Nigerian pension fund managers are reiterating their call for greater freedom to invest abroad to protect their assets from the fluctuating naira.
The latest drive comes as pension assets in dollar terms have fallen by 54.6 percent over the last five years to $18 billion as a result of the naira’s devaluation, according to Businessday.
Pension assets fell to $15 billion at an exchange rate of N1,309 per dollar in April 2024, down from $33 billion at N306 per dollar in 2019.
According to National Pension Commission data, pension assets increased from N10.21 trillion at the end of December 2019 to N19.78 trillion at the end of April 2024.
The managing director of Access Pensions Limited stated at the 4th PenOp National Assembly Retreat in Lagos for members of the House Committee on Pensions and the Senate Committee on Establishment and Public Service that inflation and foreign exchange have eroded the value of pension assets.
Uduanu explained that if PFAs had invested even N5 trillion of pension money in dollar-denominated assets over the last five years, the impact of the naira depreciation would have been less dramatic.
He said, “Pension assets should be invested in offshore assets to help hedge inflation and currency devaluation.”
In addition, he said, “Government should issue inflation-indexed bonds to safeguard the country’s savings because this is what is practiced in other parts of the world to track inflation rate.
“In other countries, there are bonds that the government issues where the coupon tracks the inflation rate. For instance, if you issue inflation-indexed bonds, indexed at inflation plus two per cent, if inflation is 14 per cent, the bond will yield 16 per cent. If by government management or otherwise of the economy, inflation goes to 23 per cent, the bond will yield 25 per cent. That means the savings of the country is protected from inflation and devaluation.”
Meanwhile, the managing director of PAL Pensions Limited, Sa’ad Jijji stated that pension assets have continued to expand, but that the Pension Fund Administrators’ (PFAs) lack of access to foreign money has made it impossible to manage the volatility caused by the naira’s devaluation.
He stated that between 2018 and 2023, the pension industry experienced an average annual growth rate of 16.3 percent to N18.36 trillion, and by March 2024, the assets had increased by 7.14 percent to N19.67 trillion.
Jijji stated that one of the issues PFAs have when investing in pension assets is a lack of access to foreign exchange, even though investment regulations allow PFAs to invest in dollars.
A partner at Premium Debate, Chika Onwunali stated that the recent naira depreciation has caused shockwaves throughout the financial services business, especially pensions, which have taken a big damage.
He stated that the currency depreciation has resulted in a more than 50% loss in the dollar value of pension assets, which is a shocking statistic given the importance of pension funds in providing financial stability for millions of Nigerians.
