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Double-digit Growth in the Assets of PFAs

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The latest monthly report released by Nigeria’s Pension Commission (PENCOM) report shows that the assets under management (AUM) of the regulated pension industry rose by 12.4% year-on-year to N13.8 trillion or USD57.3 billion in February and by 1.2% month-on-month.

We note that over the past five years, growth in AUM has averaged 17% year-on-year. Growth was highest in 2018 (26.1% year-on-year) while 2019 recorded the lowest (12.2% year-on-year). FGN debt securities accounted for 61.8% of the total AUM in February this year, compared with 66.4% recorded in the corresponding period of 2021. In the same period, other assets such as real estate, private equity and infrastructure funds accounted for 1.1%, 0.3% and 0.5% of total AUM respectively.

Typically, investments into these asset classes are hampered by the shortage of eligible instruments. As at end-February, total FGN debt securities held by Pension Fund Administrators (PFAs) increased by 1.9% month-on-month and 4.6% year-on-year to N8.5 trillion. FGN bonds held by PFAs increased by 2% month-on-month and by 10.8% year-on-year to N8.1 trillion. This category accounted for 59.1% of total AUM, compared with 59.9% recorded in the corresponding period of 2021.

The Debt Management Office (DMO) has raised N883 billion from bond auctions in Q1 2022 (including non-competitive bids from public agencies). Therefore, exceeding their borrowing target for Q1 by 84%. Furthermore, the DMO recently published its bond issuance calendar for Q2 2022 which shows the total volume on offer between N630-N720 billion.

We note that the FGN’s revised 2022 budget deficit financing from N6.4 trillion to N7.4 trillion results in an increase in the domestic funding target for this year to N3.5 trillion. Ideally, increased borrowing places pressure on yields, resulting in upticks. This bodes well for FGN bond holders. However, this is also dependent on liquidity level which could affect upward adjustment of the yields.

The PENCOM report shows that NTBs held by PFAs declined by -10.8% month-on-month and -74.3% year-on-year to N173.9 billion in February 2022. This represents just 1.3% of the total AUM. We note that in the corresponding period of 2021, NTBs accounted for 5.5% of total AUM.

We attribute the slight shift from NTBs to the decline in the average yield by -81bps in February 2022. Meanwhile, state government securities held by PFAs declined by -0.9% month-on-month to N168.8 billion. This asset class accounted for 1.2% of total AUM, compared with its share of 1.0% in February 2021.

Domestic equity holdings rose by 1.5% month-on-month and 14.3% y/y to N1.1trn and accounted for 7.9% of total AUM, compared with 7.8% in February 2021. This implies a slight shift towards domestic equities by PFAs. We note that the NGX All-Share Index (NGX-ASI) rose to 47,394.53 in February 2022. This marked a 1.7% month-on-month gain for the index.

Similarly, the NGX pension index increased by 2.9% month-on-month in February ‘22, outperforming the market benchmark index by 126bps. The PENCOM report disclosed that the AUM recorded in February also comprised of
N9.7 trillion in a retirement savings account (RSA) active funds, N1.1trn in RSA retiree fund IV, N1.5 trillion in closed pension fund administrator schemes (CPFAs), N1.4 trillion in approved existing schemes funds and N20.3 billion for RSA Fund VI (non-interest fund), active and retiree.

As at end-February 2022, total schemes membership increased by c.37,000 to 9.59 million. This growth in schemes membership was driven by the increase in the RSA scheme on the back of increased compliance by the private sector.

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

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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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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