Investigations have revealed that the Federal Government has borrowed a massive N8.29 trillion from Pension Fund Assets, which stood at N12.9 trillion at the end of August 2021.
Despite the fact that a previous attempt by the federal and state governments to borrow directly from the pension funds was met with fierce public opposition, effectively killing the idea, the federal government has continued to dominate in the use of the pension funds’ assets, albeit indirectly through investments in Federal Government securities.
The Federal Government announced intentions to borrow N2 trillion from pension funds to support infrastructure development in 2019 through the National Economic Council (NEC). The decision provoked widespread outrage, with Nigerians unanimously opposing it.
If the scheme had worked, borrowing directly from pension funds would have become the standard for governments.
Even though it fell by around N220 billion from N8.51 trillion in July 2021 to N8.29 trillion at the end of August 2021, pension fund investments in federal government securities still accounted for 64% of total pension fund assets, pushing out investments in other sectors of the economy.
According to the inquiry, the reduction was caused by a drop in bond and treasury bill yields that began last year, and as a result, Pension Fund Administrators (PFAs) began to divest from this investment outlet in favor of better-performing investment windows.
As yields on FGN securities decrease, pension fund operators have been looking for other investment options besides government bonds and treasury bills to boost returns on pension assets.
As a result, as the previous investment matured, pension fund operators sold their money and capital market assets.
Similarly, the Central Bank of Nigeria’s (CBN) ban on PFAs trading in OMO bills in 2019 contributed to the reduction, with PFAs liquidating their matured bills and diverting the proceeds to other investment vehicles.
According to the findings, the N8.2 trillion invested in federal government securities accounts for 64% of the total N12.9 trillion pension assets.
Treasury Bills, according to the research, were also a factor in the reduction, as the investment in them fell from N439 billion in July 2021 to N410 billion in August 2021.
Since the Contributory Pension Scheme (CPS) began in 2004, 60 to 70 percent of the pension fund’s assets have always been invested in FG securities, like as bonds and treasury bills.
This is despite the fact that the assets of pension funds had increased to N12.9 trillion by the end of August 2021, up from N12.78 trillion in July 2021. This represents a N120 billion increase in just one month.
However, the government has been able to cover its expenditures as well as embark on some capital projects thanks to the pension fund managers’ investment in federal government securities.
To this end, according to a document obtained from the National Pension Commission (PenCom), of the N8.29 trillion invested in FG securities as of August 2021, N7.78 trillion was invested in FGN bonds, N410 billion in Treasury bills, N73.8 billion in Sukuk bonds, N88 billion in state government securities, N14.5 billion in Agency bonds, and N14.5 billion in Green Bonds.
According to the analysis, the constant rise in the volume of the nation’s pension assets was due to new pension contributions, interest from fixed income securities, and net realized on stocks and mutual fund investments.
According to the investigation, investment income was critical to the pension fund’s continued growth, despite the fact that state and federal governments are not paying their employees’ monthly pension contributions on time.
Mrs. Aisha Dahir-Umar, Director-General of the National Pension Commission (PenCom), said the increase in pension fund assets under the new pension scheme demonstrates the pension operators’ and regulator’s competent and sincere administration of the pension fund.