While the nation’s pension fund assets grew by N16.06 trillion, inflation, forex volatility and naira depreciation depleted the assets over 100 per cent in dollar terms in the last 10 years, LEADERSHIP Sunday can exclusively reveal.
LEADERSHIP investigation shows that, as at June 2014, when one dollar was exchanging at N163, the pension assets were actually at N4.42 trillion and $27.15billion when dollarised, however, as at June 2024 when pension fund went to N20.48 trillion, it nosedived to $13.31billion in dollar terms as the international currency was trading at N1,539 then.
Within the space of 10 years, LEADERSHIP analysis revealed that the assets lost over 100 per cent in value when dollarised, a development that was triggered by high inflation and Naira devaluation.
While efforts have been put in place to rescue the nation’s currency from incessant fall by the monetary authority, ably led by the Central Bank of Nigeria (CBN) in recent times, these efforts are yet to yield noticeable positive effect on the strength of the Naira.
However, to enhance the strength of the pension assets , it was learnt that the pension industry regulator, that is, the National Pension Commission (PenCom) is intensifying efforts at encouraging the floating of inflation-indexed bonds in order to enhance real returns on pension investments, among other initiatives.
On the other hand, the pension industry has been pushing to invest a portion of the assets offshore in hard currency denominated instruments to combat this challenge and hedge the risk of devaluation.
Investment analysts who spoke to LEADERSHIP Sunday on this development, noted that the significant rise in pension assets in naira terms between 2014 and 2024, accompanied by a 100 per cent drop when dollarised, has substantial implications for investment, contributors, and pension assets.
On his part, the chief operating officer of InvestData Consulting Limited, Ambrose Omordion said, “the significant rise in pension assets in naira terms between 2014 and 2024, accompanied by a 100 per cent drop when dollarised, has substantial implications for investment, contributors, and pension assets.”
According to Omordion, the drastic depreciation of the naira against the US dollar erodes the purchasing power of pension assets, affecting the standard of living of retirees. He noted that the volatility of the naira may discourage foreign investment, leading to reduced economic growth and development, saying contributors may worry about the safety and value of their pension savings, potentially leading to decreased confidence in the pension system.
In enriching the pension asset to make impact on the economy, he advised, “pension asset managers to invest in a diversified portfolio of assets, including foreign currencies, to mitigate the risks associated with naira depreciation.
“Pension funds can also be invested in inflation-linked instruments, such as treasury bills or bonds, to protect the value of pension assets from inflation, invest in infrastructure development projects, such as roads, bridges, or real estate, to stimulate economic growth and create jobs. Educate contributors on the importance of pension savings, investment options, and retirement planning to promote financial literacy and security.”
He also called for the strengthening of the regulatory framework governing pension funds to ensure transparency, accountability, and protection of contributors’ interests, noting that, by implementing these strategies, Nigeria can promote a stable and sustainable pension system, protecting the interests of contributors and supporting economic growth and development.
However, the vice president of High Cap Securities, David Adonri explained that, “contributions to pension funds and payment to retirees are in naira. The assets they invest in are denominated in naira.
“Pension Fund Administrators(PFAs) are highly regulated in terms of the type of assets they can invest in. I do not think pension funds are supposed to be exposed to currency risks through investment in foreign currency denominated assets. Therefore, the valuation of the fund using any foreign currency is not tenable as its impact is designed by law to be domestic.”
Meanwhile, the executive secretary/CEO, the Pension Fund Operators Association of Nigeria(PenOp), Oguche Agudah said, pension assets have indeed grown significantly in local currency over the last ten years, adding that, for example, over the last five years, pension assets have a compounded annual growth rate of over 20 per cent.
Responding to LEADERSHIP enquiry yesterday, Agudah noted that, the growth is a testament to increasing contributions from the public and private sectors but also the investment returns in recent years, saying, pension funds have been able to maximise their asset portfolios, investing in different asset classes, including alternatives and fixed income instruments which have been impressive as the high yield environment has also helped.
However, he said, the devaluation of the currency is something the industry has had to deal with, adding that, “bear in mind, devaluation isn’t peculiar to pension assets alone but something that affects every single local investment in the country. It’s a challenge that we all face, banks, asset managers, manufacturers, businesses and even the government.”
To combat this challenge and hedge the risk of devaluation, he disclosed that the pension industry has been pushing to invest a portion of the assets offshore in hard currency denominated instruments. In addition, he said, the industry has been working on creative ways to use its naira assets to buy foreign currency linked investments, where contributors’ assets receive foreign currency proceeds.
“For example, PenOp in conjunction with some of the security exchanges in the country just held a session sensitising the industry on Global Depository Receipts, which we believe will soon be an investable security for pension funds. This will allow pension funds to use their naira and buy instruments that have foreign assets as their underlying securities.
“These are just some of the ways the industry is looking to hedge the currency risks the assets face. Through these means, the industry is committed to retaining long term value for contributors and we believe our performance over the last years underscore this,” he pointed out.
Moreover, the head, Corporate Communications , PenCom, Ibrahim Buwai, noted that, the Naira devaluation relative to the Dollar doesn’t have the direct correlation insinuated. “This is because the pension contributions as well as the liabilities of pension payments are all designated in Naira. So, it doesn’t mean that when Naira loses value, a pensioner will get less Naira as pension. He will get exactly what he’s entitled to from the onset regardless,” he stated.
To him, “where such devaluation directly results in higher inflation rates, that could, in a way, affect real returns on investments generally in the economy. PenCom is intensifying efforts at encouraging the floating of inflation-indexed bonds in order to enhance real returns on pension investments, among other initiatives.”
We’ve got the edge. Get real-time reports, breaking scoops, and exclusive angles delivered straight to your phone. Don’t settle for stale news. Join LEADERSHIP NEWS on WhatsApp for 24/7 updates →
Join Our WhatsApp Channel
