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Agusto & Co Forecasts the Nigerian Pension Assets to Hit ₦20 Trillion Mark by 2023

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The Nigerian Pension Industry (‘the Industry’) has 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. The 2004 pension reform redefined retirement planning in Nigeria and drove a significant growth in the number of enrolees and the size of managed assets in the Industry.

As at 31 December 2020, the Nigerian Pension Industry’s assets under management (AuM) stood at ₦12.3 trillion (or $32.3 billion[1]). This represented a 20.6% growth over the ₦10.2 trillion reported at the end of 2019 and an 18.3% compound annual growth rate over the last five years. According to Agusto & Co.’s newly released 2021 Pension Industry report, the growth in the Industry’s managed assets 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 ₦699 billion while withdrawals have averaged about ₦341 billion, translating to a net annual contribution of ₦347 billion and accounting for 26.6% of the Industry’s AuM growth over the period. The remaining 73.4% of average growth was attributable to investment returns earned on the portfolios.

The pension transfer window 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 ₦102.5 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 enrolees become aware of the transfer process. In addition, we expect competition to intensify in the pension 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. In addition, 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 ₦20 trillion mark by 2023, recording an average growth rate of 18% (in line with the five year average growth rate of 18%) in the next three years leading to 2023.

Some Highlights:

  1. PENSION ASSETS STOOD AT ₦12.3TRN AS AT THE END OF 2020
  2. THE INDUSTRY RECORDED AN 18.3% CAGR OVER THE LAST 5 YEARS
  3. AGUSTO & Co. PROJECTS THAT PENSION ASSETS WILL GROW BY AN AVERAGE OF 18% OVER THE NEXT 3 YEARS TO HIT THE ₦20 TRILLION MARK BY 2023
  4. OVER 25,600 RSA HOLDERS WITH PENSION ASSETS OVER ₦102.5 BILLION HAD CHANGED THEIR PFA AS AT THE END OF JUNE 2021.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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You Can Now Use Your Pension for Mortgage; PenCom Tells Nigerian Workers

Nigerian workers can now use 25 percent of their Retirement Savings Account (RSA) as equity contribution for mortgages. 

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Nigeria Mortgage Refinance Company NMRC

Nigerian workers can now use 25 percent of their Retirement Savings Account (RSA) as equity contribution for mortgages. 

The National Pension Commission (PenCom) made the announcement in a statement made available to the press.

According to the commission, Nigerian workers can use 25 percent of their Retirement Savings Account as equity contribution toward their mortgage. The commission explained that the approval is in line with Section 89 Sub Section 2 of the Pension Reform Act, 2014. 

Both salaried employees and self-employed persons can take advantage of the new service albeit after they have met certain conditions. 

Part of the conditions require the applicant (RSA Holder) to be in active employment and must have an offer letter for the property which must be duly signed by the property owner and verified by the mortgage lender.  

The Retirement Savings Account (RSA) of the applicant must also be active for at least five years with both the employer and employee making the mandatory contributions. 

While any RSA holders with less than three years to retirement are not eligible, couples who are both RSA holders can submit a joint application subject that both individuals satisfy all the requirements. 

Meanwhile, Investors King learnt that the news generated mixed feelings among the concerned workers. A number of people commended the new development while some pick hole in it.

Abiodun Bamiduro who commented on the official twitter handle of PenCom (@PenComNig)  said ”  This is long overdue. Better late than never though. Can you also look into the need of RSA holders who are over 50 years of age to access part of their balance for investment in Agriculture before they retire. Starting after retirement makes it more complicated”. Abiodun concluded.

Another commentator, David Ezennia said “Long awaited good news for developers in the real estate sector”. An elated commentator who goes by the name Proudly Nigeria said ” From Monday, I will storm my PFA to inform them and also meet with my mortgage banker to fashion out how to access the fund”. 

The National Pension Commission otherwise known as PenCom was established by the Pension Reform Act 2004, to regulate, supervise and ensure the effective administration of pension matters in Nigeria. PenCom gives licence to Pension Fund Administrators (PFAs) and also oversees pension policy guidelines to protect the interest of the Nigerian workers. 

 

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Pension Schemes Brace for Dramatic Inflation Increases

Almost six in ten (57%) pension fund managers are predicting further dramatic increases in inflation over the next 12 months

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New research from Ortec Finance, the leading global provider of risk and return management solutions for pension funds and other institutions, reveals almost six in ten (57%) pension fund managers are predicting further dramatic increases in inflation over the next 12 months. A further quarter (26%) predict a slight increase over the next 12 months.

The international study with pension fund managers responsible for a collective $1.946 trillion assets under management reveals that they have already taken steps to protect their schemes against inflation by increasing allocations to specific asset classes. Over half (56%) have switched investments to commodities, inflation linked bonds (56%) and infrastructure (51%).

The action taken means almost all (98%) pension fund managers interviewed in the US, UK, Australia, Canada, the Netherlands, Switzerland and the Nordics believe their scheme is already well hedged against inflation with over half (54%) saying they are ‘very well hedged’ against this risk.

Pension fund managers say schemes are set to further change allocations in the year ahead to continue to help hedge against inflation. Over half (53%) plan to increase allocations to inflation linked bonds while nearly half (49%) will switch to commodities and 49% to real estate investment trusts (REITs) over the next 12 months.

The table below shows action taken by pension fund managers on asset allocation to hedge against inflation over the past 12 months and plans for the next 12 months.

ASSET CLASS PERCENTAGE THAT HAS ALREADY INCREASED ALLOCATION TO HEDGE AGAINST INFLATION PERCENTAGE THAT PLAN TO INCREASE ALLOCATION IN THE NEXT 12 MONTHS TO HEDGE AGAINST INFLATION
Gold 29% 24%
Commodities 56% 49%
Equities 40% 43%
Inflation linked bonds 56% 53%
Infrastructure 51% 44%
Real Estate Investment Trusts (REITs) 45% 49%
Direct investment into real estate 20% 28%

Marnix Engels, Managing Director, Pension Strategy, Ortec Finance said “It’s impressive to see how confident pension fund managers are about the impact of inflation on pension schemes over the next year, particularly as so many predict that inflation will continue its dramatic rise.

“Many schemes have already reallocated to certain asset classes in order to help inflation-proof their portfolio, and more are looking to do so in the next 12 months, as they predict future turbulence and inflation rises in the next 12 months. By modelling and mapping ahead, schemes are able to weather the storm, and overcome any short-term risks while still achieving their long-term objectives.”

Ortec Finance models and maps the relevant uncertainties in order to help pension funds monitor their goals and decisions. It designs, builds, and delivers high-quality software models for asset-liability management, risk management, climate scenario modelling, portfolio construction, performance measurement and attribution, and financial planning.

 

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PTAD Begins Revalidation, Adjustment of Pensioners’ Excess Funds

The Pension Transitional Arrangement Directorate (PTAD) has officially begun the planned placement of pensioners who have enjoyed excess payment of monthly pension to their accurate pension.

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As part of its efforts to sanitize and ensure a corrupt free administration and management of pensions in Nigeria, the Pension Transitional Arrangement Directorate (PTAD) has officially begun the planned placement of pensioners who have enjoyed excess payment of monthly pension to their accurate pension.

This was disclosed in a statement signed by the Head, Corporate Communications of PTAD, Olubenga Ajayi.

According to the statement, the decision was made in response to the results of the expanded computation project and the re-validation of pensioner’s career documents, both of which were started by the Directorate in 2020 for the Civil Service Pension Department.

The statement read: “Based on the payroll inherited by PTAD, a total of 14,836 retirees were receiving monthly pensions in excess.

“According to the meeting that was held in June 2022, by the Executive Secretary of PTAD, Dr. Chioma Ejikeme, and the management team of PTAD held a meeting with the Executive members of the Nigeria Union of Pensioners(NUP) and the Federal Civil Service Pensioners Branch (FCSPB) to inform the Unions of the Directorate’s plan to properly place pensioners in the Civil Service Pension Department (CSPD) who were being overpaid on their accurate monthly pension.

At the conclusion of the meeting, the parties agreed that the affected pensioners would be contacted and informed of the Directorate’s plan to properly place them on the correct monthly pension beginning in the month of July 2022, while the modalities to recover the over payment would be worked out in due course. Since then, letters have been delivered to the impacted pensioners”.

Meanwhile, so far, 14,825 pensioners’ monthly payments have been changed to reflect their correct computed monthly pensions.

 

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