Stories by Chiamaka Ajeamo [email protected] 08060655687
As a result of the N51.30 billion decline in pension funds’ assets in February due to the dwindling prices of the Fixed Income Securities, the Pension Fund Operators Association of Nigeria (PenOp) has said that diversification of investments is a crucial option needed to increase yields and curb against future losses.
The Chief Executive Officer, PenOp, Oguche Agudah, said this recently at a virtual event on financial reporting which was organised by the PenOp.
According to Agudah, Pension Fund Administrators (PFAs) are seeking other alternative investment options aside from government bonds and treasury bills to increase returns on investment.
He said: “We know there are concerns about the decline in the pension value of assets, and the honest truth is that pension funds need to invest more in other assets classes outside government bonds and treasury bills, which are the safest. So, safety is the first option adopted when investing in any asset.
“Currently pension funds cannot invest in foreign bills because there are regulations which need to be approved by the government. However, we are looking out for other various outlets and areas where the funds can be invested; areas like private equity, but the honest truth is that we need to balance between safety and returns. Notwithstanding, the industry is looking at other alternative investment instruments”, Agudah maintained.
For her part, the Head of Media, Communications and Branding Committee, PenOp, Amaka Andy-Azike, explained that the decline in the pension funds are unrealized losses according to the terms of equity market but pension funds operators are sourcing other means to increase yields.
“As operators, we focus more on the safety of funds when investing even as we try to also give fair returns on your investments. The decline in pension funds was because of the market volatility; the money market, bonds and treasury bills have been fluctuating due to the nature of what the economy experienced last year and is still going through.
“Fortunately, as we speak, the yields have increased greatly. Before now for instance, our money market yield was like 0.5 to 2 per cent but now some banks are offering 10 per cent.
“Indeed, the prices of bonds also decline; it was trending at 6 per cent in some areas for long-term and 4 per cent for short to medium term but today, yields on bonds have started trending upwards. So, if you do a revaluation of the previous loss on pension funds, you will discover that it is not up to N51 billion.
“Also, it is worthy to note that in equity market, most of these losses are not actual losses, they are unrealized losses because when the equity market goes up again, these yields will rebound and you will get much more. So, some of these losses are not realized losses and some have been corrected because there is an increase in yield now in all our instruments; and we are currently looking out for other platforms that are safe to invest the funds. So, for us, the safety of your funds come first in all investment we partake”.
According to the National Pension Commission (PenCom) February report, obtained from the Commission’s website, the total pension fund assets decreased by N51.3 billion from N12.29 trillion in January to N12.24 trillion at the end of February 2021.
The PenCom boss explained that the decline was majorly attributed to the depreciation in the prices of Fixed Income Securities (FIS) in the trading portfolios of the Approved Existing Schemes (AES), RSA Funds II & IV and Closed Pension Fund Administrators (CPFA).
“The values of the bonds in the trading portfolios fluctuate based on supply and demand of the underlying securities as well as the outlook of the financial market,” the report said.
The report further revealed that out of the N12.24 trillion pension assets, N8.13 trillion was invested in Federal Government securities, N7.34 trillion was invested in bonds; N676.71 billion in treasury bills; N11.91 billion in agency bonds; N90.66 in Sukuk and N12.22 billion was in green bonds.
It further noted that state government securities gulped N117.82 billion; while bank placement took N1.52 trillion; and commercial papers took N106.31 billion among others, the report explains.
Agudah, earlier, urged employers both in the private and public sectors to key into the contributory pension scheme, so as to secure the future of their employees, equally implored employers to dutifully and promptly remit workers’ monthly contributions.
He further stated that pension is a delicate matter that needs proper understanding.
“People are very emotional when it comes to their pensions. Any chance or story about their pensions getting lost, stolen, embezzled, or losing value causes a lot of negative emotions among contributors.”
Describing pensions and investments as technical issues, Agudah said: “We have a responsibility to break down salient aspects of the scheme and pensions in general to the public in simple, easy to read and understandable language.”
Presenting a lecture on financial reporting, the Chief Executive, Learning Impact Nigeria, Omagbitse Barrow, explained that the key areas in the pension system included compliance, contributions, investment, service support and withdrawal.
According to Barrow, the biggest change between the CPS and Defined Benefit Scheme (DBS) is that both employees and employers contribute noting that, the higher the contribution, the higher the funds.
Proffering solutions on how to boost retirement benefits for pensioners in the CPS, he said improving productivity and hard work would go a long way in boosting ultimate retirement benefits.
On withdrawal options at retirement, he bemoaned the lack of proper understanding on the mode of withdrawal of pension funds stressing that it stands as a big challenge to the growth of the industry.
He thereafter urged the public to seek understanding of the withdrawal modes so that they would be better informed on the exit options, which are; annuity and programmed withdrawals.
According to PenCom, the objectives of the contributory pension scheme are to ensure that every person who worked in either the public service of the federation, Federal Capital Territory, states and local government or the private sector receives his retirement benefits when due; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
“The provisions of the Pension Reform Act shall apply to any employment in the public service of the Federation, the public service of the Federal Capital Territory, the public service of the state, the public service of the local governments and the private sector.”