Pension asset rises N385bn in July on high yields

Nigeria’s pension industry has grown its assets under management (AUM) to N20.869 trillion at the end of July 2024 as against N20.48 trillion in June 2024, indicating a growth of N385 billion.

The growth, which was a 2.0 percent increase equal to N385 billion was due to increased yields, as well as new registrations into the Contributory Pension Scheme (CPS), according to pension operators.

This is according to data released by the National Pension Commission (PenCom) on the unaudited report on the pension funds industry portfolio for the period ended 31st July 2024.

It shows that allocation to Federal Government Securities continues to top other investment windows as it rose to N13.18 trillion in July from N12.96 in June same year.

Money market instruments followed with N1.99 trillion in July from in June, while Domestic Ordinary shares followed with N1.89 trillion at the end of July.

The data further reveals an increase in the number of registered contributors, which increased to 10, 419,520 as against 10, 381, 019 in June 2024.

Read also: Here’s how pension fund assets are secured

In the month of June, pension assets rose by N257 billion in one month, hitting N20.5 trillion at the end of June 2024.

The rise marks the second consecutive m/m growth in total assets under management (AUM) of the regulated pension industry following a brief pause in April.

Among the major asset categories, treasury bills registered the highest gain in June, rising by 8 percent m/m to N400 billion.

Treasury instruments have benefited from the prevailing elevated yield environment due to the CBN’s restrictive monetary stance and tight market liquidity, the data said.

On a year-on-year basis, the total AUM expanded by 22 percent.

According to the analysis, pension fund holdings in domestic equities continue to rise. In absolute terms, the total value of domestic equities increased by 4 percent m/m to N2.0 trillion in June. As a result, its contribution to the total AUM increased from 9 percent to 10 percent.

The data said Federal Government bonds, which make up more than half (60 percent) of overall pension assets, amounted to N12.2 trillion in June, implying an increase of almost N141 billion relative to the previous month.

The sustained interest of pension managers in bond securities can be attributed to the Monetary Policy’s (MPC’s) hawkish posture and the Debt Management Office’s (DMO’s) increased issuance of FGN paper.

Looking ahead, we expect PFAs’ to increase their allocation to government securities, driven by higher yields due to the elevated interest rate environment, sustained by the MPC’s recent modest hike rate hike of c.50bps.

“Our expectation is also supported by the increased borrowing needs of the federal government following the legislative amendment of the 2024 budget, which raised the budget from N28.7 trillion to N35.5 trillion”, analysts say.

The PenCom data in June shows about 10.4 million total scheme memberships, implying an average value of N1.97m per RSA account holder, higher than the N1.68 million registered in the year-earlier period.

On a standardised basis, the total pension assets account for only 8.9 percent of Nigeria’s FY’23 GDP, underscoring the low level of pension penetration in the country.

The objectives of CPS are to ensure that every person who worked in either the public Service of the Federation, Federal Capital Territory, State and Local government or the Private Sector receives his retirement benefits as and when due; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

The provisions of this Act shall apply to any employment in the public service of the Federation, the Public Service of the Federal Capital Territory, the Public Service of the state, the public service of the local governments and the private sector.

In the case of the Private Sector, the Scheme shall apply to employees who are in the employment of an organization in which there are three or more employees.

Notwithstanding the provision of subsection (2) of this section, employees of an organization with less than three employees as well as self-employed persons shall be entitled to participate under the scheme in accordance with guidelines issued by the National Pension Commission.