The Nigerian pension industry’s net assets will hit the N20 trillion mark by 2023, recording an average growth rate of 18 per cent, credit rating agency, Agusto & Co has said.
The firm which disclosed this in its latest report added that, it equally expects an improvement in the performance of the industry as operators compete for higher return on investments, improved customer service and use of technology for operational efficiency.
According to Agusto & Co, the 2004 pension reform redefined retirement planning in Nigeria and drove a significant growth in the number of enrollees and the size of managed assets in the industry as it evolved from one with predominantly public sector participants running a defined benefit scheme to a mandatory defined contribution system for all government and private sector employees.
As at December 31, 2020, the industry’s assets under management (AuM) stood at N12.3 trillion ($32.3 billion). This represented a 20.6 per cent growth over the N10.2 trillion reported at the end of 2019 and an 18.3 per cent compound annual growth rate over the last five years.
The credit rating agency attributed the growth in the 2021 report to the industry’s managed assets which has been largely driven by investment returns and additional contributions, to a lesser extent.
“In particular, over the last five years, the industry’s annual contributions have averaged N699 billion while withdrawals have averaged about N341 billion, translating to a net annual contribution of N347 billion and accounting for 26.6 per cent of the AuM growth over the period. The remaining 73.4 per cent of average growth was attributable to investment returns earned on the portfolios.
“In addition, with the transfer window which opened on 16 November 2020 to allow pension retirement saving account (RSA) holders switch Pension Fund Administrators (PFAs) once a year at most and at no cost.
“As at the end of the second quarter of 2021; less than nine months after the transfer window was opened, over 25,600 RSA holders with pension assets over N102.5 billion were reported to have changed PFAs. We expect that in the subsequent quarters of 2021, the number of transfers will rise further as more enrollees become aware of the transfer process.
Furthermore, we expect competition to intensify in the industry as PFAs seek to attract new enrollees while retaining existing ones. Nonetheless, we expect the industry’s structure to remain relatively unchanged in the short-to-medium term with the top five players leading on the back of good market presence and strong brand recognition.
“Going forward, Agusto & Co. envisages continuous growth in pension assets supported by increased participation on the back of the country’s favourable demography of young adults and rising yields in money market instruments.
“We expect an improvement in the performance of the industry as operators compete for higher return on investments, improved customer service and use of technology for operational efficiency. Therefore, Agusto & Co. projects that the industry’s net assets will hit the N20 trillion mark by 2023, recording an average growth rate of 18 per cent (in line with the five-year average growth rate of 18 per cent) in the next three years”, the report stated.
It will be recalled that the National Pension Commission (PenCom) in Lagos, recently unveiled five strategic focus areas with the mandate of ensuring measurable impact on the economy and positioning the industry for sustainable growth in the post-COVID-19 era.
According to the Commission, the five strategic focus areas which are aimed at maintaining momentum on initiatives are: Increased portfolio diversification of pension fund investments, sustainable growth of the pension industry through expansion of coverage of the Contributory Pension Scheme (CPS) with special emphasis on States and the informal sector, enhanced pursuit of the resolution of the pension liabilities of the Federal Government under the Contributory Pension Scheme, public awareness campaign efforts and; the vigorous improvement of customer service delivery.
The Director General, PenCom, Aisha Dahir-Umar, said the focus areas highlighted in the plan will vigorously and steadily pursue the attainment of the Commission’s objectives.
According to Dahir-Umar, with the number of registered contributors under the CPS standing at 9.38 million while pension fund assets accumulated to N12.66 trillion as at 30 June 2021, indicates that the implementation of the scheme remains on course.
She added that the maintenance of a consistent growth trajectory continues to justify the Commission’s overriding investment philosophy of ensuring the safety of pension fund assets.
She further emphasised the Commission places huge importance on the sustainable growth of the pension industry through the expansion of coverage of the CPS, adding that the registration of micro pension participants and employees of the States and Local Governments have been prioritised.
In addition, the Commission has sustained drive to increase participation of the Organised Private Sector (OPS) through various initiatives and enforcement mechanisms, to the end that the industry continually expands, she stated.
Speaking on increased portfolio diversification of pension fund investments, the Head, Research and Strategy Management, PenCom, Ibrahim Kangiwa, disclosed that the current profile of pension fund investment portfolio in Nigeria represents about 70 per cent uptake in Federal Government of Nigeria (FGN) Securities, noting that PenCom intends to change this through diversification of the portfolio.
Kangiwa said the pension fund investments have remained largely in favour of FGN Securities due to the paucity of infrastructural or alternative asset products in the Nigerian financial markets.
He, however, stated that the Commission is determined to revise this by emphatically supporting an investment climate that mitigates single obligor risks and hedges pension fund assets against inflation.
“The focus is to have a more measurable impact on the Nigerian economy through diversified and increased investments of pension funds in infrastructure, real estate and other alternative assets.”
He further revealed that the Commission is making efforts to increase uptake of pension funds’ investments via engagement with relevant stakeholders in a bid to promote safe investment in infrastructure development; collaborations with relevant government agencies and the Organised Private Sector for viable public private partnership arrangements in infrastructure for pension fund investment.
He added that it was in view of the objective that the Commission recently establishment the non-Interest fund (Fund VI) among the fund types to be managed by PFAs. “It required the PFAs to invest Fund VI assets in ethical and non-interest compliant instruments in line with Islamic Financial Jurisprudence.”