The National Pension Commission (PenCom) has reported a substantial 22.43% increase in Nigeria’s Contributory Pension Scheme, reaching a total of N18.36tn by the end of 2023. The unaudited report on pension funds indicates a remarkable growth from N14.99tn in 2022 to N18.36tn, showcasing a month-on-month increase of 2.39% in December alone.
The breakdown of the pension assets reveals that a significant portion, amounting to N11.92tn, is invested in Federal Government securities, constituting 64.9% of the total assets. Corporate debt securities and domestic ordinary shares make up 10.4% and 8.6%, respectively.
Despite this surge, industry experts highlight that the sector is underpenetrated, with total assets under management equivalent to only 9% of Nigeria’s 2022 Gross Domestic Product, falling short of the global average of 29.4% in 2020.
Further analysis shows the dominance of Federal Government securities, particularly FGN bonds, constituting 96% of total FGN securities and over 60% of fund administrators’ overall asset mix. The surge in FGN securities is attributed to increased supply by the Debt Management Office to meet funding targets and address the budget deficit.
In the domestic equity market, investments experienced a remarkable 70% year-on-year increase to N1.57tn, driven by the robust performance of the Nigerian Exchange in 2023. The All-Share Index reached an unprecedented 74,000 index points, closing the year at over 45% growth.
While real estate and private equity saw growth, they remained a small part of the overall portfolio. Other alternative investment classes, such as foreign ordinary shares, infrastructure funds, mutual funds, and real estate, did not gain significant traction.
Retirement Savings Account funds exhibit steady growth, with the Retiree Fund representing 58.02% of total AUM, followed by RSA Funds at 30.59% and Closed Pension Fund Administrators at 1.39%.
Analysts predict that the positive growth trajectory of the pension industry will play a pivotal role in Nigeria’s economic development in the mid to longer term. They anticipate more opportunities for increased penetration into the pension fund space, promoting higher pension savings in Nigeria.
It is worth noting that the value of pension funds had declined by 45.18% when valued in dollars due to the devaluation of the naira. The devaluation impacted not only pension funds but also the entire economy, prompting the need for strategic measures to hedge against microeconomic headwinds.
