The regulated pension industry in Nigeria has seen remarkable growth, reporting a 17.5% year-on-year increase in assets under management (AUM) to reach an impressive N16.8 trillion in June 2023.
The latest monthly report released by Nigeria’s Pension Commission (PENCOM) reveals a 6.3% month-on-month surge in AUM, defying prevailing economic challenges and showcasing the industry’s resilience in navigating uncertainties.
Among the significant highlights of the report, Federal Government of Nigeria (FGN) debt securities remained dominant, constituting 64.8% of the total AUM in June 2023, slightly up from 64.2% in the same period last year.
A driving force behind the industry’s growth was the substantial increase in total FGN debt securities held by Pension Fund Administrators (PFAs), rising by an impressive 20% year-on-year and 3.8% month-on-month. Particularly, FGN bond instruments held by PFAs experienced a substantial 25.5% year-on-year surge, amounting to N10.4 trillion, accounting for 62.3% of the total AUM.
Experts attribute PFAs’ preference for FGN securities to their quest for risk-free assets with favorable yields, especially in light of the current elevated inflation rate, currently at 22.79% year-on-year.
Also, the Central Bank of Nigeria’s (CBN) successive rate hikes have contributed to relatively high fixed-income yields.
In the latest MPC meeting in July 2023, the CBN raised its policy rate by +25bps to 18.75%, marking the fourth consecutive rate hike this year.
The report also highlights the Debt Management Office’s (DMO) successful domestic borrowing efforts, raising N3.2 trillion from FGN bond auctions by H1 2023, achieving around 45% of its targeted domestic borrowing goal of N7.5 trillion. Domestic borrowing is expected to persist due to international capital market cost constraints and advanced economies’ contractionary monetary policies.
However, PENCOM’s report reveals a marginal -3% month-on-month decline in PFAs’ holdings of Nigerian Treasury Bills (NTBs) to N192.4 billion in June 2023. Despite this, the average NTB yield increased by +17bps month-on-month, representing only 1% of the total PENCOM AUM during the same month.
On the other hand, state government securities held by PFAs witnessed a remarkable 72.4% year-on-year growth, soaring to N277.4 billion in June 2023 compared to N160.9 billion in 2022.
Domestic equity holdings also demonstrated impressive growth, increasing by 29.9% year-on-year to N1.2 trillion, accounting for 7.5% of the total AUM in June 2023. The stock market’s positive gains following the recent forex liberalization policy contributed to this surge, with the NGX all-share index (NGX-ASI) gaining 9% month-on-month in June 2023.
In a separate report by PENCOM, cumulative pension contributions under the contributory pension scheme (CPS) witnessed a marginal 2.3% increase by the end of Q1 2023, totaling N8.7 trillion compared to N8.5 trillion in Q4 2022.
This growth is partly attributed to an increase in membership enrollment in the CPS, with pensions from the public and private sectors reaching N4.5 trillion and N4.2 trillion, respectively, in Q1 2023.
To expand the pension scheme to the informal economy, 3,898 individuals were registered under the Micro Pension Plan (MPP) in Q1 2023, bringing the total number of MPP beneficiaries to 93,225, compared to 89,327 in the previous quarter.
Despite political tensions and Naira scarcity affecting economic activities during the period, the pension industry’s gains can be partly attributed to sensitization and enlightenment workshops held across the country’s six geographical regions during the review period.
Experts emphasize the importance for PFAs to capitalize on this achievement by intensifying sensitization programs across all states, encouraging greater sign-ups from the informal economy to the Micro Pension Plan (MPP). This move is expected to bolster the industry’s growth and ensure financial security for future retirees.
Pension Sector Under Fire as Complaints Mount to Alarming Levels
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.
15,000+ Retirees Withdraw N7.79 Billion from Savings Accounts
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).”
Economic Hardship Spurs Unprecedented Rise in Pension Savings Withdrawals
Employees resort to dipping into their Retirement Savings Accounts (RSAs) amidst growing financial challenges
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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