Investment returns on N10.58trn pension assets at risk —Analysts

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By Innocent Raphael

Stakeholders in the industry are alarmed at the negative impact that the pandemic might have on the investment returns of the N10.58 trillion pension funds asset, as yield on treasury bills and bonds, which forms the bulk of the asset, is very low.

Analysts believe this is just a phase, hoping for a quick recovery as soon as the nation’s economy improves.

Financially, the economy is suffocating companies, most especially, the private sector, where closing down became the order of the day because they lacked the financial capacity to continue to exist.

Investment climate is not anything better, with return on investment abysmally low.

Sectors that rely more on investment inflows were the most affected, a development that is gradually taking a toll on the investment returns on the N10.58trillion pension fund asset.

Yield on treasury bills and bonds have gone down in recent months, especially, since the invasion of the pandemic in the country, while there is currently a downturn in  investment of pension assets in capital market .

Even though the computation of the New Pension scheme, which means there must be contribution into the Retirement Savings Accounts(RSAs) of workers on a monthly basis, somehow shows that the asset will continue to grow, however,  the low Return On Investment(RoI), coupled with contributions that will no longer come from dead companies who were previously contributing Pension for their workers, as well as the increased application for 25 per cent of pension contributions by the disengaged  workers, according to experts, will lower the rate of growth on the entire pension funds.

Reacting to the development, the Head, Corporate Communications, the National Pension Commission (PenCom), Mr. Peter Aghahowa, said, although the pandemic will affect pension globally, the fund will also bounce back because it is a long term fund.

PenCom, he said, has been very careful with regulations on pension fund investments, adding that, loss from the crash in the stock market will be very minimal because most Pension Fund Administrators (PFAs) invest below their limit in the stock market.

The country’s pension industry, he stressed, has worked within very conservative limits in volatile areas of investment because if not guarded, it can cause a total collapse of the fund that has been built.

On investment in federal government securities, such as; bonds and treasury bills, he said, the yield are generally low now because of the current state of things, not only Nigerian economy, but the global economy as well, adding that with time, when the world overcomes the virus, normalcy will return and economy will begin to take proper shape.

He assured contributors that their fund is safe and secured, irrespective of the current economic challenges, while assuring retirees of continuous and constant payment of their pension allowance as and at when due.

Similarly, the Director, Centre for Pension Right Advocacy (CPRA), Mr. Ivor Takor, said, investment is a function of the economic performance and that if the economy is suffering, other areas of the economy, including investment, suffer.

He said, the advantage of the ongoing investment returns challenge was that, pension fund is invested in a long term, which means, it will recover its lost ground as soon as the battle against the pandemic is won.

Moreover, Takor pointed out that the Central Bank of Nigeria (CBN)’s directive that banks must have a minimum 65% loan-to-deposit ratio is also affecting investment returns.

An investment analyst at Sigma Pensions in Lagos, Wale Okunrinboye has linked the ongoing issue to the inability of pension funds being able to place money with banks rated below investment grade, meaning that, pension assets are concentrated in 10 or 11 banks.

He added that neither can the pension funds invest in banks that do not pay dividends, while investing in foreign assets requires an ‘almost presidential level of approval.’

To Okunrinboye, “The pension commission report shows that about 70 per cent of pension fund assets were invested in government securities. The value of investments in domestic equities fell nine per cent quarter-on-quarter as stock market prices dropped.”

“Nigerian banks, over the last few years, have left their primary role of financial intermediation and focused on just investing deposits in government securities rather than bridging deficits in the economy,” said Oluwasegun Akinwale, an investment analyst in Lagos.

The fixed-income bolthole, he said, has become less attractive as government  bond yields have declined, noting that, the broad-based depression in fixed income yields will further expose the impact of the lower margins on new loans.

While the analysts all agreed that the goal of any investment is to optimize returns and manage risks, they also were on the same page that for the PFA’s to redirect its already worrisome trajectory, experts more variable investment securities need to be added to the overall portfolio of the industry.

With the advantage of long term growth investments that ultimately stabilize the volatility in security prices, the long term outlook of the industry will have a better chance than the direction it is currently heading to, they submitted.