October 14, (THEWILL) – Nigeria’s contributory pension scheme (CPS) which marks its 20th anniversary this year (2024) has not only repositioned the pension industry and impacted the economy in a positive way; it has put the apex regulatory body, National Pension Commission (PenCom) on a global spotlight.
The Contributory Pension Scheme for public and private sectors was established under the Pension Reform Act 2004, which was repealed and replaced in 2014 with the Pension Reform Act 2014.
Section 4 of the Act, provides for a mandatory minimum contribution of ten and eight per cent of employee’s monthly emolument by the employer and employee respectively.
Each employee is to open a Retirement Savings Account (RSA) into which the contributions are to be paid, with a Pension Fund Administrator (PFA) licensed by the National Pension Commission, established under section 17 of the Act, to regulate and supervise pension schemes in the country.
The PFA is to manage and invest the fund in the RSA, from where a contributor will draw benefits on retirement, in line with the provisions of the Act.
At the inception of the CPS in 2004, there were palpable concerns about the success of the initiative created by the former President Olusegun Obasanjo-led government to replace the former Defined Benefit system that produced catalogues of agony and woes.
The old system was also a cesspool of corruption that sapped the little strength remaining in the retirees who waited unendingly for their pensions.
Given the rot that defined the culture of public service at the time, it was doubtful if PenCom could manage the huge assets that the CPS would yield as well as ensure that the contributors received their pensions as planned.
Thus, the management of PenCom became a critical success factor in gauging the effective functioning of the nation’s public finance administration at a time the pension asset was a negative N2 trillion.
The stability of the CPS as well as the effective tributaries it created, such as the Micro-Pension Scheme (for the informal sector), the good performance of the PFAs as well as the investment of the now over N20 trillion pension assets points to the effective service delivery by PenCom.
Industry experts note that despite the prevailing high inflation rate which has been ravaging businesses, pension assets and contributors into the CPS have maintained an upward growth trajectory with the total pension assets standing at N20.48 trillion as at the second quarter of 2024, up from N19.66 trillion margin in the first quarter.
PenCom said the number of contributors into the CPS rose from 89,061 in Q1: 2024 to 100,063 in Q2: 2024. According to the apex regulatory body, remittance of pension contributions increased by 20.26 per cent from N314.17 billion in Q1 2024 to N377.83 billion in Q2 2024,” it said.
The regulator said overall pension funds and assets witnessed 4.17 per cent growth from N19.66 trillion as at Q1 2024 to N20.48 trillion as at Q2 2024.
“The development shows the capacity and transparency culture at PenCom, unlike what obtains in many Nigerian financial regulatory bodies. There has not been a major scandal in PenCom that led to the loss of confidence among the contributors,” said Isaac Amaegbu, an investment expert.
PenCom recently revealed that Nigeria’s private sector accounts for 47.76% of the country’s pension fund contributions of N10.95 trillion as of the second quarter of 2024. While this sector contributed N5.23 trillion, the public sector contributed slightly more, at N5.72 trillion.
This represents a significant 32.07% increase in private sector contributions compared to the N3.96 trillion recorded in Q3 2022.Similarly, the public sector saw an increase of 33.96%, up from N4.27 trillion in Q3 2022.
The Chief Executive Officer of Pension Fund Operators Association of Nigeria (PenOp), Oguche Agudah, disclosed this recently at the annual Pension Correspondents Association of Nigeria (PenCAN) conference in Abuja. The pension industry in Nigeria has experienced remarkable growth in total assets under management (AUM) over the years.
In 2007, AUM stood at N815.18 billion, and by July 2024, it had surged to N20.87 trillion—a 2,459% increase over 17 years. Both public and private sector contributions have followed this upward trend, with private sector contributions growing from N454.95 billion in Q3 2011 to N5.23 trillion in Q2 2024, a more than tenfold increase.
Public sector contributions also grew steadily from N1.57 trillion in Q3 2011 to N5.72 trillion by Q2 2024.
Between 2019 and 2024, private sector contributions saw a 86.12% growth, from N2.81 trillion to N5.23 trillion.
In the same period, public sector contributions grew by 105.04%, from N2.79 trillion in Q3 2019 to N5.72 trillion in Q2 2024.
According to Agudah, the collaboration between public and private sectors is driving the pension industry to new heights, creating huge results in terms of assets and contributions
Also, payouts from programmed withdrawals and life annuities have also seen a sharp rise during the period. According to data from PenCom, in Q2 2024, a total of N1.12 trillion had been paid to 357,310 retirees through programmed withdrawals, a substantial 26.3% increase from N887.6 billion paid to 315,112 retirees in Q3 2022.
Similarly, the life annuity payments reached N1.1 trillion in Q2 2024, compared to N789.14 billion in Q3 2022—a 39.5% increase. These growing payouts are a reflection of the rising number of retirees benefiting from the pension system.
Furthermore, death benefits paid out to the beneficiaries of deceased employees have risen significantly. By Q2 2024, a total of N451.2 billion was paid to 104,259 beneficiaries, representing a 143% increase compared to the N186.21 billion paid to 59,057 beneficiaries in Q3 2022.
By partnering with the umbrella body of the Nigerian financial journalists, including those focusing specifically on pension, PenCom contributes to the capacity building the media practitioners as well as contributing towards building Nigeria’s human capacity sector.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
