Pension funds are in trouble as inflation erodes asset values by 100%

The persistent depreciation in the value of the Naira has eroded the value of Nigeria’s pension funds assets by as much as 100% between 2012 and 2019. In the meantime, inflation continues to be a major problem.

The pioneer Director-General of the National Pension Commission (PenCom), Muhammad Ahmad, called the attention of stakeholders to this problem when he spoke recently on the topic “The Pension Industry – The Way Forward” during a retreat that was organised for National Assembly members on pension.

A serious problem: The Nation Newspaper reported that Ahmad stressed the need to ensure that contributors and retirees do not end up suffering unduly due to the depreciation of the Naira over the years.
The former DG also pointed out the fact that a dollar exchanged for an average of N170 in 2012, whereas today it exchanges for N360. What this means, therefore, is that within this period, pension contributors and retirees have collectively had the value of their monies eroded by 100%.
The Way forward: The former PenCom boss went further to argue that in order to preserve the value of the N9.5 trillion pension fund asset, there is an urgent need for PenCom to allow more investment of pension funds in foreign assets. According to him, the provisions made by the Pension Reform Act (PRA) of 2014, Section 87 (1) which allowed for this have remained fairly non-operational.

Ahmed also urged PenCom and other industry stakeholders to engage the Central Bank of Nigeria in order to develop a workable framework to access foreign exchange for pension funds investments for the benefit of RSA holders in the immediate future. He added that the power to increase the limit of pension funds’ assets allowed to invest in foreign investments should be moved from the presidency to the board of the pension commission.
“There is also need to promote credit enhancement market in the short term – currently InfraCredit is virtually the only private institution providing such guarantees (incentives) in Nigeria. However, enabling environment such as policies on project preparation to enable quality project issuance need to be established so as to walk ourselves out of provision of guarantees in the future.”