ESCAP: Nigeria's pension industry must triple asset base by 2030

The pension industry in Nigeria is at a crucial juncture, with ESCAP Management emphasizing the need for bold legislative reform, smart regulation, and digital acceleration to drive growth and relevance in the next decade. Without these essential changes, the system could face stagnation in terms of reach and resilience. By 2030, ESCAP Management asserts that Nigeria's pension industry must triple its asset base, double its coverage, and deliver real returns. Esili Eigbe, the Director at ESCAP Management, recently shared insights into the challenges facing the Nigerian pension sector and outlined key areas for improvement. Eigbe underscored the importance of the pension industry as a vital catalyst for mobilizing long-term capital, which then fuels investments in infrastructure, private equity, and capital markets. The flow of funds from contributors to Pension Fund Administrators (PFAs) plays a significant role in expanding the Nigerian capital market and driving economic growth. One of the primary hurdles hindering the growth of the pension industry is the lack of stable economic growth over the past decade, leading to difficulties in achieving compliance within the formal economy. Nigeria's substantial informal economy further complicates efforts to increase coverage. Additionally, slow adoption of technology has impeded progress in the sector. Eigbe highlighted the need for significant reforms, particularly in infrastructure development, to bolster the pension industry's asset base. Currently valued at around $15 billion, Nigeria's pension fund has the potential to reach $85 billion by 2030 with aggressive growth strategies. By enhancing infrastructure investments, the pension fund can become a crucial player in supporting the government's development initiatives and fostering economic growth. Crucial to advancing the pension industry is the establishment of trust among stakeholders. Transparency, including the publication of accounts, and the appointment of a board of directors at the Pension Commission of Nigeria (PENCOM) are essential steps to build credibility and enhance investor confidence. Eigbe called for greater independence for PENCOM, akin to the autonomy enjoyed by the Central Bank, to shield the pension regulator from political interference and facilitate effective decision-making. The conversation also delved into the imperative of improving real returns and reducing costs within the pension sector. Despite the ambitious target of tripling the asset base by 2030, Eigbe emphasized that trust remains the linchpin for attracting investments. Low trust levels and a history of below-average returns have deterred potential investors, underscoring the need for compelling value propositions and robust governance structures. Addressing misconceptions around offshore investments, Eigbe advocated for diversifying local pension assets internationally to mitigate currency risks and enhance returns. By allocating a portion of assets to foreign markets—approximately 15% to 20%—Nigeria can fortify its pension funds against domestic economic volatilities and safeguard retirees' savings. Looking ahead, the Nigerian pension industry stands at a critical juncture, poised for transformation through bold reforms and strategic interventions. With a clear roadmap towards expanding the asset base, extending coverage, and delivering sustainable returns, Nigeria's pension system can emerge as a resilient and impactful economic agent, driving long-term prosperity and financial security for its citizens.