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

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.