Pension funds fixed in bank placements rose by N520.25bn from N1.64tn as of the end of April 2021 to N1.99tn as of the end of April 2022.
Figures obtained from the National Pension Commission on ‘Unaudited report on pension funds industry portfolio for the period ended 30 April 2022; Approved Existing Schemes, Closed Pension Fund Administrators and RSA funds (Including unremitted contributions @Cbn & Legacy Funds)’, showed that the total pension funds stood at N13.76tn as of the end of February.
According to PenCom, bank placement is one of the approved investment portfolios allowed by the Pension Fund Administrators to invest the Contributory Pension funds to earn interest.
PenCom also noted that N264.5bn of the fund was invested in commercial paper
It also showed that the PFAs were allowed to use the funds to buy shares of banks and other countries.
The figures revealed that N 999.01n had been invested in domestic ordinary shares of banks and companies, while N106.65bn was used to buy foreign ordinary shares.
Part of the funds were also invested in Federal Government’s securities, mutual funds, and corporate debt securities comprising of corporate bonds, corporate infrastructure bonds, corporate green bonds and supranational bonds.
According to the Pension Fund Operators Association of Nigeria, the CPS which Nigeria currently practices has inbuilt checks and balances embedded into the system.
It said, “The model is such that the PFAs who administer and make investment decisions do not have custody of the funds. The custody of all the pension funds are held with separate and independent entities – the Pension fund Custodians.
“These PFCs (four of them) are owned by four of Nigeria’s largest banks. Furthermore, these banks give irrevocable guarantees on pension funds held in their custody, so if anything happens to the fund’s while in their custody, it will be refunded by the parent organisation.”
The PFCs are Access Pension Fund Custodian Limited, a subsidiary of Access Bank; First Pension Custodian Nigeria Limited, a subsidiary of First Bank of Nigeria Limited; UBA Pensions Custodian Limited, a subsidiary of UBA Plc; and Zenith Pensions Custodian Limited, a subsidiary of Zenith Bank Plc.
It noted that through a legislation in 2004, Nigeria’s pension industry has grown considerably and attracted individual contributors of more than nine million Nigerians.
PenOp said the scheme had built savings of over N13tn from little monthly contributions made by many diligent workers over time, which were deducted from their monthly salaries.
According to PenOp, the CPS has the power of consistency and compounding, which enables the worker to retire with improved pensions when the fund is invested over time during his active years.
The Spokesperson of PenCom, Abdulqadri Dahiru, explained that, “Bank placement is basically term deposits; deposits in the banks that are below 365 days. It is fixed income investment.
“In the classes of assets, it is more liquid than investments in things like government securities or even shares because if you want to terminate for any reason you can easily do that.
“Basically, you have pension funds in two categories; the fixed income and the variable income. The fixed income, you are talking about bank placement and government securities. They are investments that give you a fixed return. So when you invest from day one, you know that at a certain point in time, you will know that your principal and a certain interest or return will accrue back to you so it is fixed and you don’t lose anything.”
The Managing Director, Lancelot Ventures Limited, Adebayo Adeleke, said, “They need to have a balanced portfolio and part of the balanced portfolio should speak to liquidity because when the pensioners come calling to collect some or all of their money as the case may be, the Pension Fund Administrators should be able to access money within a very short time to be able to pay.
“If they have some form of funds in very liquid form, that is placements in banks or fixed deposit or very short term money instruments, it should have given them the opportunity to meet their obligations if and when some pension payments are due.”