Pension Funds Recorded Significant Growth in 2022

The sound regulation and supervision of the Contributory Pension Scheme (CPS) in Nigeria by the National Pension Commission (PenCom) has yielded positive results, as evidenced by significant growth in pension assets. Pension assets increased by N1.56 trillion in 2022 to stand at N14.99 trillion as of 31 December 2022. In 2021, pension assets increased by N1.12 trillion to end the year at N13.43 trillion.

PenCom oversees Pension Fund Administrators (PFAs) to ensure that employees’ pension funds are managed professionally, and their benefits are guaranteed. Under the CPS, pension assets have witnessed growth through pension contributions and investment returns.

In terms of pension contributions, the CPS, established by the Pension Reform Act (PRA) 2014, is an arrangement where both the employer and the employee contribute a portion of an employee’s monthly emolument towards the payment of the employee’s pension at retirement.

The PRA 2014 provides a minimum contribution rate of 18 percent of the employee’s monthly emoluments comprising 10 percent by the employer and 8 percent by the employee. An employee may also decide to add to his contribution by voluntarily making additional contributions through his employer.

PFAs invest pension contributions on behalf of the employees. In 2022, the CPS recorded 333,002 new contributors, bringing the total CPS membership to 9.86 million. Pension contributions from the new RSA holders contributed to the overall growth in pension assets in the year.

For investment returns, PFAs invest pension contributions in a diversified portfolio of assets, including government bonds, stocks, real estate, and other asset classes such as private equity funds. The returns generated from investments in the above assets contribute to the growth of pension funds.

Consequently, workers participating in the CPS are assured of adequate funds to cater for their pension at retirement. Section 85(1) of the PRA 2014 states that “All Contributions made under this Act shall be invested by the Pension Fund Administrator with the objectives of safety and maintenance of fair returns on the amount invested”.

Furthermore, section 85(2) states, “Pension funds and assets shall only be invested in accordance with regulations and guidelines issued by the Commission, from time to time”.

It is instructive to note that the returns on all pension fund investments are apportioned directly to the RSAs of pension contributors.

Consequently, PFAs must indicate clearly in the RSA Statement of Accounts the total monthly pension contributions from the inception of the account and the returns on investment accrued to the contributor during the reporting period.

In addition, to ensure transparency, PenCom requires PFAs to publish on their websites the daily value of an accounting unit for the RSA Funds and disclose the three-year rolling average rates of returns on pension funds.

Meanwhile, a vital benefit of the CPS is that the investment returns generated from pension contributions are compounded over the years, thus resulting in increased RSA balances that avail the contributor of financial security during retirement.

Indeed, due to the sound investment regulatory framework established by PenCom, returns on investment have been good over time, such that it contributes a significant proportion of the RSA balances of contributors.

Accordingly, the CPS provides an opportunity to the contributor for higher retirement income, unlike the Defined Benefits Scheme, where retirement benefit payments are fixed upfront.

Due to the apparent benefits that pension contributors get from the investments of their pension savings, employees need to monitor their employers and ensure prompt remittance of their monthly pension contributions.

Employers are obliged by law to deduct and remit pension contributions into their employees’ RSAs not later than seven working days from the date salaries are paid. Consequently, employers that delay remitting pension contributions will eventually pay the delayed contribution plus a penalty of not less than 2 percent of the total unpaid contributions monthly.

Overall, the CPS provide employees with a stable source of income during their retirement through a combination of contributions and investment returns. PenCom is committed to the effective regulation of the pension industry in Nigeria to ensure that employees under the CPS receive their retirement benefits as and when due.