Nigeria's total pension assets up 11.5% to ₦20.5tn in H1’24

Nigeria's pension industry has been a key player in the country's financial landscape, with total pension assets witnessing an 11.5% growth in the first half of the year, reaching ₦20.5 trillion. The Pension Fund Managers Sentiment Report highlighted that pension funds have a significant exposure to government securities, comprising over 63% of the total assets. Oguche Agudah, the CEO of the Pension Fund Operators Association of Nigeria, shed light on the factors influencing the industry's dynamics in a recent interview with CNBC Africa. One of the primary concerns discussed was the impact of the recent monetary policy decisions on the industry. Agudah emphasized that while the short-term effects of increased interest rates are beneficial for fixed income investments, there are looming concerns about the long-term impact on economic growth and borrowing. The recent 25 basis points hike in the monetary policy rate to 27.5% has implications for pensioners seeking higher returns in the short term while contemplating medium-term challenges. Inflation has been another focal point for pension fund managers, with fluctuations raising uncertainty within the industry. Despite recent spikes, there is optimism that inflation may moderate by Q1 of 2025, contingent on the efficacy of the central bank's policy instruments. This 'wait and see' approach reflects the cautious sentiment prevalent among pension funds regarding the broader economic outlook. The evolving landscape of the pension industry has seen a shift towards diversification beyond traditional fixed income securities. Agudah highlighted the increased interest in real assets such as green bonds, infrastructure investments, and private equity over the past five years. While acknowledging the market limitations, efforts are underway to enhance investment opportunities in these sectors by collaborating with stakeholders to introduce innovative instruments. Sukuk bonds, favored by pension funds for their infrastructure-oriented nature, have garnered substantial interest, with pension funds emerging as significant investors. Agudah underscored the targeted and transparent nature of Sukuk bonds, aligning with pension funds' preferences for traceable infrastructure projects. The industry's engagement with the government has indicated a growing appetite for more Sukuk issuances, signaling a positive trajectory for infrastructure investments. Micro pensions, aimed at tapping into Nigeria's vast informal economy, present a compelling opportunity for growth. Despite the informal sector comprising approximately 85% of the workforce, progress in micro pensions has been gradual. Addressing distribution challenges through strategic partnerships with technology firms, fintech companies, and telecommunications providers is crucial to reaching a broader audience across the country. Additionally, rebranding and repositioning micro pensions to appeal to a wider demographic may play a pivotal role in driving uptake and participation. As Nigeria's pension industry navigates ongoing challenges and explores avenues for expansion, stakeholders are optimistic about the sector's future prospects. The concerted efforts to enhance investment diversification, manage inflation uncertainties, and promote inclusive financial solutions are pivotal in ensuring sustained growth and stability within the pension ecosystem.