The assets under management (AUM) of Nigeria’s regulated pension industry jumped 165 percent to an all-time high of N9.33 trillion in June 2019, from N3.52 trillion in the second quarter of 2013, driven by a surge in compliance and contribution level.
However, pension assets have only slightly surpassed 2013 levels in dollar terms as they are up just 15 percent to $25.5 billion ($1/N365) today from $22 billion ($1/N160) in 2013.
According to data by the National Pension Commission (PenCom) analysed by BusinessDay, the nominal growth in the assets of PFAs translated to an increase of N5.81 trillion in the space of six years.
“The compliance level has increased and also the number of people contributing to pension funds has also increased,” Dayo Obisan, president, Fund Managers Association of Nigeria (FMAN), said.
Obisan noted that the increase in contributors’ income may have also driven the asset managed by the PFAs to its current levels.
Pension funds assets are defined as assets bought with the contributions to a pension plan for the exclusive purpose of financing pension plan benefits. The pension fund is a pool of assets forming an independent legal entity.
As at June 30, 2019, the asset managed by PFAs was up 13.3 percent, year-on-year, from N8.23 trillion a year ago to N9.33 trillion in the second quarter of 2019.
On monthly comparison, the AUM of the regulated pension industry increased marginally by 1.1 percent between May and June 2019.
BusinessDay analysis of the recently released PenCom data shows there were a total of 8.68 million contributors as at end-May, implying an average portfolio size of N1.06m.
Growth in the AUM of the pension industry in the period under review may look inspiring, however when compared to some African countries like South Africa and Kenya, Nigeria still lags.
Despite the solid growth, asset under management accounted for just 8 percent of 2018 Nigeria Gross Domestic Product (GDP) of $375.8 billion, running behind many emerging markets.
According to data by investment firm FBNQuest, the South African industry dates from 1996 and its AUM represents more than 70 percent of GDP, while the latest figure for Kenya is 15 percent. “The industry in Nigeria is in need of several new products and innovative leadership,” FNBQuest said.
BusinessDay’s analysis of other countries’ AUM revealed that Namibia as at December 2017 reported total asset of $10.8 billion, lunched in 1965, Kenya had AUM of $10.4 billion, Egypt ($3.4 billion) and Ghana recorded $1.7 billion in the same year.
Set up in 2004, Nigerian pension industry as at June 2019, had $25.5 billion (N9.33trillion) as total assets under management.
The 15-year-old PenCom was established to regulate, supervise and ensure the effective administration of pensions, including the Nigeria Social Insurance Trust Fund, and to issue guidelines on pension fund investments.
The role of PenCom also includes ensuring that eligible employers comply with mandatory contributions to retirement savings accounts set up by the Pension Reform Act of 2004.
Checks by BusinessDay revealed that only about 10 percent of the working population in Africa’s most populous nation have keyed into the contributory pension scheme.
However the industry regulator has projected that by the end of 2019, the pension industry will have about 20 million contributors delivering measurable impact on the Economy.
As a result, PenCom revealed that Nigeria’s PFAs are free to market micro pensions for the self-employed and employees of small firms.
“The micro pension plan will capture more contributors, especially self-employed individuals and small businesses,” Tajudeen Ibrahim Head of Research at Chapel Hill Denham Securities, said.
As revealed by PenCom’s second quarter report, Federal Government securities accounted for 69.55percent of the total RSA fund under management.
This translated to a total of N6.48 trillion of pension funds that was invested in government securities during the first six months of 2019 with more concentration in FGN bonds and Treasury Bills, and represented a marginal decline compared to the N6.6 trillion accounted for in the previous month.
“Demand from the PFAs is a core element of the DMO’s successful debt strategy, notably for FGN bonds. For different reasons, however, their exposure to other asset classes such as real estate, infrastructure funds and private equity remains small,” FBNQuest said.
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