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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.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Pension Funds Boost Real Estate Investments to N1 Trillion in 2023

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Pension funds have invested a record N1 trillion in the real estate sector in 2023.

According to Oguche Agudah, CEO of the Pension Fund Operators Association of Nigeria (PenOp), this surge in investment shows the real estate sector’s viability as a strategic investment option for pension funds.

“Pension funds have consistently been investing in real estate and REITs over the past few years, and these investments provide a stable return and help diversify the pension fund portfolios,” Agudah said.

Real Estate Investment Trusts (REITs), which pool capital from investors to earn dividends from real estate assets, have been a significant beneficiary of this trend.

In 2023, N1 trillion out of a total Assets Under Management (AUM) of N18.36 trillion was channeled into real estate and REITs.

This is a notable increase from 2022, where N943.61 billion was invested from an AUM of N14.99 trillion.

The trend over the past few years shows a consistent commitment to real estate investments.

In 2021, N957.27 billion was invested from an AUM of N13.42 trillion, while 2020 saw N958.35 billion invested from an AUM of N12.31 trillion.

Going back to 2019, pension funds invested N972.83 billion out of an AUM of N9.58 trillion, marking one of the highest allocations to real estate and REITs.

Dave Uduanu, managing director and CEO of Access Pensions Limited, highlighted the attractiveness of real estate investments for pension funds.

“Pension managers are interested in investing in real estate, but it has to be well structured,” Uduanu said.

He said these investments provide competitive returns and help reduce Nigeria’s infrastructure deficit.

The regulatory landscape has also evolved to support greater investments in real estate. The regulation of equity contributions for residential mortgages, which began in December 2023, has facilitated more substantial investments in this sector.

Data from the first quarter of 2024 shows that 2,971 pension contributors via RSA have signed up for equity contributions for residential mortgages, with N29.2 billion already allocated.

Despite the significant allocation to real estate, a chief investment officer from one of Nigeria’s leading PFAs noted that there is still room for greater investment in infrastructure, including real estate.

“One thing we can do better is on visible impact. One way people can truly feel the tangible impact of their pensions is in the area of infrastructure investments, and real estate is key here,” the officer stated.

The growing investments in real estate by pension funds are a testament to the sector’s potential and the strategic vision of pension fund managers.

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PFAs Posted Decent Growth – Coronation Economic Note

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According to the latest monthly report released by Nigeria’s Pension Commission (PENCOM), the assets under management (AUM) of the regulated pension industry increased by +26.2% y/y to N19.7trn.

Meanwhile on an m/m basis, the AUM decline marginally by -0.5%.

This marks the first decline since September ’22. Notably, FGN debt securities accounted for 62% of the total AUM in March ’24. Meanwhile, other asset classes such as private equities, real estate, and infrastructure funds, accounted for 0.4%, 1.4%, and 0.8% of total AUM, respectively.

Total FGN debt securities held by the Pension Fund Administrators (PFAs) increased by +19.7%
y/y but declined marginally by -1.4% m/m.

Specifically, we note that the FGN bond instruments held by the PFAs increased by +17.2% y/y to N11.5trn, but declined by -2.4% m/m, on the back of a 10-year tenure FGN bond maturity (N719.9bn). The FGN bonds account for 58% of the total AUM.

FGN bonds remain attractive due to its lower risk profile and elevated yields. It is worth noting that the average FGN bond yield increased by +219bps m/m as at end-March ‘24.

The PENCOM report shows that NTBs held by PFAs grew by +120% y/y and increased by +42.5% m/m to N407.6bn in March ’24. We note that the average NTB yield increased by +250bps m/m as at end-March’24.

This asset class accounted for just 2.1% of the total AUM in the same month.

Meanwhile, State government securities held by the PFAs increased by 64.1% y/y to N266.2bn in March ‘24.

It is worth highlighting that domestic equity holdings surged by 99.6% y/y and 8.7% m/m to N2.1trn in the same period, accounting for 10.6% of the total AUM in March ‘24 compared with 9.7% in February ’24. The NGX-all-share index (NGX-ASI) rose by +90.6% y/y and +4.6% during the same period.

Furthermore, YTD (28-March ’24) return on index rose by +18.1% to close at 39.8% from 33.7% in February ’24.

Recently, the market has shown a bearish trajectory as the NGX-ASI declined by -6.1% m/m as at end-April ‘24, partly, on the back of relatively weak corporate earnings amid inflationary conditions. Given expectations of higher yields in the fixed income market on the back of continuous tightening or a hold stance of the CBN at the next MPC meeting, PFAs are likely to reallocate a greater portion of pension assets to fixed income securities.

According to PENCOM, the total pension contributions since inception remitted to the Individual Retirement Savings Account (RSA) increased by +17.3% y/y to N9.9trn as at end-December ‘23 compared with N8.5trn recorded as at end-December ‘22. Remittance from the public sector accounts for 52%, while private sector accounts for 48% of the total pension contributions.

This can be partly attributed to improvement in the efforts to expand pension coverage.

Notably, PENCOM added a total number of 8,927 micro pension contributors in Q4 ’23 bringing the total number of registered MPCs in the Micro pension plan from inception to 114,382 as at end-December ’23 from 89,327 as at end-December ’22.

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Nigeria’s Pension Fund Value Plummets by 29% to $14.39bn Amid Naira Depreciation

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Nigeria’s pension fund value has declined by 29% to $14.39 billion in January 2024.

This drop attributed primarily to the ongoing depreciation of the naira against the dollar represents a contrast from the $20.41 billion recorded in December 2023.

The latest unaudited report on the pension funds industry portfolio revealed that the conversion rate of the naira to the dollar played a pivotal role in this decline.

In January, the naira was converted at a rate of N1,356.88/$, a significant deviation from the N899.39/$ rate observed in December.

This depreciation trend in the naira has been persistent since June 2023, following adjustments made by the Central Bank of Nigeria.

The continued weakening of the national currency in 2024 further exacerbated the erosion of the pension fund’s value when measured in dollar terms.

While the dollar value of the pension fund experienced a substantial downturn, in naira terms, the total assets under the Contributory Pension Scheme witnessed an increase to N19.53 trillion from N18.36 trillion at the end of 2023.

A significant portion of these assets, estimated at N12.14 trillion, was invested in Federal Government securities, reflecting a strategy to navigate the challenging economic landscape.

Amidst concerns over the impact of naira depreciation on pension funds, stakeholders have emphasized the need for prudent financial management and diversification of investment portfolios to mitigate risks associated with currency fluctuations.

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