As more Nigerians from all walks of life begin to think about and plan for their retirement, the micro pension scheme is growing faster than any other type of pension fund in Nigeria.
According to various pension asset summary reports released by the National Pension Commission (PenCom) and analyzed by Quantitative Financial Analytics, Nigeria’s conventional pension assets increased marginally by 0.75 percent, from N12.31 trillion on December 31, 2020, to N12.4 trillion on April 30, 2021.
According to the analysis, the net asset value of Fund I increased by 12.21 percent, while Funds II, III, and IV increased by 1.67 percent, 3.81 percent, and 1.12 percent, respectively. However, Fund V, which is in the Micro Pension Fund (MPP) category, increased by a whopping 58.65%.
MPP assets stood at N74.65 million at the end of December 2020, but by the end of April 2021, the figure had risen to N118.43 million.
Even though MPP funds are expanding at a rapid pace, there is little information or data available about them. Unlike “conventional” pension funds, where fund managers readily publish daily or weekly price data, only a few Micro Pension Funds publish their prices. Analyses of the available data for the few micro pension funds show that, in contrast to the “conventional” pension funds, which have had mostly negative year-to-date performance in 2021, all of the MPP funds have had positive year-to-date performance in 2021.
According to the National Pension Commission, 19 Pension Fund Administrators (PFAs) registered 3,292 micro pension contributors in the first quarter of 2021. N16.7 million was transferred to 435 micro pension fund contributors’ Retirement Savings Accounts (RSAs) during the same time period.
The good news about MPP in Nigeria is that contributors can convert to Mandatory Contributory Pension Schemes (CPS). In the first quarter of 2021, 105 Micro Pension participants converted to Mandatory Contributory Pension Schemes (CPS), resulting in a transfer of N963,136 to the affected participants’ Retirement Savings Accounts.
The National Pension Commission’s recent change in the fee structure of micro pension funds will bolster the already impressive growth. The fee structure or expense ratio of the funds is one of the factors that discourage people from investing in funds, whether they are pension or mutual funds. With PenCom’s reduction in the fees charged on Micro Pension Fund, more people are expected to enlist, accelerating growth even further.
The message of this phenomenal growth is that self-employed people and small-business owners who haven’t started saving for retirement should do so because time is of the essence when it comes to investing. At least, that’s what the compounding magic has taught us.
It is preferable to have your money in a government-regulated and overseen entity rather than in privately organized ‘Esusu’ organizations, where the risk of loss is high and there are no returns other than principal recoupment.