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Amidst economic uncertainties, the Nigerian pension industry is unlocking its full potential, emerging as a key player in driving economic growth, a report has stated.
According to a pension report by Agusto & Co, the growth has been fueled by robust investment returns, and to a lesser extent, by additional contributions mirroring the patterns observed in other well-established markets.
The report states that Nigeria has the second largest pension industry in Africa with assets under management (AUM) of N16.1 trillion ($34.9 billion) as at May 31, 2023, representing a 13.5 per cent increase from the corresponding period last year.
“As a result, the total membership of the contributory pension scheme (CPS) reached 9.9 million RSA enrollees as at 31 May 2023, reflecting a three per cent growth compared to the corresponding period,” the report states.
It added that the upswing in the number of enrollees can be attributed to the commendable rise in compliance levels across both the private and public sectors coupled with the intensified marketing activities undertaken by pension fund administrators (PFAs).
The report also noted that a significant informal sector (estimated at 65 per cent of GDP), an elevated inflation rate of 22.41per cent, a high poverty rate of 40 per cent and restricted investment options afforded by the Nigerian capital market continues to restrain the expansion of the industry.
“The real value of pension assets continues to shrink as the real return on 364-day Treasury Bills remains firmly in negative territory (averaging -13.3 per cent so far in 2023),” it stated.
The report further revealed that as at the end of 2022, there were 19 licensed PFAs with AUM over ₦11.9 trillion in Nigeria. Agusto &Co noted that 67 per cent of the majority industry’s assets are under the management of the top five players in the industry, with the players collectively grasping a 56 per cent share of the Industry’s enrollee base.
Agusto & Co said: “With the increased awareness of the transfer window and its operational mechanisms, coupled with the notable entry of two prominent holding companies in Nigeria, namely Access Holdings and GTCO Holdings, into the industry, Agusto & Co. anticipates an elevated level of competition among PFAs as they strive to expand their enrollee base,” it noted.
The pension company said the integration of innovation driven by technology and the enhancement of customer service will serve as pivotal factors in driving the performance of PFAs in the near to medium term.
“From our perspective, it is imperative to enhance the visibility of this policy to achieve optimal outcomes, we anticipate that stakeholders will proactively undertake initiatives to amplify awareness of the policy, thereby guaranteeing its long-term sustainability and efficacy,” the company stated.
The company foresees a 13 per cent year-on-year growth in the pension industry’s AuM, propelling the total pension assets to an impressive ₦19 trillion by the end of 2024.
The company said: “We are optimistic that the current rally in the equities market, marked by an impressive 27.37 per cent surge in the NGX All-Share Index (ASI) in the past year, underpinned by the raft of reforms ushered in by the new government, will be sustained in the near term.
“Given the NGX’s bullish stance in the Nigerian Stock Exchange (NSE), we expect PFAs to realign their investment portfolios to capitalise on favourable market conditions, which could potentially amplify investment returns in the near to medium term.”
It is believed that the steady rise in contributions will be driven by robust regulatory oversight and increasing awareness of the micro pension scheme.
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