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ARMPENSION | Classification: INTERNAL USE
Prospects for Pension Assets in the Nigerian Non-Interest Capital Market Ecosystem
ARM © 2021 All rights reserved
ARMPENSION | Classification: INTERNAL USE
Abimbola Sulaiman CFA27th October 2021
ARMPENSION | Classification: INTERNAL USE
3
9.3m
Industry RegistrationApril 2021
12.3Trillion
12.3Trillion
N12.4t
Industry AuM
April 2021
7.9%
Pension assets % of
GDP
March 2021
62%
RSA Funding RatioDec. 2020
10.24%
11.53%
78.22%
Industry AuM Breakdown
Existing Schemes CPFAs RSA Funds
Gender Distribution March 2021
30%70%
Industry Snapshot
ARMPENSION | Classification: INTERNAL USE
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1.7
2.8
3.54.0
4.54.9
5.45.7
6.46.9
7.37.8
8.48.9
9.2
0%
10%
20%
30%
40%
50%
60%
70%
80%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
RSA (Million) YoY growthSource: PenCom Data
0.8 1.1 1.5
2.0 2.4
3.2
4.1 4.6
5.3
6.2
7.5
8.6
10.2
12.3
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
7 8 9 10 11 12 13 14 15 16 17 18 19 20
Pension Assets Annual Growth
RSA Registration Trend(m) Pension Assets Trend (NGNtn)
• Pension assets have continued to experience consistent growth in nominal terms
• Industry assets under management have grown at a CAGR of 23% (2007-2020) to N12.3 trillion as at December 2020
• Growth in the number of contributors to the CPS in Nigeria has reduced to an average 5.8% over the past five years compared to an
average of 8.7% (2011-2015) and 28.3% (2007-2010) due to slower growth in the labor force in recent years
Industry Trends
ARMPENSION | Classification: INTERNAL USE
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MICRO PENSION SCHEME
Micro Pensions scheme was
introduced to extend the pensions
scheme to the informal sector.
MULTIFUND STRUCTURE
The introduction of the multifund
structure to cater for contributors'
different risk profile and age
OPENING OF THE TRANSFER WINDOW
The opening of the Transfer Window is
driving improvement in service delivery
in the industry as operators are
striving to improve clients’ satisfaction
in order to retain existing clients and
attract new contributors.
NON-INTEREST FUND
The introduction of non -interest
fund to cater for RSA Holders
who desire their savings to be
invested in non-interest
instruments
MINIMUM PENSION GUARANTEE
MPG was introduced to ensure
sustainable pensions for
vulnerable retirees
.
Major Industry Developments
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Source: PenCom, ARMP research
*RSA I: N35bn*RSA V: N185mn
Uptake for Optional/non-default funds have been slow
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Pe
nsi
on
Ind
ust
ry
Devaluation risk
Only 13.5% of the Labor force
are currently enrolled in the
Contributory Pension Scheme
Inability to adequately hedge
returns against devaluation
Low coverageNegative Real Returns
Delivering real returns has been a
challenge due to high inflation
Non-Compliance by some State Governments
Some states governments have not showed
enough political will to implement the CPS
Inadequate awareness
The scheme’s benefits and operations
as well as distinction between other
government schemes that are fraught
with challenges still need to be more
publicized
Dearth of investment outlets for pension assets
There are limited investment options for Pension
assets in Nigeria
Challenges
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Globally, Islamic Pension Funds are still relatively underdeveloped
• Data collection/Integrity Issues
• Poor Institutional Setup of Pension funds in predominantly Muslim
countries
• Only 3 pension funds from 2 countries are listed in the global top-300
pension funds (2 from Malaysia and 1 from Kuwait)
Outstanding
Value
USD 'bn, 2018
Mutual Funds 97
ETFs 9
Insurance Funds 2
Pension Funds 0.37
Potential Growth Drivers
• Gradual Conversion of Existing conventional pension funds
• Reform of Social Security System in most OIC member countries
• New awareness of Muslims living in Western developed economies preferring to use Islamic products
• More close alignment between Islamic finance and Sustainable/Responsible ESG investing as these two
approaches are quite intertwined
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Fund VI Launch
• Fund VI could fare better than other optional funds launched so far due to the strong value-based intent
driving adoption
• The Times UK reported that as many as 30% of Muslims opted out of Workplace pension schemes
because of a lack of options that align with their religious principles
• This demonstrates that the fund VI launch is critical as there is no “opt-out” option in the Nigerian CPS
• It is unclear if this could serve as a conversation starter for Segments of the economy that have yet to
embrace the CPS and we would have to wait and see for the “financial inclusion” argument to play out
(for instance, none of the State governments have cited the lack of a Halal-option as reason for not
legislating the scheme in their states)
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Fund VI Launch requires a radical shift in the investment mindset
CapitalizationPension Assets
CPS ownership
FGN bonds, N'tn 12.29 7.78 63.3%
Listed Equity, N'tn 21.82 0.85 3.9%
FGN Sukuk, N'bn 362.56 73.8 20.4%
“The Shariah Plan invests 100% of your money in
company stocks and so it carries a higher level of risk
than some of our other plans, which invest a higher
percentage of your money in bonds that are less risky.
This means that there is a higher growth potential over
the long term, however you may also see larger ups &
downs along the way. Please bear in mind that these
short-term ups & downs are to be expected when it
comes to investing in the stock market, and are in fact
necessary when trying to grow your money over the long
term”
………HSBC Islamic Global Equity Index Fund / PenFold
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Fund VI Launch requires a radical shift in the investment mindset
• More reliance on specialist investment vehicles and 3rd party providers
• Higher exposure to variable income instruments and equity-type investments
• Clear differentiation in investment strategy and outcomes
• Clear communication to the sell-side and capital markets that non-interest fund should
not translate to sub-par returns
• Willingness to back and invest in new product structures and new managers
• Education and Reorientation of Investing Public and subscribers
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Continuous strengthening of the
industry’s capacity to evaluate and
manage associated risk with new
kinds of asset classes
Capacity Development Promote Diversification
Remove barriers to pension funds
efforts to diversify their investments in
offshore assets or other alternative
assets in search of positive real returns
Closer collaboration with other regulators to
achieve deepened financial markets that is
constantly creating new asset classes that
can absorb pension assets growth
Closer CollaborationExpand Coverage
Pursue increased coverage through
the newly introduced options and
continuous enforcement for
compliance
Government support needed through
legislation, policy and regulation to de-
risk investments and drive increased
private sector participation
Increased Government Support
Improve Ecosystem Education/Awareness
Deliberate effort to educate and inform the
contributing public as well as employers, media,
PFA staff, capital market operators etc on
mutually beneficial priorities
Looking Forward
ARMPENSION | Classification: INTERNAL USE
We are optimistic that the launch of the RSA fund VI will further catalyze the growth non-interest investing in Nigeria
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