October 4, 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 18.7% y/y to N17.1trn. On a m/m basis, the AUM grew by 1.8%. FGN debt securities accounted for 64.3% of the total AUM in July ’23 compared with 62.5% recorded in the corresponding period of 2022.

Total FGN debt securities held by the Pension Fund Administrators (PFAs) increased by 22.2% y/y and 0.9% m/m, respectively. FGN bond instruments held by the PFAs increased by 20.7% y/y to N10.9trn, accounting for 61.9% of total AUM. The uptick in FGN debt securities held can be partly the comparatively lower risk associated with these instruments vs other asset classes more susceptible to economic shocks.

YTD, the debt management office (DMO) had raised N4.3trn (exceeding its borrowing target of N3.6trn by 19.4%). The FY 2023 domestic borrowing target of N7.04trn will likely be exceeded.

The PENCOM report shows that NTBs held by PFAs grew by 10.1% y/y and 3.1% m/m to N198.8trn in July ’23. This asset class, however, accounted for just 1.2% of total AUM in the same month. State government securities held by the PFAs increased by 63.6% y/y to N275.6bn in July ’23.

Domestic equity holdings increased by 45.3% y/y and 5.5% m/m to N1.3trn. It accounted for 7.6% of total AUM in July ’23. We note that the NGX-all-share index (NGS-ASI) rose by 27.7% y/y and 5.5% m/m in July ’23. Positive investor sentiments on the back of the policy measures by the new administration continue to drive the market. It is worth highlighting that as at end-September, the NGX-all-share index (NGS-ASI) rose by 35.4% y/y. However, it recorded a marginal decline of -0.3 m/m.

In July ‘23, the NGX and PENCOM launched the NGX Pension Broad Index (NGXPENBRD). This index is expected to track the performance of securities (equities) that meet the dividend payment and profitability criteria. Furthermore, for a company to be enrolled in the NGX Pension Broad Index, payment of dividends or issued bonuses at least once in five years and a recorded profit at least three years within a 5-year period are required.

It is worth noting that the new NGXPENBRD has no cap regarding the number of stocks that can be included vs the NGX Pension Index which was capped at 40 stocks. Overall, we expect PFAs to have access to a broader volume of stocks pointing towards better investment portfolio diversification.

Based on a separate report released by PENCOM, the cumulative pension contributions under the Contributory Pension Scheme (CPS) from inception (2004) increased by 8% at end-Q2 ’23 to N9.4trn compared with N8.7trn recorded in Q1 ’23. Pension contributions from the private and public sectors cumulatively amounted to N4.5trn and N4.9trn respectively in Q2 ’23. We note that increased membership enrollment in the CPS and the recovery of unremitted pension contributions from defaulting employers during the period led to an increase in contributions. The sum of N268.1m was recovered from 21 undisclosed employers in Q2 ’23.

For the Micro Pension Plan (MPP), 5,967 individuals were recorded in Q2 ’23, bringing the total number of individuals under the micro pension contributions to 99,192 in Q2 ’23 compared with 93,225 recorded in Q1 ’23.

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