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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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Pension

Pension Sector Under Fire as Complaints Mount to Alarming Levels

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Despite Nigeria’s pension assets rising to an impressive N17.1 trillion in July, this financial prosperity is shadowed by a growing wave of discontent among pension contributors and retirees due to the mounting backlog of unresolved complaints within the sector.

Contributors and retirees, who shared their grievances, expressed frustration over the sluggish response or complete lack thereof to their complaints. This has sparked concerns that the National Pension Commission (PenCom) might be struggling to cope with the constant influx of grievances.

This unsettling trend is contributing to a growing inclination among various groups and institutions to seek an exit from the Contributory Pension Scheme (CPS) and revert to the old scheme.

Analysis of PenCom’s data, revealing alarming figures. In the first quarter of 2023 (Q1’23), out of 59 complaints related to non-remittance of pension contributions, only nine were resolved, leaving a staggering 84.7% of complaints unaddressed.

The trend continued in previous quarters, with a high percentage of complaints remaining unresolved.

PenCom acknowledges that besides non-remittance of pension contributions, they receive numerous other complaints daily. These encompass issues such as delays in receiving accrued pension rights, requests for resolution of multiple PIN registrations, approval delays for transfers to Retiree Life Annuity (RLA), programmed withdrawal, temporary access 25%, residential mortgage, voluntary contributions, and NSITF, along with delays in data-recapture and RSA transfer-related complaints.

Comrade Bisan Olufemi John, Secretary of the Nigerian Union of Pensioners Contributory Pension Scheme (NUPCPS), emphasized the urgency of enhancing customer service and improving the welfare of pensioners and workers.

He stressed that the government’s ability to address economic challenges hinges on satisfying the needs of both pensioners and current workers.

Malachy Eze, another pension contributor, criticized the pension industry’s slow response to complaints, noting that it negatively impacts the pension scheme.

He called for better opportunities and support for both workers and pensioners, particularly highlighting the issue of group life insurance claims.

Comrade Olagbayo Johnson, a NUPCPS member, expressed disappointment with the Contributory Pension Scheme’s performance, emphasizing the need to address its shortcomings promptly.

As the pension sector thrives, it becomes increasingly imperative to address these pressing concerns and ensure that pensioners and contributors receive the attention and support they deserve. The government’s commitment to prioritizing the welfare of its citizens, both past and present, remains essential for a prosperous economy.

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15,000+ Retirees Withdraw N7.79 Billion from Savings Accounts

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Over 15,000 retirees, who had not been receiving monthly stipends of at least N10,000 under the Contributory Pension Scheme (CPA), withdrew N7.79 billion from their Retirement Savings Accounts (RSA) over the course of a year.

These individuals, as revealed in the National Pension Commission’s latest quarterly report on enbloc payments, possessed RSA balances of less than N1.6 million.

They officially exited the CPS between the second quarter of 2022 and the first quarter of 2023. Their numbers joined the ranks of 133,738 earlier retirees who left the CPS due to RSA balances below N550,000.

In response to this financial predicament, PenCom previously sanctioned the complete payment of RSA balances for those retirees whose amounts fell below N550,000, inadequate for securing a reasonable programmed withdrawal or annuity across their expected lifespans.

This move brought the total number of retirees departing from the CPS to an impressive 149,372 individuals, with a substantial sum of N41.3 billion disbursed to them.

These retirees were categorized into 7,584 from the Federal Government, 4,203 from state governments, and a significant majority of 137,585 from the private sector.

According to PenCom’s reports, “In the second quarter of 2022, approval was granted for enbloc payment of retirement benefits to 3,369 retirees, which totalled N1.45bn. These were retirees whose RSA balances could not provide a monthly pension of at least one third of the prevailing minimum wage (i.e. N30,000).

“In the third quarter, approval was granted for enbloc payment of retirement benefits to 4,529 retirees, which totalled N2.40bn. These were retirees whose RSA balances could not provide a monthly pension of at least one third of the prevailing minimum wage (N30,000).

“In the fourth quarter, approval was granted for enbloc payment of retirement benefits to 3,677 retirees, which totalled N1.56bn. These were retirees whose RSA balances could not provide a monthly pension of at least one third of the prevailing minimum wage (N30,000).”

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Economic Hardship Spurs Unprecedented Rise in Pension Savings Withdrawals

Employees resort to dipping into their Retirement Savings Accounts (RSAs) amidst growing financial challenges

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In the face of mounting economic hardship, a concerning trend has emerged where employees are increasingly turning to their Retirement Savings Accounts (RSAs) to make withdrawals.

Recent findings by Investors King indicate that the first quarter of 2023 witnessed a 240.1 percent surge in withdrawals from Additional Voluntary Contributions (ADV) to N3.02 billion. This marks a significant rise from the N887.9 million recorded in the previous quarter, Q4’22.

The National Pension Commission’s (PenCom) report for Q1’23 reveals that a notable 94.6 percent increase in the number of RSA holders withdrawing from their ADV occurred when compared to the preceding quarter. This brings the total count to 1117 individuals during the period.

Additional Voluntary Contributions, also known as ADV, were designed to empower workers to add extra funds to their mandatory pension contributions or set them aside specifically for retirement savings. The concept was introduced under the Pension Reform Act (PRA) of 2014 with the primary objective of augmenting retirement benefits for individuals.

Further analysis of the Pension Fund Administrators’ (PFAs) performance in RSA registrations for Q1’23 reveals that Stanbic IBTC maintained its leading position with 28 percent market share, attracting 23,586 new registrations.

Followed by Access Pensions Limited with an 11 percent market share and 9,546 new registrations while ARM Pension Managers Limited ranked third with a 9.2 percent market share and 9,546 new registrations.

Meanwhile, on the lower end of the performance table, NPF Pensions Managers had a meager 0.001 percent of total registrations, representing only 131 new RSAs.

Nigerian University Pension Management Company came next, accounting for 0.1 percent of total registrations, with a total of 179 new RSAs. Guaranty Trust Pensions Managers Limited secured 1.1 percent of total registrations with 879 new RSAs.

Experts have expressed concern over the growing number of individuals resorting to early withdrawals from their pension savings, which could significantly impact their financial security during retirement. The prevailing economic challenges may be driving employees to dip into their hard-earned savings, but it could potentially compromise their future financial stability.

Financial advisors urge employees to explore other viable alternatives for managing financial difficulties, such as seeking financial counseling, exploring government assistance programs, or utilizing emergency savings funds. Protecting one’s retirement savings remains crucial for ensuring a comfortable and secure post-employment life.

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