Return on investment accounts for more than 18 per cent of the nation’s total pension assets, NIKE POPOOLA reports
The Pension Funds Administrators have earned a profit of N1.69tn since investing workers’ pension contributions from inception of the scheme till the end of June 2019, investigation has revealed.
Latest reports obtained from the National Pension Commission revealed that the total assets under the scheme stood at N9.32tn as of the end of June.
This includes the total monthly contributions received from both the public and private sectors into the workers’ Retirement Savings accounts which amounted to N5.45tn.
Other components are the Approved Existing Scheme totalling N958.2bn; the Closed Pension Funds Accounts totalling N1.24tn and return on investment which amounted to N1.69tn as of the end of June.
According the operators, the return on investment totalling N1.69tn was added to the workers RSA balances.
A review of the total monthly contribution showed that N2.73tn or 50.09tn per cent of the contributions came from the public sector, while the private sector contributed the remaining 49.91 per cent or N2.72tn.
According to the operators, the total assets had continued to increase despite challenges experienced within the economy.
PenCom also disclosed that the operators invested substantial part of the pension funds in the Federal Government bonds, treasury bills and state governments’ securities.
It added that some of the funds were invested in agency bonds, supranational bonds, commercial papers, foreign money market securities and open/close-end funds.
Other investment portfolios where the operators invested the funds are REITS, private equity funds, infrastructure funds, cash and other assets.
After the enactment of the Pension Reform Act 2014, the commission amended the investment regulation to incorporate the new provisions in the PRA 2014 as well as aligned the regulation with market realities.
One of the major amendments was the introduction of the multi-fund structure for Retirement Savings Account funds.
The fund was divided into four parts to cater to the different age groups of contributors, including retirees under the CPS.
Fund I was opened to young contributors, based on, choice (Contributors aged 50 and above were not allowed).
Fund II was for young and middle-aged contributors (Ages 49yrs and below).
Fund III was for pre-retirees (contributors aged 50 years and above; but still in active employment).
Fund IV was for retirees (60 years and above).
According to the commission’s data, currently, the RSA Fund 1 has the least at N15bn; RSA Fund II has the largest share of N4.12tn; Fund III has N2.25tn, while Fund IV has N751.73bn.
Apart from the administration fee of N100 deducted by the PFAs per monthly contribution from workers the RSAs, investment management fees were charged and included in the unit price of the fund.
A management fee of 2.13 per cent was charged on Fund I; 1.84 per cent was charged on Fund II; 1.72 per cent was charged on Fund III, while a management fee on the RSA Fund IV was 7.5 per cent and charged on the income earned by the fund.
The prices are regulated by PenCom and subject to change with notice from time to time as no other charges are expected to be made on the workers’ pension accounts.
The Head Research, Augusto & Co, Jimi Ogbobini, said, “Investment returns in the pension industry averaged 9.4 per cent in 2018, with eight operators outperforming the industry average. This represents a significant drop from the 16.2 per cent average returns in 2017.
“The industry’s underwhelming performance in the year reflects the depressing performance of the Nigerian equity market, which dipped by 17.8 per cent in 2018. In addition, the declining yields in the fixed income market negatively impacted returns.”
Ogbobini said that at the end of 2018, Nigeria’s pension fund stood at N8.6tn ($23.9bn), 13.4 per cent higher than the previous year and represents a 17.6 per cent annual growth rate over the past three years.
He attributed the growth to a net inflow of 36.8 per cent and investment returns of 63.2 per cent.
Over the past three years, he added, the industry’s growth had been dominated by investment returns, a marked departure from previous trends where net inflows accounted for the majority of the industry’s growth.
According to him, investment returns were likely to improve in 2019, largely driven by higher interest rates, which it expected to spike in the second half of 2019.
The acting Director-General, PenCom, Mrs Aisha Dahir-Umar, said the CPS had been very impactful since the beginning of its implementation in 2004.
She said the formation of long-term domestic capital, which was in trillions of naira of pension assets was slowly but surely changing Nigeria’s financial landscape.
This, by extension, she noted, was also transforming the course and pace of the country’s socio-economic development.
She said about 73 per cent of the total pension assets was invested in the Federal Government Securities issued to finance various activities of government.
The President, Pension Funds Operators of Nigeria, Mrs Aderonke Adedeji, noted that the issue of the role of pension funds in economic development had moved into the focus of public attention, particularly with regard to Nigeria’s growing need for long-term capital.
“For the first time, our country can now boast a long-term funding base and the impact to date has included the funding of the government projects, development of the capital market as well as increased foreign development inflows,” she said.