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.

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.

Pension Fund Administrators (PFAs) have strategically invested N130.18 billion from the Contributory Pension Scheme into infrastructure projects by the end of September 2023.

The data from the National Pension Commission reveals the commitment of PFAs to diversifying their investment portfolio while maintaining compliance with the Pension Reform Act of 2014.

As of the reporting period, the total assets under the Contributory Pension Scheme amounted to N17.35 trillion.

In addition to infrastructure investments, PFAs directed funds into various avenues, including domestic and foreign ordinary shares, federal and state governments’ securities, and money market instruments.

The investment strategy aligns with the amended investment regulation introduced by the commission.

The regulation outlines stringent requirements to ensure prudent and compliant investment practices in line with the provisions of the Pension Reform Act.

It emphasizes that pension fund custodians should adhere to written instructions from licensed PFAs regarding the investment and management of pension fund assets.

The regulation also sets guidelines for allowable investments outside Nigeria, and PFAs are cautioned against contracting out the custody of pension fund assets to third parties without prior approval.

This strategic approach not only upholds regulatory standards but also serves the long-term interests of contributors, ensuring a balanced and diversified investment portfolio.