Unpacking Q1’23 pension industry performance

The pension industry in Nigeria is experiencing a significant shift as data from the National Pension Commission for the first quarter of 2023 reveals that nearly half of the new Retirement Savings Accounts (RSAs) registrations are workers in their twenties. This demographic trend is seen as a positive development for the fund and the country as a whole, indicating that more young people are entering the workforce and starting to save for retirement. Oguche Agudah, CEO of Pension Fund Operators of Nigeria, highlighted some key takeaways from the Q1 report. He pointed out that 50 percent of the new registrations for the first quarter of 2023 were below 30 years old, emphasizing the importance of young contributors to the pension fund. The total value of pension funds in the first quarter was approximately 15.4 trillion naira, with 65 percent of the funds invested in government bonds and the rest distributed across equities, money markets, infrastructure investments, alternatives, and offshore investments. One significant aspect of the data is the growth in funds, which increased by about 4 percent quarter on quarter, representing a growth of approximately 820 billion naira. Agudah noted that the growth is driven by new contributions and investment returns, underscoring the overall health of the pension industry in Nigeria. The age distribution of new RSA registrations also impacts how the funds are allocated across different asset classes within the portfolio. Agudah explained that Nigeria operates a multi-fund structure, allowing individuals to choose how their funds are invested based on their age group. Younger contributors, such as those in their twenties, are encouraged to opt for riskier investments with potentially higher returns since they have a longer time horizon for their investments. Compliance within the private sector is another crucial aspect of the pension industry, with penalties enforced on defaulting employers. Agudah highlighted that the Pension Fund Operators have been proactive in ensuring compliance and have recovered significant amounts from defaulting firms, totaling about 38 million naira in the first quarter of the year. Penalties serve as a deterrent, but Agudah emphasized the importance of combining legal measures with moral suasion and incentives to promote compliance among employers. In addition to unpacking the Q1'23 performance data, Agudah addressed some controversial developments in the pension space, including bills seeking to exempt certain groups, such as the police and employees of the National Assembly, from the contributory pension scheme. Agudah expressed strong reservations about these bills, arguing that reverting to a defined benefits scheme would be regressive and undermine the transparency and efficiency brought about by the contributory pension scheme. Looking ahead, Agudah highlighted areas for improvement in the pension industry, such as diversifying investments to include offshore options, enhancing state compliance with the contributory pension scheme, and expanding outreach to informal markets to increase pension coverage. Overall, the pension industry in Nigeria is experiencing a transformation driven by a surge in young workers participating in the retirement savings scheme. As stakeholders continue to navigate regulatory changes and strive for greater efficiency and transparency, the sector is poised for further growth and development in the coming quarters.