Nigeria’s Pension Fund Assets hits N9.3 trillion as investment in FGN securities drops


The latest report released by the National Pension Commission (PenCom) shows that Nigeria’s Pension Fund assets hit N9.32 trillion in June 2019.

According to the report, the Pension Fund Assets increased significantly in June when compared to the value reported in March 2019. Specifically, pension fund assets stood at N9.03 trillion in March, while the figure rose to N9.32 trillion in June. This represents an increase of N294.9 billion within the space of three months in absolute terms or a growth of 3.2%.

Pension fund breakdown: In recent times, more Nigerians have begun to take their retirement plans seriously and this has significantly improved the total pension fund assets in the country. A closer look into the PenCom report shows that pension funds grew by 13% the last year.

The latest report shows that between June 2018 and June 2019, pension fund assets rose by N1.09 trillion.
Nigeria’s total pension fund assets stood at N8.63 trillion as at the end of June 2018.
Analysts opined that the significant rise is largely traceable to the growing awareness campaigns.

Investment in FGN Securities: Over time, one factor that has not helped the increase in pension assets in Nigeria is the low return and low-interest-rate environment that the pension funds operate in.

Although most pension funds have consistently been making positive gains year in year out, the percentage returns are not high enough. This is largely blamed on the bulk of pension funds administrators investing in FGN securities.
Meanwhile, the latest report shows pension funds investment in FGN securities has dropped.
A further look into the report shows that the asset class of Nigeria’s pension fund constituted 69% of FGN Securities, Corporate Debt Securities (5.42%), Local Money Securities (11.21%) and Mutual Funds (0.25%).
Despite a drop in investment in the asset class, FGN securities still gulped a total of N6.84 trillion.

A drop in yields: In recent times, the yield on FGN bonds has dropped and this may partly be responsible for the low investment in FGN securities by Pension Fund Administrators.

For instance, in late July, the yield on FGN Naira bond with 10 years to maturity fell by 24bps to 13.95%.
Basically, investors appear to be reacting to the CBN’s revised Standing Deposit Facility (SDF) placement by banks which is now capped at N2.0 billion (US$5.7 million) from N7.5 billion previously.

Upshots: While the pension fund assets hit a new high of N9.3 trillion, the breakdown of the asset class still remains a source of concern. An earlier publication by Nairametrics revealed that the major reason for the low rate of return on pension fund assets is the “ultra-conservative” investment strategy of pension fund managers who invest almost exclusively in Treasury Bills and FGN bonds.

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