Nigerian pension industry looks promising despite low penetration

by | January 15, 2018 1:36 am

Nigeria has one of the lowest pension penetrations in the world but the future of the industry is promising given a favourable demography and economic growth.

Nigeria’s penetration of 7 percent is materially below the average of 56 percent countries considered, according to Chapel Hill Denham Limited in a recent report on Nigerian Insurance Sector.

“We highlight that the low penetration is traced to the informal sector and 16 state government s at that are yet to compile with the PRA 2014,” said analysts at Chapel Hill Denham Limited.

The country’s young which are 44 percent of the population and greater allocation to equities and new regulations could add impetus to sector growth.

The population of the country will likely spike to 431 million by 2050, based on World Bank estimates.

A recent report by the Pension Commission of Nigeria (PenCom) shows the agency targets covering 30 percent of the working population by 2024 while the 52.70 million Nigerians are fully employed.

According to the National Bureau of Statistics (NBS) pension fund assets under management have increased by N332 billion to N7.164 trillion in the third quarter of 2017, from N6.832 trillion in the second quarter.

The agency noted that 7.71 million workers were registered under the pension scheme in the quarter under review compared to 7.58 million registered workers in Q2.

A breakdown of the figure shows that FGN Bonds or fixed income securities make up 77.96 percent of the total assets allocation, followed by equities, 10.10 percnet.

The investment of pension fund has largely favoured fixed income securities, but we believe equities, real estate, and infrastructure will drive AUM over the long term, according to analysts at Chapel Hill Denham Limited.

Fixed income yields are falling due to government decision to slow down on domestic borrowings as investors have shifted to the equities markets on the back of appreciation in share price since the third half of last year.

There has been remarkable rally in the stock market since the central bank introduced the new window as the NSE ASE Index closed at 42.0 percent in 2017, the third best in the world.

Nigerian stocks have gained strongly in January, extending 2017’s 43 percent rise. The rally has taken the index up 12.55 percent since the start of the year.

The country’s pension industry remains attractive given international investor interest in the industry.

“International investors and financial sponsors have shown significant interest in the industry with Actis and Helios acquiring stakes in Sigma pensions and ARM respectively,” said analysts at Chapel Hill Denham Limited.