Amongst other factors, analyst stress out low compliance to pension scheme and need for still shallow retail banking activity in the banking sector as major factors causing slow growth in the pension management asset contribution to GDP.
Despite growth, Asset under management (AUM) accounts for just 7.3 percent of 2017 Nigeria GDP of $375.8 billion, running well behind many emerging markets.
According to data released on Thursday by the National Pension Commission, AUM of the regulated pension industry increased by 15.8% year on year in October to N8.45trn (US$27.5bn).
Growth in the AUM of the pension industry y/y may look inspiring, however when compared to some African countries like South Africa, Nigeria still lags.
According to report by FBNQuest, “The South African industry dates from 1996 and its AUM represent more than 70% of GDP. The industry in Nigeria is in need of several new products and innovative leadership”.
BusinessDay analysis of the recently released PenCom data show a total of 8.41 million scheme memberships, implying an average portfolio of N1 million. This is a marginal decline by 1.69 percent from 8.27 million scheme membership in September.
Tajudeen Ibrahim, Head of Research, Chapel Hill explains, “to drive AUM is to increase the compliance of those that are not yet compliant to the pension scheme”.
“Another major driver is to adopt a micro pension plan which will capture more contributors’ especially self-employed individuals and small businesses” Tajudeen concluded.
As revealed by report, Federal Government securities accounted for about 71.7 percent of total RSA fund under management with more concentration in FGN bonds and Treasury bills. Year on year (y/y) industry holdings of FGN paper declined marginally by 0.4 percent from 72.1 percent accounted for in October 2017.
A total of N4.34 trillion of total pension funds was invested in FGN bonds during the period. This was however a marginal increase compared to N4.33 trillion accounted for in the previous month. However, y/y the pension industry has recorded a growth in FGN bonds holding by 8 percent from N4.01 trillion.
BusinessDay analysis shows that the average growth rate of AUM in the pension industry is just about 1 percent.
The share of AUM held in domestic equities has declined over 12 months from 8.8% to 7.1%. The NSE All Share Index also fell by 11.5% over the same period.
According to Pencom regulations which require that retirement savings account holders under the age of 49 must have at least 10 percent exposure to equities by end of 2018, PFAs may therefore have to cover some ground to meet requirement.
From 01January the PFAs have been able to market micro pensions for the self-employed and employees of small firms. Investors will be able to withdraw up to 40% of their contributions before their retirement.
