The Nigerian Pension Industry (‘the Industry’) has evolved from a defined benefit scheme with primarily public sector participants to a mandatory defined contribution system for all government and private sector employees.
The 2004 pension reform reshaped retirement planning in Nigeria, resulting in a significant increase in the number of contributors and the size of the industry’s managed assets.
The Nigerian Pension Industry’s assets under management (AuM) stood at 12.3 trillion (or $32.3 billion) as of 31 December 2020. This represented a 20.6 percent increase over the 10.2 trillion reported at the end of 2019 and a compound annual growth rate of 18.3 percent over the previous five years.
According to Agusto & Co.’s newly released 2021 Pension Industry report, the growth in the Industry’s managed assets has been primarily driven by investment returns and, to a lesser extent, additional contributions. Over the last five years, the Industry’s annual contributions have averaged 699 billion, while withdrawals have averaged around 341 billion, resulting in a net annual contribution of 347 billion and accounting for 26.6 percent of the Industry’s AuM growth. The remaining 73.4 percent of average growth was attributable to portfolio investment returns.
The pension transfer window opened on November 16, 2020, to allow holders of pension retirement saving accounts (RSAs) to switch Pension Fund Administrators (PFAs) once a year at the most and at no cost. Over 25,600 RSA holders with pension assets totaling more than 102.5 billion were reported to have changed PFAs as of the end of the second quarter of 2021 (less than nine months after the transfer window opened). We anticipate that the number of transfers will increase further in the following quarters of 2021 as more contributors become aware of the transfer process.
Furthermore, we anticipate increased competition in the pension industry as PFAs seek to attract new contributors while retaining existing ones. Nonetheless, we anticipate that the Industry’s structure will remain relatively unchanged in the short-to-medium term, with the top five players dominating due to their strong market presence and brand recognition.
Agusto & Co. anticipates continued growth in pension assets, supported by increased participation as a result of the country’s favorable young adult demographics and rising yields on money market instruments in the future.
As a result, Agusto & Co. forecasts that the industry’s net assets will reach $20 trillion by 2023, with an average growth rate of 18 percent (in line with the five-year average growth rate of 18 percent) over the next three years.