The unspectacular record of PFAs

Pension asset

The assets under management (AUM) of the regulated pension industry increased by 13.0% y/y in January to N8.74trn (US$28.5bn) and by 1.2% m/m. They are growing at a healthy rate yet, at just 6.8% of 2018 GDP, are running well behind peer markets. Nigeria was relatively late (2004) with its legislation creating the framework for regulated pensions.

The South African industry dates from 1996, and its AUM represents more than 70% of comparable GDP. The industry in Nigeria has a need for greater depth.                                                                                                                  

  • The industry’s holdings of FGN paper amounted to 72.9% of their AUM in January, compared with 70.1% one year earlier.
  • The role of the PFAs in naira debt markets remains pivotal. Their holdings of FGN bonds at end-January represented 45.1% of the stock of the instruments at end-year.
  • The share of AUM invested in domestic equities has declined over 12 months from 9.7% to 6.6%. The NSEASI fell by 31.1% over the same period.
  • In addition to the uneven performance of the index, the PFAs are drawn to debt securities by their predictability, simplicity and ease of management (when compared with equities). It is not difficult to explain changes in valuations when portfolios are predominantly invested in FGN paper.
  • The latest PenCom data show a total of 8.46 million scheme memberships, implying an average portfolio of N1.03m (unchanged from December).

AUM of PFAs, Jan 2019 (% shares) Total: N8.74trn

Sources: National Pension Commission (PenCom); FBNQuest Capital Research
  • This average should decline now that the PFAs are able to market micro pensions for the self-employed and employees of small firms. The regulator has suggested an increase in AUM over an unspecified timeframe of N3trn.