May 7, 2023/Coronation Research
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 11.6% y/y to N15.4trn in February ’23.
On a m/m basis, the AUM increased marginally by 0.7%. FGN debt securities accounted for 64.6% of the total AUM in February ’23 compared with 61.8% recorded in the corresponding period of 2021. Meanwhile, other asset classes such as infrastructure funds, real estate, and private equity accounted for 0.8%, 1.4%, and 0.3% of total AUM respectively.
Total FGN debt securities held by Pension Fund Administrators (PFAs) increased by 16.5% y/y and 5.3% m/m, respectively. The FGN bond instruments held by PFA’s increased by 18.5% y/y to N9.6trn, accounting for 62.3% of the total AUM compared with 58.7% recorded in the corresponding period of 2022.
As at end-April ‘23, the debt management office (DMO) had raised N2.2trn from bond auctions, achieving 91.6% of its H1 ’23 target (N2.4trn). We expect continuous reliance on domestic borrowing vs external borrowing, as the ICM remains expensive for emerging economies. This is likely to keep yields on fixed income instruments elevated.
The PENCOM report shows that NTBs held by PFAs increased by 4.2% y/y to N181.3bn in February ’23. The average NTB yield increased by +248bps m/m in February, however, accounted for just 0.01% of the total PENCOM AUM in the same month. Meanwhile, state government securities held by the PFAs declined by -4.8% y/y to N160.3bn in February ’23 vs N168.8bn recorded in the corresponding period of 2022.
Domestic equity holdings increased by 37.9% y/y to N1.1trn and accounted for 7.1% of total AUM in February ’23. We note that the NGX all-share index (NGX-ASI) gained 4.9% m/m in February ’23.
Based on a separate report released by PENCOM, the cumulative pension contributions increased by 2.9% as at end Q4 ’22 to N8.5trn from N8.2trn recorded in the previous quarter. This increase can be partly attributed to increased membership enrolment in the contributory pension scheme (CPS), as remittances from the public and private sectors amounted to N4.4trn and N4.1trn, respectively.
The CPS was introduced to address the inadequacies within the pension system. As at end2022, only 25 states have enacted laws on CPS out of which 10 states have fully implemented the CPS. They include; Lagos, FCT, Osun, Kaduna, Delta, Ekiti Ondo, Edo, Benue and Anambra states.
The PENCOM report also disclosed that participants in its Micro Pension Plan (MPS) increased to 89,327 in Q4 ’22 from 84,612 recorded in Q3 ’22. The total contribution as at Q4 ’22 amounted to N368.1bn. We note that the MPS has made progress in improving pension coverage, access to pension services, and pension contributions from the informal sector. However, there is still vast room for improvement. Efforts should be channeled towards addressing challenges. They include; low level of awareness and trust among the target population, limited access to financial services particularly in the rural areas, and lack of adequate infrastructure.
The pension industry can build on its successes by enhancing its public awareness campaign efforts, providing incentives such as health insurance covers for micro pension participants (MPP), simplifying the registration process and improving the payment of retirement benefits.
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