PFAs look to dollar assets to protect contributors’ fund

As Nigeria’s naira continues its freefall against the dollar, resulting in increased erosion of most investment assets including pension funds, Pension Fund Administrators (PFAs) are looking to dollarised investment windows to hedge against the devaluation of assets.

They are therefore engaging the industry regulator, the National Pension Commission (PenCom), to come up with a workable model that will enable PFAs to invest in dollar-denominated assets outside Nigeria, as provided in the pension law. This is so that in the medium to long term, contributors and retirees could have bolster to accommodate increasing devaluations of the local currency.

Nigeria’s naira last Thursday fell to an all-time low of N552 per dollar at the unofficial market as demand pressure persists, according to data from abokifx.com, which many investors regard as the clearest mirror of the free market rates.

The local currency fell sharply to N525 (from N504) to the dollar on July 28 after the Central Bank of Nigeria (CBN) announced that it would discontinue the sale of dollars to the Bureau De Change (BDC) operators due to foreign exchange infractions.

This fall no doubt has continued to erode the value of contributors and retirees funds, creating increasing concern for managers of the fund.

At the end of July 2021, pension assets under management stood at N12.78 trillion, with 9.45 million contributors registered under the Contributory Pension Scheme (CPS).

Jide Allo, head, Investment Management at Stanbic IBTC Pension Managers Limited, speaking on the future of pension funds amid increasing devaluation of the naira, says, “Devaluation of the naira is indeed a concern for pension administrators”.

Allo says the PFAs are working together with PenCom to develop a framework that will enable pension funds to be invested in dollar-denominated assets within and outside Nigeria.

According to Allo, this will help sustain the value of the pension assets and for the benefit of the contributors.

He says another ‘big’ in the industry expected within the short to medium term is when contributors can be able to use part of their pension assets as equity contribution for a mortgage.

Read also: Stanbic IBTC Pensions seeks fitness, healthy retirement for clients

“All of these are expected to enhance pension assets value for our contributors,” he states.

PenCom in a statement on erosion of pension assets over depreciation of the naira notes that it is the duty of the PFAs to administer the contributions and invest in such a way that will ensure safe and reasonable returns on investment.

According to the commission, the reserved fund created by the PFAs under the Act would compensate for any erosion of the value of the contributions.

Oguche Aguda, CEO of Pension Fund Operators Association of Nigeria (PenOp), says the PFAs have continued to explore innovative ways towards unlocking sustainable investment of the pension assets by accelerating domestic credit to the private sector for infrastructure development and deepening the domestic debt capital markets.

Speaking on their strategic partnership with InfraCredit, he states that as the largest source of long-term investment capital, institutional investors like Pension Funds have an especially important role to play as an effective investment tool to deliver the three pillars of the #SDGs: economic, environmental and social sustainability.

“We strongly believe that the success of this collaboration will advance economic development, sustainability, job creation, and higher living standards in Nigeria,” he says.

The objectives of the CPS is to ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory, States 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 at 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 organizations with less than three employees as well as self-employed persons shall be entitled to participate under the micro pension scheme in accordance with guidelines issued by the commission.