Nigeria’s pension fund assets experienced a modest growth, reaching N23.65 trillion by the end of April 2025, a slight increase from N23.33 trillion the previous month. This figure encompasses all approved pension schemes, including existing and closed pension fund administrators (PFAs), retirement savings accounts (RSAs), and outstanding unremitted contributions. A closer examination of the portfolio composition reveals a significant concentration in government-backed securities, reaffirming the prevailing investment strategy within the Nigerian pension industry. This trend persists despite ongoing encouragement from the National Pension Commission (PenCom) for PFAs to diversify their holdings into alternative asset classes to improve returns and ensure the long-term viability of the pension system.
The dominance of Federal Government securities, encompassing FGN bonds, treasury bills, Sukuk, agency bonds, and green bonds, within pension fund portfolios underscores a strong preference for perceived safety and liquidity. While these instruments offer a relatively low-risk investment option, their over-reliance raises concerns about potential limitations on returns and the ability of pension funds to keep pace with inflation and meet the long-term needs of retirees. PenCom has been advocating for greater diversification into alternative assets, such as infrastructure, private equity, and real estate, arguing that these investments offer the potential for higher returns and better alignment with the long-term investment horizon of pension funds.
PenCom’s Director-General, Omolola Oloworaran, addressed this issue at a sensitization workshop held in Lagos, highlighting the need for PFAs to move beyond their comfort zone of government securities and explore the broader investment landscape. Oloworaran emphasized the importance of alternative assets in complementing core investment strategies and optimizing the investment potential of pension funds. She noted that the current investment approach, driven by a focus on liquidity and perceived safety, restricts the ability of PFAs to maximize returns, especially considering Nigeria’s favorable demographics, which offer a long-term investment horizon.
The workshop, targeted at Chairpersons of the Board Investment Strategy and Risk Management Committees of PFAs, aimed to educate and encourage a shift in investment strategy. Oloworaran stressed the benefits of alternative investments, particularly infrastructure and private equity, in aligning portfolios with long-term objectives, diversifying risk, and ultimately enhancing risk-adjusted returns. These asset classes offer the potential for long-term growth and can act as a hedge against inflation, which is crucial for preserving the purchasing power of pension funds over time. The underlying message was clear: A balanced portfolio that incorporates a mix of traditional and alternative assets is essential for achieving optimal performance and ensuring the sustainability of the pension system.
The data further reveals that Fund II, designed for active contributors below 49 years of age, continues to hold the largest share of pension assets, followed by Fund III, which caters to contributors aged 50 and above. This distribution reflects the demographics of the contributing workforce, with a larger proportion of younger contributors still accumulating their retirement savings. The continuous growth in RSA registrations, reaching 10.72 million contributors in April, up from 10.69 million in March, indicates a steady expansion of the pension system, bringing more Nigerians under the umbrella of formal retirement savings.
In conclusion, while Nigeria’s pension fund assets continue to grow, the investment landscape remains heavily skewed towards government securities. Despite the perceived safety and liquidity offered by these instruments, their dominance poses potential challenges to long-term growth and the ability of pension funds to meet future obligations. PenCom’s ongoing efforts to promote diversification into alternative asset classes are crucial for unlocking the full potential of pension funds and ensuring the long-term sustainability of the Nigerian pension system. The gradual increase in RSA registrations signifies the expanding reach of the pension system and underscores the importance of adopting a robust and forward-looking investment strategy to safeguard the retirement savings of millions of Nigerians.
