Pension assets to close at N19trn in 2024 – Agusto & Co

Pan-African credit rating agency and research firm, Agusto & Co has predicted that the country’s pension assets under management (AUM) will hit N19 trillion at the end of 2024, in a 13 percent increase year-on-year.

The agency in a report on pension industry released weekend projected that this growth will be supported by an anticipated increase in rates on fixed-income securities, specifically bank placements and a continued upswing in the stock market.

The industry AUM as of May 2023 is standing at N16.1 trillion, representing a 13.5 percent increase from the corresponding period in the prior year.

“Agusto & Co. is optimistic that the current rally in the equities market, marked by an impressive 27.37 percent surge in the NGX All-Share Index (ASI) in the past one year, underpinned by the raft of reforms ushered in by the new government will be sustained in the near term.”

Agusto & Co said “given the NGX’s bullish stance in the Nigerian Stock Exchange (NSE), we expect PFAs to realign their investment portfolios to capitalise on favourable market conditions, which could potentially amplify investment returns in the near to medium term”.

The agency maintained that the steady rise in contributions will be driven by robust regulatory oversight and increasing awareness of the micro pension scheme. However, it is critical to recognise that increased emigration, job losses, and rising inflation may pose a significant risk to our projections. These factors have the potential to impede pension asset growth by delivering negative real returns on investments, it noted in the report.

Nigeria has the second-largest pension industry in Africa with assets under management (AuM) of N16.1 trillion ($34.9 billion ) as of May 31, 2023, representing a 13.5 percent increase from the corresponding period in the prior year. This growth was primarily fuelled by robust investment returns and, to a lesser extent, by additional contributions, mirroring the patterns observed in other well-established pension markets.

Read also: Pension assets hit N15.5trn in February

The industry as also witnessed a notable increase in the number of new contributors, surpassing three hundred thousand individuals. As a result, the total membership of the contributory pension scheme (CPS) reached 9.9 million RSA enrollees as at 31 May 2023, reflecting a 3 percent growth compared to the corresponding period.

The upswing in the number of enrolees, the agency noted can be attributed to the commendable rise in compliance levels across both the private and public sectors, coupled with the intensified marketing activities undertaken by pension fund administrators (PFAs).

“A significant informal sector (estimated at 65 percent of GDP), an elevated inflation rate of 22.41 percent, a high poverty rate of 40 percent, and restricted investment options afforded by the Nigerian capital market continue to restrain the expansion of the industry. Particularly, the real value of pension assets continues to shrink as the real return on 364-day Treasury Bills remains firmly in negative territory (averaging -13.3% so far in 2023).”

On the market structure, Agusto & Co. notes that a significant majority of the Industry’s assets, precisely 67 percent, are under the management of the top five players in the industry, aforementioned players, collectively command an impressive 56 percent share of the Industry’s enrollee base.

With the increased awareness of the transfer window and its operational mechanisms, coupled with the notable entry of two prominent holding companies in Nigeria, namely Access Holdings and GTCO Holdings, into the industry, Agusto & Co. anticipates an elevated level of competition among PFAs as they strive to expand their enrollee base.

“From our perspective, the integration of innovation driven by technology and the enhancement of customer service will serve as pivotal factors in driving the performance of PFAs in the near to medium term.”

“However, it is important to note that this may not have a substantial impact on the market share dynamics within the industry, as the leading players have consistently maintained their dominant positions, particularly through their innovative utilisation of technology and brand strength. However, Agusto & Co. foresees significant shifts occurring within the ranks of the top five players in the short to medium term.

Agusto & Co also noted that the industry continues to operate within a highly regulated environment, positioning itself as a significant player in the financial services sector. The National Pension Commission (PenCom) remains steadfast in its commitment to implementing initiatives aimed at bolstering transparency and fostering active engagement in pension schemes. In particular, PenCom successfully introduced the groundbreaking ‘RSA for Mortgage’ initiative in 2022, which empowers enrollees to leverage a portion of their RSA balances as valuable equity for acquiring mortgages, opening up a new avenue for them to fulfil their dreams of homeownership.

“From our perspective, it is imperative to enhance the visibility of this policy in order to achieve optimal outcomes.”

Agusto & Co. anticipates that stakeholders will proactively undertake initiatives to amplify awareness of the policy, thereby guaranteeing its long-term sustainability and efficacy.

“We firmly believe that the highest adoption rates will be observed among individuals belonging to the middle-upper income bracket, who can afford to buy homes in the first instance,” the rating body wrote.