Nigeria’s Pensions Hits ₦10.2 trillion, Investment Returns Now 64.5%

Nigeria’s pensions assets has hit over N10.2 trillion, while 64.5% growth in managed assets came from investment returns and not increased contributions.

The recorded growth traced to significant boost in the volume of enrolees and the size of managed assets in the Industry was triggered by the 2004 pensions reform.

This is according to the Agusto & Co. Pension Industry Report.

From the report, TheConscience gathers that Nigeria’s Pensions Industry assets under management stood at ₦10.2 trillion (or $28.3 billion at US$1= ₦360) as at 31 December 2019, representing an 18.6% growth from the ₦8.3 billion recorded at the end of 2018 and a 17.2% compound annual growth rate over the last five years.

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However, contrary to the widely held view that higher contributions means higher recorded growth, growth of managed assets have been increasingly driven by investment returns rather than additional contributions over the last five years, according to Agusto & Co’s 2020 Pension Industry Report.

Specifically, 63.4% of growth was attributable to investment returns earned on managed assets with the outstanding 33.6% representing net annual contributions in the last five years, TheConscience gathers.

Going forward, Agusto & Co expects a considerable slowdown in AuM growth driven by lower contributions as unemployment is expected to rise significantly given the weakened macroeconomic environment following the COVID-19 pandemic.

Job losses are expected to trigger higher benefit withdrawals as disengaged enrolees seek access to the 25% lump sum drawings permitted by PenCom regulations for employees out of work for more than three months. Investment performance is also expected to fall considerably in line with the lower yields on government securities, which account for over 70% of the Industry’s asset allocation.

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Nonetheless, it notes positively the favourable demography of enrolees, which has over 73.8% below the age of 50 indicating relatively low expectations of liquidity events such as lump- sum payments, annuities and programmed withdrawals.

This online newspaper notes that the Report projects AuM to continue to grow albeit at a much slower pace of 8.5% in 2020 and rising to 12% in 2021, which is well below the compound annual growth rate (CAGR) of 17.2% over the last five years.

The Report says The Nigerian Pension Industry has evolved over the years from one with predominantly public sector participants running a defined benefit scheme to a mandatory defined contribution system for all government and private-sector employees in the country.