Business

April 11, 2024

Transfer of pension money out of Nigeria escalates

Pension fund

•As January 2024 outflow outstrips entire 2023  

•Q1’24 figures    set to exceed N1trn 

 •Local pension fund managers lament fate

•Stakeholders call for level playing field

By Rosemary Iwunze

Apparently driven by instability in Nigeria’s foreign exchange market, pension managers affiliated to foreign partners are now intensifying transfer of accumulated pension assets to their home countries.

Financial Vanguard findings reveal that about N416.4 billion was moved out of Nigeria to overseas financial investments in January 2024 alone, far more than N251.1 billion in the fourth quarter of 2023, Q4’23.

The outflow had grown by N124 billion in the entire 2023 but it grew by N165.3 billion in January 2024 alone, a development which pension industry observers believe will see first quarter outflow in excess of N1 trillion. 

The pension industry has 19 Pension Fund Administrators (PFAs) and five CPFAs while three of the CPFAs are affiliated to internationally oil companies namely, Agip CPFA Limited, Shell Nig. CPFA Ltd, and TotalEnergies EP Nigeria CPFA Limited.

Under Nigeria’s existing pension law, the local PFAs and the other two CPFAs are not permitted to invest offshore, while the foreign affiliated CPFAs are allowed to invest offshore.

This pattern, according to industry operators, is not balanced because while the affiliated CPFAs have more investment options, the local PFAs are confined only to the Nigerian market.

They also argue that while the pension assets of the foreign affiliated CPFAs can withstand any naira devaluation, the pension assets of PFAs can be easily eroded in the event of massive naira devaluation.

Meanwhile, analysis of data released by the National Pension Commission, PenCom, show that in January 2024, PFAs investment in domestic ordinary shares increased by 18.75 per cent to N1.9 trillion from N1.6 trillion recorded in December 2023, however, affiliated CPFAs investment in foreign ordinary shares jumped by 58.5 per cent to N320.5 billion from N202.2 billion recorded in December 2023.

On the other hand, PFAs investment in local money market securities in January  2024 declined by 0.61 per cent to N1.61 trillion from N1.62 trillion in December 2023, however, CPFAs investment in foreign money market securities skyrocketed by 96.1 per cent to N95.86 billion from N48.88 billion recorded in December 2023.

Further analysis of the data show that in the fourth quarter of 2023, Q4’23, PFAs investment in domestic ordinary shares increased by 14.3 per cent to N1.6 trillion from N1.4 trillion recorded in Q3’23, however, CPFAs investment in foreign ordinary shares jumped by 31.6 per cent to N202.2 billion from N153.7 billion in Q3’23.

In Q3’23, PFAs investment in local money market securities increased by 2.06 per cent to N1.59 trillion from N1.56 trillion, meanwhile CPFAs investment in foreign money market securities skyrocketed by 36.14 per cent to N50.9 billion from N20.79 billion recorded in Q2’23.

In Q2’23, PFAs investment in domestic ordinary shares climbed by 21.6 per cent to N1.27 trillion  from N1.04 trillion recorded in Q1’23 while CPFAs investment in foreign ordinary shares jumped by 67.41 per cent to N192.3 billion from N114.8 billion recorded in Q1’23.

On the other hand, PFAs investment in local money market securities declined by 10.15 per cent to N1.56 trillion from N1.73 trillion recorded in Q1’23 while CPFAs investment in foreign money market securities skyrocketed by 79.70 per cent to N37.4 billion  from N20.79 billion.

 CPFAs

Pension schemes in the private sector existing prior to the introduction of the Contributory Pension Scheme (CPS) in June, 2004 were allowed to continue as CPFAs, subject to guidelines issued by PenCom. The companies are required to have operated a fully funded existing pension scheme with assets of at least N500 million. A condition precedent on the issuance of a CPFA license is that the company must possess the requisite capacity for the management of pension fund assets and show that it had managed its pension scheme effectively for at least five (5) years prior to the commencement of the CPS.

 Operators’ insight

Meanwhile operators in the pension sector have called for a level playing field in the investment of pension funds to forestall the erosion of pension assets in the event of massive devaluation of the naira.

Speaking on the situation, Chief Executive Officer of the Pension Fund Operators Association of Nigeria, PenOp, Mr. Oguche Agudah, said that investing more of the pension funds offshore will help to preserve the value of the assets.

Agudah said: “It is necessary that the window to invest offshore is open to all because anytime there is devaluation in the value of the naira, the contributors and the retirees lose value and purchasing power. If the pension funds are able to invest offshore or in dollar linked securities, then it will help to preserve value anytime there is devaluation.”

According to Agudah, investing offshore helps to diversify pension assets, adding “If we invest solely in one market, we are susceptible to events in that market. It is just the CPFAs that are investing offshore now because they have access to dollars and their sponsors also have access to dollars so that they can make those investments but for the open PFAs, that window is not there for them.

“So if the currency is losing value, the pension assets will also lose value. So at least there should be an option for offshore investment and it will benefit everyone. CPFAs that are affiliated to international oil companies have that benefit and advantage and we believe that the other PFAs should also have that window.”

Also speaking, Chairman of Leadway Pension PFA, Mr. Olusegun Aganga said that pension fund operators should be able to invest a portion of their assets offshore and in index/inflation linked instruments.

He stated: “What needs to be done is for the pension operators, regulators and the government to find ways to meet demands of various groups within the framework of the CPS.

“Pension funds should be creative and find structures to earn decent returns for their pension funds and their contributors while positively impacting the communities they operate and protecting the capital they manage.”