News & Insights

Nigeria’s Growing Pension Assets

Nigeria’s Growing Pension Assets

The rising acceptance of micro pension scheme being driven by the National Pension Commission has led to steady rise in pension assets, writes Hamid Ayodeji

For many people, the future remains largely uncertain. But for those who have planned for it through the right investment and savings, it is always bright.
And securing one’s future requires taking advantage of the opportunities that abound in the pension industry, which many people have seen as the last hope for retirees. The pension industry, tipped as one of the largest investment sector in the world, is gaining the attention of everyone- employees, employers and self-employed.

At the end of 2018, it was reported that the Global Pension Industry had an estimated asset under management (AuM) of $41.4 trillion which represents 53.9 per cent of global assets under management. This significant asset size reflects the growing institutionalisation of retirement planning across the world. For Nigeria, the pension industry has in past few years been dominated by high investment returns, a marked departure from previous trends where net inflows accounted for the majority of the industry’s growth.

The National Pension Commission (PenCom) exists for the effective regulation and supervision of the Nigerian pension industry to ensure that retirement benefits are paid as and when due.

In the first quarter 2019, the growth of Retirement Savings Accounts (RSAs) holders under the Contributory Pension Scheme led to a N29 billion increase in pension assets. This has been attributed to salient policies being implemented by the Acting Director-General of PenCom, Mrs. Aisha Dahir-Umar. For instance, data obtained from the Commission shows again that AuM in the second quarter of 2019 increased by N21 billion.

According to the monthly report on summary of pension fund assets and Retirement Saving Account (RSA) registration published on its website, pension fund assets rose from N9.12 trillion in April 2019 to N9.33 trillion in June 2019, indicating a N21 billion inflow.
A breakdown showed a rise of N18 billion in total RSA fund as it moved from N6.94 in April to N7.12 in June, whilst investment in federal government securities fell by N6 billion, falling from N6.55 trillion in April to N6.49 in June and RSA Fund 11, which has continued to attract more invested moved from N4.02 trillion to N4.10 trillion, increasing by N8 billion.

PenCom regulates and supervises the licensed pension fund operators while Pension Fund Administrators (PFAs) manage and invest the fund for contributors and retirees under the Contributory Pension Scheme (CPS).
Thus, the fund had grown to N8.74trillion in January; N8.91trillion in February; N9.03 trillion in March.; N9.12 trillion in April, N9.22 trillion in May and N9.33 trillion in June, which translates to N686 billion growth in six months. The report further showed that a major chunk of N7.21 trillion out of the N9.33 trillion recorded in June is from RSA holders.

A further breakdown of the June report under review showed that out of the RSAs’ fund of N7.21 trillion, retirees fund, categorised under Fund IV is N751.73 billion while contributors, categorised under Fund I, Fund II and Fund III, own N6.51 trillion.

Other contributions to the fund include N958.2 billion from existing schemes and N1.24 trillion from Closed Pension Fund Administrators (CPFAs).

The PFAs, the report added, invested a major chunk of the fund, totaling of N6.48 trillion into Federal Government Securities out of the N9.33 trillion in the period under review. Out of the N6.48 trillion invested by the PFAs, N4.43 trillion was invested in Federal Government Bonds; N1.93 trillion in Treasury Bills; N11 billion in Agency Bonds (NMRC and FMBN); N86 billion in Sukuk Bonds; N12 billion in Green Bonds and N129 billion in state government Securities.

The PFAs, however, invested N505.82 billion in corporate debt, while N1.04 trillion was invested in Local Money Market Securities and N23 billion in Mutual Funds.
Dahir-Umar attributed the accumulation successes achieved since the inception of implementation of the CPS to the Commission’s esteemed contributors.
“The achievements recorded by the Commission in the last 15 years would not have been possible without the support and understanding of all stakeholders, especially you, our esteemed contributors who are about to retiree. “I, therefore, urge you to contribute positively towards the success of the Pension Reform Programme,” she said.

Financial analysts expect the Industry’s growth to exceed 14 per cent in 2019 supported by an improved macroeconomic environment that would drive increased contribution. Also, investment returns are likely to improve in 2019, largely driven by higher interest rates, which we expect to spike in the second half of 2019.
Analysts also view positively the commencement of the Micro Pension Scheme (MPS), which is expected to increase the industry coverage ratio and help ramp up AuM.

Sustaining Enlightenment Campaigns

PenCom, under its Acting Director-General, is carrying out massive campaigns to enlighten the people at all cadres of the society even at the grassroots, to embrace CPS at all stages of their business growth. The campaigns are going on televisions, radio, social media, online publications and other media platforms to get more people into the pension scheme and bring them to the financial services net.

The campaigns are ongoing in the markets, shopping malls, private and public sectors, motor parks to ensure that all Nigerians within pensionable age embrace the CPS and secure their future, financially.

The scheme covers farmers, teachers, hair dressing saloon owners, petty traders, musician, actors/ actresses, shoe shiners, bricklayers, among others.
PenCom said once a person reaches the age of 18, such person qualifies and can contribute based on his income. The contributions can be daily, weekly, monthly, and contributions can be made through the mobile phones.

Besides, should anything happen to a contributor’s business, such person can get 40 per cent of the total contributions back to begin a new life. Also, in case of death, the contributor’s next of kin will be paid the total balance left in the account of the contributor. The Commission also said that Pension Fund Administrators (PFAs) are registering people that want to join the scheme at zero cost.

Drivers of Pension Assets Growth

PenCom has under current management led by Dahir-Umar, achieved visible milestones as seen in the geometric growth in pension contributions, which is projected to hit N10 trillion by year-end and N15.1 trillion by 2023.

PenCom introduced an Enhanced Contributor Registration System (ECRS) meant to solve the challenges faced with the existing Contributor Registration System (CRS). Aside helping to lift contributors’ confidence in the industry and bring in more people into the financial system, the enhanced application is expected to open up transfer window for RSA holders to switch PFAs.

“Electronic submission of employer code requests by Pension Fund Administrators (PFAs) on employers and the full automation of the process of issuing employer codes. Updates and edits of contributors’ information on the National Databank maintained by the National Pension Commission by the PFAs. The deployment of the ECRS is a major step towards the introduction of the transfer widow, which will enable contributors change to the PFAs of their choice, in line with Section 13 of the Pension Reform Act (PRA) 2014,” it said.

Aside the ECRS, PenCom under Dahir-Umar, unveiled the Micro Pension Plan (MPP) that allows the informal sector contributors under the CPS to withdraw at least 40 per cent of the contributions in their RSA. The extension of the CPS to the informal sector and the flexibility of its operation is one of the incentives expected to encourage participation and growth of the pension industry.

According to her, Section 2(3) of the Pension Reform Act, 2014 (PRA 2014) provides that employees of organisations with less than three employees as well as the self-employed persons shall be entitled to participate in the CPS in accordance with guidelines issued by the Commission.

Majority of these categories of persons are found in the informal sector and have generally low and irregular incomes. The MPP has enabled artisans such as photographers, caterers, hairdressers, motorcycle service operators, tailors, fashion designers, carpenters, painters among others to embrace CPS and protect their future and businesses.

“As you are aware, the informal sector workers constitute the larger percentage of the working population in the country, there is therefore no doubt that robust participation would result to exponential growth of the Pension funds which would consequently, provide funding for allowable and relevant investments that would impact positively on the economy. “The MPP would contribute immensely to archiving the Pension Industry’s strategic objective of covering 30 per cent of the working population in Nigeria under the CPS by the end of 2024,” the PenCom boss said.

Dahir-Umar had explained that in order to sustain the tempo and momentum achieved from the MPP launch, the Commission is embarking on sensitization events in the six geo-political zones of the country. Continuing, she said: “The low income earners, the high income earners and the SMEs. Each of these categories is going to be targeted with appropriate MPP products and sensitization programmes that meet their peculiarities. As earlier mentioned, the Commission is engaging relevant Unions and Associations in its enlightenment drive. Some of these Unions and Associations cover the artisans and grassroots operators.

“The Commission is aware that public enlightenment and pension education are key success factors and as such is working assiduously with the Pension Operators Association (PENOP) to ensure effective coverage.”

Analysts said achieving the Central Bank of Nigeria’s (CBN’s) financial inclusion mandate of having 80 per cent of adult population into the financial system by 2020 requires the backing of key stakeholders like PenCom. The PenCom is, through the RSA remittances, helping to deepen the pension industry, financial system and economy.

PenCom said it has enrolled more than 8.5 million people into the CPS since its inception 15 years ago.
The Head of Communication Department of PenCom, Peter Aghahowa, said the scheme introduced in 2004 by the federal government was a process where certain percentage of enrollees’ salaries was saved on monthly basis in a pool with the employers also contributing.

The scheme had PenCom as the regulatory body with PFAs working in their behest. Aghahowa said the scheme had made the life of retirees much easier, unlike the defined benefits scheme which it replaced. He said the Commission will continue to protect contributors’ funds and drive compliance by private sector employers through public awareness campaigns and engagement.

This initiative, he added, is aimed at educating employees/employers and expanding the coverage of the Contributory Pension Scheme. According to him, the Commission also monitors compliance through onsite inspections to ensure that employees of private sector organisations open Retirement Savings Accounts and pension contributions are remitted as and when due.