Assets of Pension Fund Administrators rise to N16.8 trillion – Coronation Economic Note
The assets under management (AUM) of Pension Fund Administrators (PFAs) rose by 17.5% y/y to N16.8 trillion in June ’23, according to the most recent monthly data made public by Nigeria’s Pension Commission (PENCOM). The AUM increased on a monthly basis by 6.3%.
We observe that in June 2023, 64.8% of the entire AUM was made up of FGN debt securities. ’23, as opposed to the 64.2% observed over the same period in 2022. The Pension Fund Administrators’ (PFAs’) total holdings of FGN debt instruments climbed by 20%. 3.8% monthly and y/y, respectively.
Given the high inflation (now 22.79% y/y), the PFAs exposure to FGN securities can be linked to their preference for risk-free assets that provide a higher return on investment. Furthermore, the CBN’s monetary policy rate increases have helped to produce relatively high fixed-income returns.
The MPC raised its policy rate by 25 bps to 18.75% at its meeting on July 23, which was the CBN’s fourth straight rate increase this year.
The Debt Management Office (DMO) has raised N3.2 trillion as of the end of the first quarter of 23 through FGN bond auctions, or roughly 45% of its anticipated domestic borrowing target of N7.5 trillion. Given that the ICM remains expensive for emerging economies as a result of advanced economies’ contractionary monetary policy stance, we anticipate continued reliance on domestic borrowing.
NTBs owned by PFAs decreased slightly by -3% m/m to N192.4 billion in June ’23, according to the PENCOM data. While this was happening, the average NTB yield jumped by +17bps month over month. Just 1% of the total PENCOM AUM for that month was made up of this asset class. State government securities held by PFAs climbed by 72.4% year over year to N277.4 billion in June 23 compared to N160.9 billion in the same period of 2022.
Domestic equities holdings reached N1.2 trillion, up 29.9% year over year, and made up 7.5% of the overall AUM in June ’23. On the strength of the most recent fx liberalisation policy, the stock market has continued to post strong increases. We observe that in June of 23 the NGX all-share index (NGX-ASI) increased by 9% monthly.
According to a separate report made public by PENCOM, the total pension contributions made under the contributory pension plan (CPS) increased marginally by 2.3% at the end of the first quarter of 2013 to N8.7 trillion from N8.5 trillion recorded in the third quarter of 2012. This growth can be partially attributed to more people enrolling in the CPS as members. In the first quarter of ’23, there were N4.5 trillion in governmental pensions and N4.2 trillion in private pensions.
In an effort to include the unorganised sector of the economy in the pension system, 3,898 new participants in the Micro Pension Plan (MPP) were registered in the first quarter of 23. This increased the overall number of participants in the MPS from 89,327 in the previous quarter to 93,225. Despite political unrest and Naira scarcity that hindered economic activity at the time, these advances were made.
The increase can be partially ascribed to seminars on sensitization and enlightenment that were held throughout the six geographic regions of the nation during the study period. It is vital for PFAs to capitalise on this success by stepping up awareness campaigns across all states to increase participation in the MPS from the informal economy. SOURCE: Coronation Economic Note by Coronation Merchant Bank.
