October 16, 2023/FBNQuest Research

The most recent data from the National Pension Commission (PenCom) shows that the total asset under management (AUM) of the regulated pension industry increased by 2% m/m to NGN17.1trn as at Jul ’23. This is slightly behind the 4% AUM growth rate recorded the previous month.  On a y/y basis, the industry’s total AUM increased by an impressive 18.9%. Although pension AUM growth rate has slowed from the stellar growth rates of >30% y/y recorded in the early days of the pension reforms, there is still significant room for growth given the underpenetrated state of Nigeria’s pension industry.

The industry’s total assets under management (AUM) represent approximately 8.6% of the 2022 GDP. This comparison is less favourable when considering the global average of 29.4%, as per World Bank data.

In terms of AUM composition, the allocation across asset classes has remained relatively stable. FGN bonds which constituted 61.9% of total AUM at NGN10.6trn, increased by 2% m/m and 21% y/y.

Pension funds typically prefer bonds because they can effectively match their long-term liability obligations with bonds that have fixed maturities.

However, a huge factor behind the rise in pension fund holdings of FGN bonds is the increased issuance of FGN paper in a bid to plug the estimated budget deficit of around NGN10.8trn.

The share of pension funds’ AUM invested in domestic equities increased by 6% m/m to NGN1.3trn. Their share of AUM allocation increased marginally to 7.8% from 7.6% in Jun ’23.

In contrast, PFAs asset allocation to corporate debt which represented the second largest share (10.8%) of their asset allocation declined by -2% m/m to NGN1.8trn.

The industry’s asset allocation to money market instruments also increased slightly by 1% m/m to NGN1.6trn, representing around 9.3% to total pension assets.

According to the data, the total number of pension accounts increased by just over 16,000 m/m to 10 million. This implies an average value of NGN1.5m per RSA account holder, slightly higher than the NGN1.67m the previous month.