A new report by EnterpriseNGR said low diversification from government securities by Nigerian Pension Fund Administrators (PFAs) is one of the major challenges affecting the growth of the pension industry.
The report also noted that persistent scepticism about the pension system has limited the industry’s growth.
Other challenges impeding the desired growth in the industry include low cooperation from the public and private sector workers, low pension penetration in the informal sector, and limited investment options.
According to data from the National Pension Commission (PENCOM), investments in federal government securities as of September stood at N8.8 trillion, while PFA exposure in the Nigerian and foreign equities market reduced by N46.7 billion and N26.2 billion respectively, between January and September 2022.
Meanwhile, the total pension fund of the industry increased by almost N1 million (1.1%) in the first nine months of the year, with new 263,359 RSA registrations recorded in the period. As of September 2022, investment in federal government securities (N8.8 trillion) accounted for 63.7% of the total industry assets.
The big picture: Nigeria’s Pensions sub-sector is a key segment of the economy that is delivering benefits to retirees, employers, and governments. The sub-sector helps lower tax loads, protects and provides returns on employee retirement savings, reduces employers’ retirement burden, and provides long-term investment funds.
According to the report, the sub-sector has paid N809.5 billion in lump sum benefits to retirees and a cumulative N12.8 billion monthly pension. Also, it opined that the total value of assets under management is equivalent to 7.6% of Nigeria’s GDP at current market prices.
* “Reforms in the pension sub-sector have accelerated transformation, but more is required to increase growth.
* “Specific challenges include persistent scepticism about the pension system, low diversification of pension fund investments away from government securities, low cooperation from employers in the public and private sectors, low pension penetration in the informal sector, limited investment options and mono products, long regulatory processes hampering service delivery, and poor macroeconomic environment,” the report said.
On the other hand, the pension industry is highly regulated, which deals with public funds, hence the need to be conservative while investing with those funds. However, the regulators have created varying products based on the risk appetite of the retirees (RSA Funds), which have a mix of fixed and variable assets in different proportions.
About the report: The State of the Enterprise Report 2022, is a report that gives insights into Nigeria’s Financial and Professional Services sector (FPS), compiled by EnterpriseNGR to foster more even growth across the FPS sector.
The FPS sector comprises the following subsectors: banking, insurance, capital markets, asset management, pensions, non-interest finance, FinTech, professional services (legal services, accounting, and management consulting), and sustainable finance.