Unpacking Nigeria’s Q2’23 pension industry performance

Nigeria's pension industry continues to show strong growth, with over 63,600 new Retirement Savings Accounts (RSAs) registered in the second quarter of 2023, according to the National Pension Commission (Pencom). The CEO of the Pension Fund Operators Association of Nigeria, Oguche Aguda, highlighted the positive trends in the industry, pointing to the impact of investment returns on the sector's growth. Aguda noted that asset growth has been robust, driven by a strong fixed income market and rising equity prices. The asset class distribution in the industry shows a significant allocation to government bonds, with most pension funds maximizing their investments in this area. Money market instruments also attract substantial investments due to their strong yields. Equities account for about 7.5% of the portfolio, reflecting positive trends in the equity markets. Corporate debt securities make up around 11% of the assets, demonstrating a diversified investment strategy within the industry. Aguda expressed optimism about the industry's performance, stating that the current growth trajectory surpasses earlier projections. He highlighted a quarter-on-quarter asset growth of 7% driven by the expansion of the equity markets. The industry is expected to maintain an annual growth rate of around 20%, consistent with the average growth observed over the past five years. From a policy perspective, Aguda emphasized the importance of enabling RSA holders to access their pensions for mortgage funding before retirement. While this policy initiative has not gained significant traction yet, efforts are underway to promote awareness and compliance among contributors. Additionally, measures have been implemented to address issues related to the crediting of pension contributions, with a deadline set for December to rectify any outstanding discrepancies. Concerning regulatory compliance, Aguda acknowledged room for improvement, particularly among smaller businesses. While larger corporations exhibit strong compliance levels, efforts are ongoing to enhance adherence to pension regulations across the board. Penalties for defaults and non-compliance are enforced through a system of recovery agents and a whistleblowing scheme, with additional incentives such as the requirement for a pension compliance certificate for government contracts. Despite the regulatory framework in place, challenges persist in fully realizing the benefits of the 25% pension access for mortgages. Aguda attributed this to high mortgage rates and emphasized the need for increased publicity and awareness to drive participation in the scheme. The requirement of a minimum contribution period of 60 months also serves as a condition for accessing this benefit. In conclusion, Nigeria's pension industry demonstrates resilience and growth potential, supported by favorable investment conditions and regulatory initiatives. Continued efforts to enhance compliance, promote diversified asset allocation, and improve access to pension benefits are essential for sustaining the positive trajectory of the sector.