Pension Fund Administrators (PFAs) investment in banks, in the form of fixed deposit/bank acceptance, dropped by N60billion from N2.04 trillion in November 2022 to N1.94 trillion in December 2022, LEADERSHIP learnt.
Similarly, investment by pension fund operators in money market instruments dropped by N30billion from N2.13trillon it was at the end of November 2022 to N1.98 trillion as at December, 2022.
Data obtained from the National Pension Commission (PenCom) showed that, of the N14.99 trillion pension fund assets as at December 31, 2022, money market instrument gulped N1.98 trillion, which was 13.23 per cent of the assets, while corporate debt securities, got N1.66 trillion, 11.07 per cent.
According to PenCom, the Contributory Pension Scheme (CPS) has continued to gain traction as Retirement Savings Account (RSA) holders as at December 31, 2022 stood at 9.86million while Micro Pension Plan (MPP) subscribers were 89,327.
Money market instruments comprises of fixed deposits in banks, commercial papers as well as Foreign money market instrument.
On the other hand, 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 by LEADERSHIP shows that pension fund operators are gradually divesting the proceed of their matured bonds into the bank placements due to volatility in the bond market. However, the volume varies monthly depending on the market sentiment.
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.
LEADERSHIP investigation shows that, this was partly responsible for the growth of the pension assets to N14.99 trillion as at December, 2022, as investment income, of which bank placements contributed the highest, was one of the main drivers of the assets.
The chief executive officer (CEO) of 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 assets,” he said.
