- Continued devaluation of the Naira has pushed pension managers of IOCs to increase their investments in foreign instruments
- According to Nigerian pension laws, only foreign-affiliated PFAs can invest offshore
- This has led to calls from local PFAs to be allowed to invest some of their assets abroad to hedge against inflation and further naira devaluation
To hedge against further depreciation of the Naira, Closed Pension Fund Administrators (CPFAs) attached to International Oil Companies (IOCs) are increasing their investments in foreign money market instruments.
The unaudited report on pension funds industry portfolio for the period ended May 31, 2024 published by the National Pension Commission (PenCom) showed that CPFAs invested N107.1 billion in May.
The amount is 10.2 per cent higher than the 97.2 billion it recorded in April 2024.
The report also showed that CPFAs stake in foreign ordinary shares increased by 9.3 per cent from N245.9 billion in April to N268.7 billion in May 2024.
The report also indicated that total pension fund assets grew by 2.02 per cent from N19.8 trillion in April to N20.2 trillion in May. Also, registration for Retirement Savings Account (RSA) increased by 0.4 per cent from 10,315,034 recorded in April to 10,351,624 in May.
Why only IOCs pension managers?
There are 19 Pension Fund Administrators (PFAs), six CPFAs and three Pension Fund Custodians (PFC) in Nigeria’s pension industry. Three of these CPFAs, which are Agip CPFA Limited, Shell Nigeria CPFA Limited and TotalEnergies EP Nigeria CPFA Limited, are affiliated to IOCs.
According to the prevailing pension law in Nigeria, only foreign-affiliated CPFAs can invest in foreign instruments while local PFAs and the other three CPFAs can’t.
Allow us invest offshore, naira eroding our assets – Pension managers
Pension fund managers noted that the reduction in foreign exchange (FX) earnings and domestic equities has affected pension growth.
This has spurred calls from the Pension Fund Operators Association of Nigeria (PenOp) for the amendment of the Pension Reform Act to permit PFAs to invest some of their pension assets offshore in order to mitigate losses occasioned by the depreciation of the Naira and soaring inflation.
Over the last five years, pension assets in dollar terms have depreciated by 54.6 per cent from $33 billion in 2019 at an exchange range of N396/$ to $15 billion at an exchange range of N1,309/$ as of April 2024.
This means that in the five-year period between 2019 and April 2024, pension fund managers lost $18 billion in Naira depreciation despite the supposed growth in pension assets within the period.
According to data from PenCom, pension assets grew from N10.21 trillion as of December 2019 to N19.78 trillion as of April 2024.
To mitigate further losses, PenOp members, at the fourth PenOp National Assembly Retreat organised for members of the House Committee on Pensions and members of the Senate Committee on Establishment and Public Service in Lagos, reiterated calls to be allowed to invest in dollar-dominated assets or indexed bonds.
Dave Uduanu, Managing Director, Access Pensions Limited, called on government to issue inflation-indexed bonds as practiced around the world, to safeguard the country’s savings.
He said, “Pension assets should be invested in offshore assets to help hedge inflation and currency devaluation.
“Government should issue inflation-indexed bonds to safeguard the country’s savings because this is what is practiced in other parts of the world to track inflation rate.”
Another PenOp member and Managing Director of PAL Pensions Limited, Sa’ad Jijji, said despite growth in pension assets, inaccessibility of foreign FX to PFAs has made it difficult to manage the volatility caused by Naira devaluation even though PFAs are allowed by investment regulations to invest in dollar instruments.
“APC Impact?” Nigeria’s economy drops to 4th largest in Africa, loses $315.8bn in 10 years
Meanwhile, TheRadar reported that Nigeria’s economy lost $315.8 billion in the 10 years between 2014 and 2024. It fell from being the first largest economy in Africa to the fourth in the 10-year period.
Between 2023 and April 2024, Nigeria lost an estimated $122.2 billion, dropping from third to the fourth largest economy in Africa.
