was N430 billion in December, N270 billion in November; N310 billion in October, and N60 billion in September.

The PenCom data further shows that the number of registered contributors increased to 10.23 million in January 2024 from 10.19 in December 2023.

Oguche Agudah providing more insight said, cash and assets that can be easily converted to cash, held by pension assets grew by over N100 billion in the month of January. A growth rate of over 45 percent from the previous month, signifying the increasing attractiveness of rates offered by banks to depositors.”

“In summary, growth was being driven by investment performance. As pension funds take advantage of the high yield regime, offered by the Central Bank and also the impressive performance of the local stock exchange and the depreciation in the value of the Naira versus the dollar, he said.

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.

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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.