The Pension Reform Act (PRA) 2004 introduced the Contributory Pension Scheme (CPS), which mandated employers and employees in the public and private sectors to contribute towards the retirement benefits of their employees.
The pension industry in Nigeria has undergone significant reforms in recent years to enhance efficiency, transparency, and security for pension contributors and retirees. The reforms were aimed at addressing issues such as mismanagement of pension funds and delayed payment of retirement benefits.
Industry Players
The industry has one (1) Regulator, the National Pension Commission, 19 Pension Fund Administrators, six (6) Closed Pension Fund Administrators (CPFAs), three (3) Pension Fund Custodians (PFCs), and 19 Approved Existing Schemes.
Key Industry Players - 2022
Others include one (1) Pension Operators’ Secretariat and one (1) Pension Transitional Arrangement Directorate.
Industry Performance
Assets Under Management
The CPS has been successful with an appreciable impact on the Nigerian Economy. The pension industry AUM grew ≈3.7x from NGN4.1 trillion in 2013 to NGN15.0 trillion in 2022.
10-year Trend in AUM, closing at N15.0 trillion in 2022
Also, the number of registered RSA holders grew 1.7x from 5.9 million in 2023 to 10 million RSAs in 2022.
10-year Trend in RSA, closing at ≈10m membership in 2022
Over the last decade, membership averaged 447,0005 which is significantly low compared to the number of adult working population in the country.
10-year Trend in RSA New Registration – Averaging 447,0005 PINs Annually
Also, market penetration is low compared to other emerging markets at an 8% coverage ratio. As such, the informal sector given its size presents a unique opportunity for growth and improved pension penetration and inclusion in the country. According to the (A2F) 2020 Survey, increased uptake and usage of pensions are needed to achieve the NFIS targets and improve livelihoods for Nigerians. However, pension coverage remains low with 7% of the adult population with pensions (including micro-pensions).
Under-penetrated market – Pension coverage
In 2021, there are 9.5 million pension accounts with an exclusion rate of about 92% (102 million), which the formal sector is slow to address given the less than 500k new RSAs registration over the last five (5) years.
Thus, the National Pension Commission (PenCom) introduced a pension plan in 2019 for the informal sector known as Micro Pension Plan (MPP). The MPP is a hybrid of long-term savings and pensions, which guarantee financial security for individuals in the informal sector. The growth of MPP is essential to reduce vulnerability in old age and incapacitation. However, uptake is still very low with 89,327 micro pension accounts as of 31 December 2022[1].
Industry Fee Structure
The National Pension Commission (PenCom) has revised the fee charged on the RSA funds several times. The current review cycle of the funds (below) was with effect from 2021[2].
The pension industry plays a significant role in the Nigerian economy by contributing to financial stability, social welfare, and long-term economic development. Despite reforms over almost two decades, challenges still exist in the industry, including issues related to implementation, enforcement, and coverage.
There have been instances of non-compliance by some employers and concerns about the adequacy of pension contributions. However, the pension industry plays a significant role in the Nigerian economy by contributing to financial stability, social welfare, and long-term economic development.
Sources:
[1] 2022 December Monthly Report. Accessed on 17 August 2022 from https://www.pencom.gov.ng/wp-content/uploads/2023/01/December-2022-Monthly-Summary-Upload.pdf
[2] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.pencom.gov.ng/wp-content/uploads/2018/07/REVISION-OF-THE-FEES-STRUCTURE-IN-THE-PENSION-INDUSTRY.pdf
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