A Glimpse into the Pension Industry


Friday, November 19, 2021 / 10:02 AM / by Coronation Research / Header Image Credit: SHRM

According to data from Nigeria's National Pension Commission (PENCOM) September 2021 report, the pension industry's assets under management (AUM) rose by 0.8% m/m and 12.4% y/y to N13.0trn (USD53.9bn) as at end-September. Pension fund assets were mainly invested in FGN debt securities (FGN bonds, NTBs, agency bonds, sukuk, green bonds), which accounted for 63.2% of the total AUM, compared with 65.3% recorded in the corresponding period of 2020. As at end-September, total FGN debt securities held by Pension Fund Administrators (PFAs) declined by -0.8% m/m but increased 8.9% y/y to N8.2trn.


FGN bonds held by PFAs increased by 0.7% m/m and 17.9% y/y to N7.8trn in September 2021 and accounted for 60.3% of total AUM. This is compared with 57.4% of total AUM recorded in the corresponding period of 2020. The FGN's overall deficit financing in 2021 had a visible impact on the fixed income market. As expected, the FGN's proposed 2022 budget of N16.4trn will include deficit financing of N6.3trn. We note that N2.5trn has been set as the domestic borrowing target.


NTBs held by PFAs declined by -63.6% y/y and -30.9% m/m to N283.9bn in September 2021. This represents 2.2% of the total AUM. In the corresponding period of 2020, NTBs accounted for 6.7% of total AUM. However, we noticed a significant increase of 286% y/y in the average NTB yield at end-September 2021 on the back of increased FGN domestic borrowing.


Based on the PENCOM report, state government securities held by PFAs increased by 0.5% m/m but experienced a -41.1% y/y decline to N88.5bn. This asset class accounted for 0.7% of total AUM, compared with its share of 1.3% in September 2020.


Meanwhile, domestic equity holdings rose by 3.2% m/m and 49.1% y/y to N874bn. This asset class accounted for 6.7% of total AUM. This implies a slight shift towards domestic equities by PFAs. In the same period, the all-share index (ASI) increased by 50% y/y.


There was a 0.7% m/m and a 5.7% y/y increase in the funds allocated to infrastructure, real estate, and real estate investment trusts (REITs). Collectively, these funds accounted for 2.4% of the total AUM during the period under review. Typically, investments into these asset classes are hampered by the shortage of eligible instruments.


Last month, PENCOM introduced a non-interest fund (Fund VI) that complies with Islamic Commercial Jurisprudence provisions. Accordingly, all PFAs must create and maintain the Non-Interest Fund (Fund VI) for interested Retirement Savings Account (RSA) holders. The Fund VI will be separated into two funds for active RSA holders and retirees, respectively


Based on a separate report released by PENCOM, the pension industry recorded a growth of 0.9% q/q to 9.44 million in schemes membership in Q2 2021. The growth in schemes membership was driven by the increase in the RSA scheme on the back of increased compliance.


In Q2 2021, the PFAs paid N74.1bn retirement benefits to pensioners under the Contributory Pension Scheme (CPS). This is an increase of 9.9% or N6.7bn from the retirement benefits of N67.4bn paid in Q1 2021. Further analysis of the data revealed that PENCOM approved 4,438 pension withdrawal requests, which comprised of 1,406 public (FGN & States) and 3,032 private sector retirees. As a result, these retirees received a total of N13.1bn.


Meanwhile, the commission granted approval to 1,708 retirees under the retiree life annuity for Q2 2021. A total of N4.6bn was approved for payment to the retirees. In contrast, the sum of N12.3bn was approved for payment to 14 retiree life annuity providers as a premium in return for total monthly and quarterly annuities of N122.5m. In addition, approvals were granted for payment of death benefits amounting to N6.2bn to the legal beneficiaries and administrator of 1,209 deceased employees and retirees. This comprised of 835 public (FGN & State) and 374 private-sector employees and retirees.


We note that in April 2021, PENCOM approved a minimum regulatory capital requirement for PFAs of N5bn from the initial N1bn, with a 12-month transition period. However, according to local news media, only 50% of the 22 PFAs have met the threshold with barely six months to the deadline (April 2022) given to the PFAs.


The pension industry should consider building on its successes and developing new capabilities to support increased diversification of pension fund assets, expand coverage to states and the informal sector and enhance public awareness campaign efforts

Proshare Nigeria Pvt. Ltd.

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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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