Report: COVID-19 May Slow Pension Assets’ Growth by 8.5%

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Goddy Egene
The Nigerian Pension industry’s assets under management (AuM) has been predicted to witness a slow growth in 2020 and 2021, due to impact of the COVID-19 pandemic. As at 31 December, the Nigerian pension industry’s assets AuM stood at N10.2 trillion , representing an 18.6 per cent growth from the N8.3 trillion recorded at the end of 2018 and a 17.2 per cent compound annual growth rate over the last five years.

However, Agusto & Co, in its 2020 Pension Industry Report, said the growth would continue to grow albeit at a much slower pace of 8.5 per cent in 2020 and rising to 12 per cent in 2021, which is well below the compound annual growth rate (CAGR) of 17.2 per cent over the last five years.

“Going forward, Agusto & Co expects a considerable slowdown in AuM growth driven by lower contributions as unemployment is expected to rise significantly given the weakened macroeconomic environment following the COVID-19 pandemic. Job losses are expected to trigger higher benefit withdrawals as disengaged enrolees seek access to the 25 per cent lump sum drawings permitted by PenCom regulations for employees out of work for more than three months.

“Investment performance is also expected to fall considerably in line with the lower yields on government securities, which account for over 70 per cent of the Industry’s asset allocation. Nonetheless, we note positively the favourable demography of enrolees, which has over 73.8 per cent below the age of 50 indicating relatively low expectations of liquidity events such as lump- sum payments, annuities and programmed withdrawals.”

The report, however, noted that despite the notable strides in pension reforms and double-digit average growth in the last five years, Nigeria continues to lag behind some emerging markets in terms of pension penetration, with a pension AuM to gross domestic products(GDP) ratio of 6.8 per cent.

“The Industry’s AuM to GDP ratio falls below those of Kenya and South Africa with 13.2 per cent and over 120 per cent respectively but compares well with Ghana’s five per cent. The weak pension penetration has been due in part to the previous exclusion of Nigeria’s informal sector (which accounts for an estimated 65 per cent of GDP) and the low compliance rate of eligible organisations. Nonetheless, we note increased efforts by the Commission to ensure compliance and drive enrolee participation.

Most notable is the micro pension scheme (MPS). The micro pension scheme allows previously excluded self-employed persons and organisations with less than three persons to participate in the contributory pension scheme under more flexible rules. We remain unconvinced by the structure of the scheme for informal sector operators, given that compliance is optional and prior lessons from the National Health Insurance Scheme indicate voluntary compliance is unlikely to yield significant levels of enrolment,” the report added.