The growth of Nigeria
Financial deepening measured through Africa’s pensions system continues to show steady progress. Nigeria remains Africa’s largest economy, despite foreign currency repatriation problems which have resulted in the divergence between the official and parallel market rates. Nigeria improved its measure of pension assets to GDP by 1% from 2019 to 2020. It could be argued that this remains paltry for an economy of its size, particularly when compared to peer countries, such as South Africa (which recorded a 68% improvement in 2020) or even smaller economies, like Namibia (with a 116% improvement in 2020). These measures must be appreciated with some context. In the case of Nigeria, the gains from the seismic pension reforms that commenced in 2004 are now showing evidence of market acceptance and trust. The National Pension Commission (PenCom) of Nigeria reported consistent average growth in retirement contributions of 14% from 2011 to 2020, which compares favourably with the average GDP growth of 2% for Nigeria over this period. As of 2020, contributions were USD2.2bn, compared to USD0.6bn in 2010.
The consistent and positive contributions to growth can be partly attributed to the simplified framework that the regulator in Nigeria created – specifically, providing choice to contributors.
The primary outcome of the 2004 reforms was the creation of a multi-fund structure for managing pensions, which essentially enshrined default life stages for the entire pension system in Nigeria, broadly in line with Aggressive, Moderate and Conservative life stages.
Contributors can therefore decide which life stage they wish to make contributions to. The multi-fund framework affords differentiated return outcomes due to each underlying fund following a specific investment strategy and being informed by risk budget and strategic asset allocation for each fund.
Nigeria Pension Fund Multi-Fund Structure
| Fund | Description | Asset Value (USD) millions | % |
|---|---|---|---|
| Fund I [Aggressive] |
Choice Fund: For contributors who are 49 years old and younger. This also serves as an optional fund for all contributors. | USD117m | 0.5 |
| Fund II [Moderate] |
Default Fund: For all active contributors who are 49 years old and younger. | USD14,163m | 56.5 |
| Fund III [Conservative] |
Default Fund: Strictly for active contributors who are 50 years old and older. | USD8,594m | 32.9 |
| Fund IV [Conservative] |
Retiree Fund | USD2,337m | 10.1 |
| Fund V | Micro-Pension Fund | USD2.6m | - |
| **Fund VI | Micro-Pension Fund | USD35.1m | - |
| Total | USD25,249m | 100% | |
Source: PenCom
*Above data as of 31 December 2021
** Fund VI was introduced in 2021. The Non-Interest Fund complies with the provisions of Islamic Commercial Jurisprudence (with non-interest) defined under Shari’ah finance principles.