What will drive pension funds’ asset inflow in H2'22?

The Nigerian pension industry has witnessed significant growth in recent years, with total assets under management of pension fund administrators (PFAs) rising by 6.3% year to date to 14.3 trillion Naira as of June 30th, 2022. Investments in federal government instruments dominate this figure, accounting for 63.1%. Pabina Yinkere, the Chief Investment Officer at Sigma Pensions, discussed the driving factors behind this increase in investments in a recent interview on CNBC Africa. Yinkere highlighted that the industry has experienced substantial growth, becoming the largest pool of investable assets in the market. This growth has been fueled by contributions, new accounts, and investment returns. In the first half of 2022, investment returns outperformed the previous year, with equities performing well, returning 21% despite challenges. While fixed income markets have not been as strong, rising interest rates have helped improve yields on pension funds. Yinkere emphasized that investment returns have played a more significant role in the industry's growth than contributions. Regarding the allocation of assets, Yinkere noted that the current focus is on maintaining a balance between safe investments and equity exposure. Despite the strong performance of equities, global market conditions and increasing interest rates suggest a cautious approach to equity allocation. The equity segment is likely to remain steady in the near term. On the topic of increasing the number of accounts in the pension scheme, Yinkere highlighted the need for deeper penetration in the market. With only 9 million pension accounts in a working population of around 60 million, there is significant room for growth. Yinkere cited Chile as a benchmark for pension market growth, emphasizing the importance of job creation and private sector involvement in driving pension enrollment. While the introduction of micro pension accounts has shown promise, Yinkere stressed the need for further expansion in this sector to reach millions of informal sector workers. Legislative efforts to mandate state government participation in the pension scheme may face challenges, but incentives for states to access capital markets through pension funds could drive greater adoption. Overall, Yinkere emphasized that sustained economic growth and job creation are key drivers for deepening the pension market in Nigeria. While legislation can support industry expansion, economic incentives and financial stability at the state level are critical for increasing pension participation. The Nigerian pension industry's potential for growth remains significant, with ongoing efforts needed to expand market penetration and drive long-term sustainability.