As Pension Sector Maintains Growth Trajectory 

In this report, Ebere Nwoji looks at the performance of the Contributory Pension scheme and review the growth trajectory recorded by the scheme, especially between the first and second quarter of this year.

The Contributory Pension Scheme (CPS) going by its performance since inception, especially in the Q2 this year has apparently positioned the pension sector  as one of the few sectors that have weathered the storm in the face of the ravaging economic downturn  plaguing businesses and high inflation rate affecting businesses in the country.

Indeed, the sector’s performance in the second quarter of the year  and various activities embarked upon by the regulator the National Pension Commission has proved that the CPS which Nigeria copied from Chile 20 years ago  is, after all, not a mistake, having to a large extent improved the   condition of pensioners in the country.

Going by the  Q2 report on  the sector released by PenCom, the pension sector has stood tall in terms of long term investible fund accumulation.

The sector currently sits on N20.48 trillion assets with over 100 million  registered contributors.

The operators, after a critical look at their performance, admitted that it has not been  wasted 20 years but years of reforms  and achievements. 

However, the sector operators said  one of the major challenges of the CPS scheme  over the years has been the need to get Nigerians see  the value of  financial planning through pension savings. According to the operators, after these 20 years of its existence, Nigerians know little or nothing about pension. They added that even those who know about the scheme do not have the trust as to understand that the sector is a protected industry as such  there should be no fear of loss of the saved funds.

At the 2023 media retreat organised by the Pension Operators Association of Nigeria(PenOp), the umbrella body of Pension Fund Administrators (PFAs),  the operators recalled that  the condition of pensioners during the pre Contributory Pension Scheme (CPS)  era was nothing desirable .They recalled that pensioners were nothing better than destitutes in different corners of the country, where they cluster to wait endlessly to collect their meager benefits .

The situation, they said, continued for many years due to lack of funding for the ‘Pay As You Go’ pension scheme practiced in Nigeria until in June 2004 when the former President Olusegun Obasanjo instituted a massive reform in the pension sector having adopted  the prevailing Contributory Pension scheme (CPS) from Chile to replace the Pay AsYou Go  system. 

The former President through the lawmakers enacted the Pension Reform Act that instituted the CPS establishing the National Pension Commission (PenCom) as the regulatory authority.

CPS and its objectives

The CPS which is contributory in nature is fully funded and is privately managed and ensures that every one who worked in Nigeria receives his retirement benefits as at when due.

It covered all employees in public and private sector but exempts all workers who had three years or less to retire and persons covered by the provisions of section 291 of the constitution of federal republic of Nigeria 1999. The main objective of the CPS is to ensure  that every person that worked in either the public or private sector in Nigeria  receives his or her retirement benefits as and when due.

One of the major difference between the old pension scheme and the CPS is that whereas the old pension schemes were not fully funded as such at retirement, the pensioners were not sure of getting their benefits due to paucity of funds, the CPS is fully funded. Money for settlement of workers at retirement is contributed and is waiting for collection at individual employee’s account ie Retirement Savings Account (RSA) .

The fund keeps growing as it is invested in various portfolio that yields interest with the result that today, the pension assets has grown from N2 trillion deficit to N20.48 trillion assets under management.

The funds keep on growing through yields from the various investments and new entrants into the CPS scheme.

According to report recently released by PenCom, for the second quarter of this year, the sector has witnessed significant growth in the second quarter of this year compared to what it was in the first quarter.

PenCom said during the period, number of contributors into the CPS rose  from 89,061 in Q1: 2024 to 100,063 in Q2: 2024. Just as remittance of  contributions increased by 20.26 percent during the period  from N314.17 billion in Q1:2024 to N377.83 billion in Q2:2024. 

The commission in the report dated September 10, 2024 said overall pension funds and assets witnessed 4.17 percent growth from N19.66 trillion as at Q1:2024 to N20.48 trillion as at Q2:2024.

The commission said the sector recorded this performance despite the challenges in the economy generally.

“The Nigerian economic landscape in Q2 2024 continued to experience a mix of growth and significant challenges, particularly with the rate of inflation, increasing to 34.19 percent in June, 2024 from 33.20 percent in March, 2024. The increase led to an upward adjustment of the Monetary Policy Rate (MPR) by the monetary authority from 24.75 percent in Q1:2024 to 26.25 percent in Q2:2024. Many other factors including depreciation of the Naira, sluggish agricultural productivity and increased transport costs due to fuel subsidy removal and regional instability has continued to affect the economic landscape and ultimately disposable incomes,” it said.

Giving an update on  Retirement Savings Account Registrations, the commission said a total  of 100,063 new RSAs were registered and associated PINs issued to employees in different sectors in the quarter ended 30 June 2024. 

Before the CPS establishment, government had huge deficit of over N2 trillion in pension but twenty years after the establishment of the CPS, the scheme has accumulated over N20trillion invested in various portfolios and retirement benefits paid.

Paid benefits via CPS 

Giving a breakdown of benefits paid to retirees through CPS the  Chief Executive Officer,  Pension Operators Association (PenOp), Mr Oguche Aguda said in the past 15 years Pension Fund Administrators (PFAs) have paid a total sum of N1.63 trillion to retirees in both public and private sectors under both programme withdrawal and annuity.

He  said the above figure was paid to 442,000 Nigerians who retired from services in various employments in the country during the period.

Aguda said out of the N1.63 trillion lump sum paid on both life annuity  and programme withdrawal, in the second quarter 2023  total life annuity payment stood at N665.1 billion. This, according to him, was received by 111.708 applicants. He said in third quarter 2022, a total of N595.22 billion was paid to 102,696 applicants as annuity lump sum.

He said in third quarter 2019, a total of N386.30 billion was paid as annuity life lump sum to 71,214 applicants while in the third quarter 2015, a total of N101.96 billion was paid to 20,615 applicants and in third quarter 2011, N1.51 billion was paid to 331 applicants as  annuity.

Key Issues in CPS Management

In his analysis of the sector’s performance, erstwhile PenCom Head of Survillance Department, Dr Ehimeme Ohioma said the three key issues in pension management which all PFAs must not joke with were adequacy, sustainability and service delivery .

According to him, pension payment must be adequate for retirees to solve their problems.

He however said for pension payment to be adequate, workers and their employers must contribute adequately because a worker’s contributions determine his payment at retirement.

Ohioma added that the pension system must be sustained to ensure continuity and to ensure that continuity, the managers must ensure that in this period of inflation, return on investment was above inflation, adding that this could be done through right choice of investment instruments and windows.

On service delivery, Ohioma said pension administrators must bear in mind that there must always be complaints from the contributors,noting that this being the case, it behoves operators and regulators to ensure that the complains were perfectly treated.

He said this explains why PenCom increased the capital of operators to ensure they have critical infrastructures to be able to serve the public. He highlighted capacity as another critical factor in ensuring successful pension management, disclosing that skills of individual pension fund managers needed to be constantly updated to meet acceptable standard.

According to him, these were the secret behind the accumulation of N17.65 trillion pension assets in Nigeria between June 2004 and  October 31, 2023 .

He said 64 percent of the assets were invested in federal government securities, 11 per cent in corporate debt and 8 percent in quoted equities while less than 1 percent was in private equities and infrastructure, stating that the sector was faced with the challenge of availability of windows for investment.

The PFAs have also within the period risen with the banner of micro pension scheme launched some years ago. Both operators and the regulator are working hard to promote the relevance of the micro pension scheme to the self employed and artisans.

PenCom said  a total number of 16,624 Micro Pension Contributors (MPC) were registered in the second quarter of this year by 15 pension fund administrators, bringing the total number registered MPCs from inception to 143,565 as at 30 June, 2024.