Pension Industry in Nigeria Anticipates Growth despite Global Pension Asset Decline

Nigeria’s pension landscape has witnessed a stunning surge, solidifying its position as an emerging economic powerhouse. As of December 2022, the nation’s pension asset value has soared to an impressive N14.99 trillion, a staggering 11.6% rise from the previous year’s N13.4 trillion. What makes this remarkable growth even more intriguing is the revelation that it was predominantly fueled by investment returns rather than a surge in contributions, as per the latest report unveiled by Augusto & Co.

In a recent report, the Nigerian pension industry has shown promising signs of growth and sustainability, even amid a 15.4% decline in global pension assets, amounting to $47.9 billion during the same period. The report also highlights a 3% increase in the number of pension contributors, reaching 9.8 million in 2022, attributed to improved compliance levels in both the private and public sectors, as well as enhanced marketing efforts by Pension Fund Administrators (PFAs).

The report sheds light on the investment choices of PFAs, expressing concern over the limited options available. Notably, a significant portion of investments has been heavily focused on Federal Government of Nigeria (FGN) bonds, making up over 68% of managed assets. This concentration is due in part to the scarcity of investment-grade, non-sovereign debt issuances in the Nigerian debt capital market, with the FGN being the largest issuer of debt instruments.

The competitive landscape within the pension industry is also under scrutiny, with only a few PFAs dominating the market. As of the end of 2022, there were 19 licensed PFAs managing assets totaling over ₦11.9 trillion. The top five players control more than two-thirds of pension assets and account for over 56% of pension enrollees, creating an oligopolistic environment.

Despite these challenges, the report highlights the potential for growth and long-term sustainability in the pension industry. One notable initiative is the introduction of the Retirement Savings Account (RSA) for mortgages by the National Pension Commission (PenCom). This initiative empowers enrollees to utilize a portion of their RSA balances as valuable equity for acquiring mortgages, thereby opening up new avenues for homeownership. Stakeholders are encouraged to promote this initiative, particularly among the middle class, to increase its patronage.

Augusto & Co, a reputable financial advisory firm, projects a 13% year-on-year growth in assets under management within the pension industry, estimating it to reach a value of N19 trillion by 2024. This anticipated growth signifies the potential for further development and expansion within the sector.