Leading rating agency Agusto & Co, has predicted that Nigeria’s pension assets will rise by over 14 per cent by the end of this year and an average of 12.5 per cent over the next five years.
The agency in a survey of the pension industry, revealed that the global pension industry had an estimated assets under management (AuM) of $41.1 trillion, which represented 53.9 per cent of global AuM, while Nigeria’s pension assets stood at N8.6 trillion at the end of 2018.
The report further disclosed that, the N8.6 trillion was 13.4 per cent higher than the previous year and showed a 17.6 per cent compounded growth rate (CAGR) over the past three years.
It says, “This growth is attributed to net inflow of 36.8 per cent and investment returns of 63.2 per cent. Over the past three years, the industry’s growth has been dominated by investment returns, a marked departure from previous trends where net inflows accounted for the majority of the industry’s growth.
“As at March 2019, the industry’s AuM rose further to N9.03 trillion ($25 billion) and we expect the Industry’s growth to exceed 14 per cent in 2019 supported by an improved macroeconomic environment that would drive increased contribution and limit the incidence of 25 per cent lump sum withdrawals.
“Investment returns are likely to improve in 2019, largely driven by higher interest rates, which we expect to spike in the second half of 2019,” Agusto & Co noted.
The report also revealed that competition in the pension industry has been quite intensive over the past three years, noting that with the transfer window still closed, competition in the industry largely revolves around prospecting first-time enrolees and institutional gratuity funds.
“The introduction of Micro-Pension Scheme has elevated the level of competition in the Industry and we expect it to further intensify with the opening of the transfer window. In assessing the competitive position of operators in the Pension Industry, we reviewed key parameters including: market share of AuMs, market share of enrolees, percentage growth in AuMs, absolute growth in AuMs, and AuMs per RSA holder for each operator,” it stated.
However, the agency stated that investment returns in the pension industry averaged 9.4 per cent in 2018, with only eight operators outperforming the industry average, representing a significant drop from the 16.2 per cent average returns in 2017.
“The industry’s underwhelming performance in the year reflects the depressing performance of the Nigerian equity market, which dipped by 17.8 per cent in 2018. In addition, the declining yields in the fixed income market negatively impacted returns”.
Projecting the future, Agusto & Co, noted that there was indeed substantial avenue for growth in the industry with only 12.2 per cent of Nigeria’s employed population covered by the scheme.
“We view positively the commencement of the Micro Pension Scheme (MPS), which we believe would increase the industry coverage ration and help ramp up AuM. Nonetheless, we are of the view that the success of MPS would hinge on the ability of both the regulators and operators to offer value-adding sweeteners such as minimum pension guarantees as well as health insurance benefit,”, Agusto & Co stated.
A recent report released by the National Pension Commission (PenCom) showed that Nigeria’s pension assets stood at N9.32 trillion in June 2019. The report indicated that Pension Funds Assets grew substantially in June as against that of March which was N9.03 trillion, this growth indicates an increase of N294.9 billion in June.