July 28, 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 17.5% y/y to N16.8trn in June ’23. On a m/m basis, the AUM increased by 6.3%. We note that FGN debt securities accounted for 64.8% of the total AUM in June ’23, compared with 64.2% recorded in the corresponding period of 2022.
Total FGN debt securities held by the Pension Fund Administrators (PFAs) increased by 20% y/y and 3.8% m/m, respectively. The FGN bond instruments held by the PFAs increased by 25.5% y/y to N10.4trn, accounting for 62.3% of total AUM. The PFAs exposure to FGN securities can be attributed to their preference for risk-free assets that offer better yield on investment, especially given elevated inflation (currently 22.79% y/y). Additionally, the monetary policy rate hikes by the CBN have contributed to relatively high fixed-income yields. At its July ’23 meeting, the MPC increased its policy rate by +25bps to 18.75%, marking the fourth consecutive rate hike by the CBN this year.
As at end-H1 ’23, the Debt Management Office (DMO) had raised N3.2trn from FGN bond auctions (achieving c.45% of its expected domestic borrowing target of N7.5trn). We expect continuous reliance on domestic borrowing given that the ICM remains expensive for emerging economies on the back of the contractionary monetary policy stance by advanced economies.
The PENCOM report shows that NTBs held by PFAs declined marginally by -3% m/m to N192.4bn in June ’23. Meanwhile, in the same month, the average NTB yield increased by +17bps m/m. This asset class accounted for just 1% of the total PENCOM AUM in the same month. Meanwhile, state government securities held by the PFAs increased by 72.4% y/y to N277.4bn in June ’23 vs N160.9bn recorded in the corresponding period of 2022.
Domestic equity holdings increased by 29.9% y/y to N1.2trn and accounted for 7.5% of total AUM in June ’23. The stock market has continued to record positive gains on the back of the recent fx liberalization policy. We note that the NGX all-share index (NGX-ASI) gained 9% m/m in June ’23.
Based on a separate report released by PENCOM, the cumulative pension contributions under the contributory pension scheme (CPS), rose marginally by 2.3% at end-Q1 ’23 to N8.7trn compared with N8.5trn recorded in Q4 ’22. This increase can be partly attributed to increased membership enrolment in the CPS. Pensions from the public and private sectors amounted to N4.5trn and N4.2trn respectively in Q1 ’23.
In a bid to incorporate the informal economy into the pension scheme, 3,898 individuals were registered under the Micro Pension Plan (MPP) in Q1 ’23, bringing the total number of individuals under the MPS to 93,225 compared with 89,327 recorded in the previous quarter. These gains were achieved despite political tensions and Naira scarcity that marred economic activities during the period.
The increase can be partly attributed to sensitization and enlightenment workshops that were carried out across the six geographical regions in the country during the period under review. It is crucial for PFAs to capitalize this achievement by ramping up sensitization programs across all states to boost sign-ups from the informal economy to the MPS.
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