Pension Assets Grow but Pension Penetration is Low

Ø  Pension assets in Nigeria grew consistently between 2013 and Q1 2018 but, at 6%, its ratio to the Gross Domestic Products (GDP) remains one of the lowest amongst certain selected countries

Ø  The proportion of the pension assets that was allocated to infrastructure funds increased from 0.03% in 2015 to 0.1% in Q1 2018. The allocation to the infrastructure funds is lower than the limit of 10% to that asset category

Ø  Inadequate infrastructure funds are mainly responsible for the low allocation of the pension fund to the infrastructure funds. We see opportunities for the development of acceptable infrastructure funds in the market that pension assets can invest in

Ø  The high unemployment rate in the country at 18.8% as at Q3 2017 and low pension payment compliance level (particularly from the state government and informal sector) have limited the growth rate of the pension assets

Ø  Federal Government of Nigeria (FGN) Securities accounted for 70.37% of total pension assets. This is followed by ordinary shares and money market instruments at 9.25% and 8.20% respectively

Ø  Looking at the pension fund investment guidelines under the new multi-fund structure which the National Pension Commission (PenCom) will begin implementing on 1 July 2018, more funds may be assigned to the equity investment

Ø  The expected additional fund allocation to the equity market may change the current downward trend in the equity market as the market receives more liquidity. Stocks that have strong fundamentals and that pay interim dividend may attract the expected investment from the PFAs

Ø  The implementation of the Micro Pension Plan (MPP) should boost the growth of the pension assets in Nigeria. Also, as the Nigerian economy continues to recover and grow, creating and restoring lost jobs, contributions to the pension funds should increase.

Source: FSDH Group Research