Nigeria’s expected pension sector penetration and growth will depend on strong economic growth and job creation, analysts at FBN Quest have said.
According to them, while awareness creation that brings to the fore the benefits of retirement planning is essential, strong economic growth is a key catalyst for employment and pension growth.
They also noted that Nigeria’s low level of pension coverage is due to a number of factors, including a high level of informal employment, low levels of awareness, and a high rate of unemployment estimated at 33.3 percent based on 2020 data from the Nigeria Bureau of Statistics (NBS).
Data from the National Pension Commission (PenCom) show that total assets under management of the regulated pension industry increased by 1.2 percent month-on-month (m/m) and 12.2 percent year-on-year (y/y) to N15.4 trillion as at February 2023.
This represents a healthy increase of N1.7 trillion compared with the previous year. However, despite the commendable increase, Nigeria’s pension industry is still underpenetrated with pension assets to GDP ratio of just 7.8 percent of 2022 GDP, the analysts said.
“To put the ratio in perspective, Nigeria’s ratio compares unfavourably with the 29.4 percent (2020) average for a group of 78 countries based on World Bank data.”
FBN Quest notes that the underpenetrated state of the industry is also reflected in the low subscription rate of the population to retirement savings accounts (RSA).
Total RSA membership as at the end February amounted to 9.9 million representing 8.2 percent of the working-age population. The ratio is slightly higher as a proportion of the labour force at around 14 percent.
In contrast, the percentages of the global working-age population and labour force that are covered by mandatory or voluntary schemes are 49.6 percent and 69.3 percent respectively, according to the International Labour Organisation.
Read also: Low coverage, access, literacy hold Nigeria’s pension system down
“Although the introduction of the Micro Pension Scheme in Nigeria in 2019 was aimed at providing pension coverage to individuals in the informal sector of the economy, there is still a significant distance to travel in achieving this goal.
They said going forward more awareness must be created around the immense benefits of pension schemes post-retirement, while it is also essential to drive policies along this line.
“It is essential for economic policymakers to implement policies that can promote and stimulate economic growth from the current low single-digit levels towards potential growth rates of greater than 6 percent, they analysts said. The rates of contributions to be made under the scheme by both the employer and employee are a minimum of 10 percent and 8 percent respectively.
The key objectives of the Pension Reform 2004 as amended in 2014, are to ensure that contributors receive their benefits as and when due and to assist imprudent individuals to save in order to cater for their livelihood during old age.
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