Assets Under Management Surge by 17.5% to N16.8 Trillion

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.