Weighing the impact of Nigeria’s pension reforms
As the year winds down, we will assess the impact of almost 20 years of pension reforms in Nigeria. Oguche Agudah, the CEO of the Pension Fund Operators Association of Nigeria joins CNBC Africa for this discussion.
Wed, 20 Dec 2023 06:08:19 GMT
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AI Generated Summary
- Significant growth in the number of pension contributors, reaching over 10 million by the second quarter of 2023.
- Potential for further expansion in the informal sector, targeting over 60 million individuals to join pension schemes.
- Focus on infrastructure investments, USD-denominated assets, and promoting financial literacy among young people to drive the future growth of the pension industry.
Nigeria has seen almost two decades of pension reforms, with significant milestones achieved in the sector since the Pension Reform Act was signed into law in June 2004. Oguche Agudah, the CEO of the Pension Fund Operators Association of Nigeria, reflected on the progress made during an interview with CNBC Africa. Over the years, the pension landscape in Nigeria has undergone a transformation, moving from a haphazard and uncoordinated system to a more structured and transparent one, largely managed by private sector entities. This shift has brought about increased levels of professionalism, transparency, and growth, attracting new investors to the country. As Nigeria marks this 20-year milestone, it's crucial to celebrate the successes of the pension reform journey and look ahead to the future possibilities and challenges that lie ahead. One of the key achievements highlighted was the growth in the number of pension contributors, which has increased significantly from 2 million in 2007 to over 10 million as of the second quarter of 2023. While acknowledging the room for further growth, Agudah emphasized the trust that has been built in the system over the years, paving the way for more individuals to participate in pension schemes. However, there is still untapped potential in the informal sector, which comprises over 60 million people in Nigeria. Despite the slow progress in this segment, plans are underway to leverage technology and partnerships to encourage more individuals to join pension schemes. The CEO stressed the importance of broadening pension coverage to prevent a future societal crisis. The interview also delved into the comparison between the private and public sectors in terms of pension contributions. The federal government, being the largest employer of labor, has played a significant role in pension payments, contributing around 4.3 trillion naira over the last 19 years. Similarly, compliance has been strong in the private sector, with large corporations leading the way in meeting their pension obligations. In terms of pension fund investments, Agudah noted that the industry has witnessed steady growth and returns over the years. With a compound annual growth rate of around 20%, pension assets have demonstrated resilience despite market fluctuations. The focus is now shifting towards alternative investments to further enhance returns. Infrastructure investments have also been a key area of interest for pension funds, with over 300 billion naira invested directly in infrastructure projects. Plans are underway to explore more opportunities for direct infrastructure investments in the future. Another crucial topic discussed was the potential for Nigerian pension funds to invest in USD-denominated assets to hedge against currency devaluations. Agudah expressed optimism that progress would be made in this area in the near future to address currency risks faced by pension funds and contributors. The interview also touched on the innovative initiative that allows pension contributors to use part of their funds for mortgages. With over 1,000 contributors benefiting from this scheme, the potential for more Nigerians to own homes through their pension savings is significant. Looking ahead to the next year, which marks the 20th anniversary of pension reforms in Nigeria, the focus will be on celebrating the industry's contributions to the economy and promoting retirement dignity for all. Initiatives to improve financial literacy among young people through social media outreach and engagement activities are also in the pipeline to ensure that the next generation is well-equipped to manage their pension savings effectively. Overall, the journey of pension reforms in Nigeria has been marked by achievements, challenges, and opportunities, and as the sector continues to evolve, it remains a critical pillar of financial security and economic development for the country.