The cumulative investment returns on the nation’s N14.5trillion pension fund assets may have risen to about N2.7 trillion, translating to about 19 per cent of the entire pension assets, LEADERSHIP can exclusively reveal.
Although, it is quite difficult to calculate and get the exact returns on investment of pension assets, market sources put the returns slightly above N2.7 trillion from 2004 till now, which they said, were largely driven by investments in bonds market, with 70 per cent of the assets invested in federal government bonds and securities.
According the 2021 annual reports of the pension industry released by the National Pension Commission(PenCom), the investment income on pension assets in 2020 was N122.03 billion while N120.24 billion was realized as investment income in 2021 financial year.
In the last 10 years, however, market observers disclosed that the annual investment returns on pension fund assets had hovered between N100 billion and N150 billion, depending on the investment cycle and climate, believing the cumulative investment returns since the inception of the scheme in 2004, should be in the region of N2.7trillion. This would mean that the industry annual average growth is around N150billion.
While most of the funds were invested in bonds, a drastic fall in bond yields in 2020 has got pension operators thinking twice before reinvesting their matured Funds in the bonds, hence, found investment haven in the capital market then and currently, bank placements.
Investigation shows that, as at the end of August, 2022, pension funds managers have invested N2.27trillion from the 14.5trillion into money market instruments comprising of fixed deposits in banks, commercial papers as well as Foreign money market instrument.
While investment of pension fund in fixed deposits took the larger chunk of this investment accounting for N2trillion, commercial papers accounted for N157.7billion even as foreign money market instrument was N39.9billion as at the end of July, 2022.
In the review of the Monthly Unaudited Report on Pension Fund Industry Portfolio released by the National Pension Commission(PenCom) for the months under review, findings show that more than 90 to 92 per cent of the investments under Money Market instrument category went into Fixed Deposits, showing increased interest from pension fund operators as it gave better returns on investments of the N14.3trillion pension fund assets.
Fixed Deposits also known as Bank Placement or Acceptance is a short term investment instrument used by corporate organisations, such as Pension Fund Administrators(PFAs) to place fund in banks or other financial institutions at an agreed interest rate and tenor.
The tenor, however, hovers between 30 and 360 days, depending on the choice of the firm doing the placement.
Findings show that pension fund operators are gradually divesting the proceed of their matured bonds into the bank placements due to volatility in the bond market.
The fixed deposit, according to findings, is giving better interest income to pension fund operators, as they get as high as 8, 9 or 10 per cent interest or more within 90, 120, 150, 180 and 360 days, depending on the terms of agreement, meaning that, there is possibility they can turn over such placement two, three to four times or more in a year, unlike bonds that is stereotype and has a longer cycle.
This invariably means that, Pension Fund Administrators(PFAs) can get between 10 to 40 per cent return on investment on its invested funds in a year, depending on the agreed tenor. This investment instrument, as it stands, remains the highest yielding investment outlet for pension fund operators.
Further investigation shows that, this was partly responsible for the growth of the pension assets to N14.5trillion as at August, 2022, as investment income, of which bank placements contributed the highest, was one of the main drivers of the assets currently.
Responding to LEADERSHIP enquiry on the attraction of Pension Fund operators to bank placements in the current year, the head, Branding Committee of the Pension Fund Operators Association of Nigeria(PenOp), Mrs. Idu Okwuosa, said, the increased investment in bank placements by operators was as a result of the lull in the bond market as the process of the matured bonds find their way into this investment class.
Stating that the significant growth in pension assets was majorly from investment returns, Okwuosa, added that, interest from bank placements contributed majorly to the investment returns.
“Because of the issues in the bond market and a lot of attention on it, operators are increasing their stake in bank placements. It’s been profitable in terms of investment returns and the turnover is good. The growth in pension assets is also attributable to this. In the end, the major beneficiaries are the contributors who will continue to witness growth on the balance in their Retirement Savings Accounts(RSAs),” she said.
Similarly, CEO of the Pension Fund Operators Association of Nigeria(PenOp), Mr. Oguche Agudah, said, while pension operators work assiduously to grow the pension fund assets contributed by Retirement Savings Account (RSA) holders, they are very keen in balancing between safety and returns on investments.
Noting that safety is the first option adopted when investing in any asset, he maintained that, as part of efforts to grow the pension fund assets, operators are eyeing other alternative investment options aside from the government bonds and treasury bills.
“…the honest truth is that pension funds need to invest more in other assets classes outside of the government bonds and treasury bills which are the safest. So, safety is the first option adopted when investing in any asset.
Earlier, the managing director/CEO of the ARM Pension, Mr. Wale Odutola noted that, apart from attractive interest rate that comes with bank placements, it is also short-term which gives room for reinvestment and make more income within a year.
He promised that operators will continue to look for profitable alternative investment windows as interest rate nosedive in other areas.
Meanwhile, the former managing director/CEO, Fidelity Pension, Amaka Andy-Azike, stated that, “as operators, we focus more on the safety of funds when investing even as we try to also give fair returns on your investments.
Andy-Azike, who recently retired from the pension outfit, noted that, operators are currently looking out for other platforms that are safe to invest the funds, stressing that, safety of funds comes first in all investment the operators partake.
The director-general, National Pension Commission(PenCom), Mrs. Aisha Dahir-Umar, had said her commission is committed to ensuring the safety of pension funds, stating that, adequate structures have been established in this regard.
She also promised that the pension regulatory body will continue to develop and implement innovative polices to foster safety and fair returns on pension fund investment as the pension industry and financial system evolves.
“As the pension industry and financial system evolves, the Commission would also continue to develop and implement innovative policies to foster safety and fair returns on pension fund investment,” she added.
Meanwhile, Agusto & Co. estimates that growth in pension assets will slow from a five-year average of 19% to c10% in 2022 due to a combination of a muted interest rate environment and a slowdown in the rate of contributions which has been impacted by mass emigration and high unemployment. We, therefore, expect pension assets to reach N14.8 trillion by the end of 2022.
