Investments by pension fund managers in FG Securities yield 82.02% of total investment interest

Ebere Nwoji

The huge investments made by pension fund managers in federal government securities have continued to yield optimal results, a report by the National Pensions Commission (PenCom) has found.

In fiscal year 2020, pension managers’ investments in the federal government instrument generated 82.02% of the N77.79 billion total interest return earned by managers in the year under review.

PenCom, in its 2020 industry report published on its website, revealed that the managers invested a total of N5.74 trillion in federal government securities in 2020.

The yield, according to PenCom, represents an improvement from the 80% interest yield reaped by managers from pension fund investment in federal government securities in 2019. However, the overall yield saw a decline of 5.282 billion naira.

Since the establishment of the contributory pension plan in 2004, pension fund managers and pension fund custodians who manage and invest funds have always viewed federal government securities as the safest place to invest pension funds. .

Despite stakeholder outcry over the need to invest the funds in infrastructure development, more than 70% of the funds are invested in federal government securities.

FGN securities favored by pension fund managers include bonds; goods of treasure; agency bonds; Sukuk and green bonds.

PenCom explained that fluctuating interest yields on federal government securities was what forced overall interest yields on industry investments to fall from 5.282 billion naira to 773.70 billion naira for the year under review compared to 816.84 billion naira in 2019.

PenCom maintained that the total investment in FGN Securities was N5.74 trillion as of December 31, 2020, adding that the maturity profile of investments in FGN Bond ranged from 1 to 10 years and represented 68.78% of the value of the RSA Active Fonds portfolio and that 91.58% of the Fund’s investments in FGN securities were FGN bonds.

“A review of the bond portfolio reveals that the pension fund assets of Funds I and II are evenly split between terms less than and greater than 10 years. However, in line with the demographics of Fund III contributors, investments in FGN bonds were primarily short to medium term (less than 10 years) and represented 60.89% of the Fund’s FGN bond portfolio.

“In the previous year 2019, operators’ investment in Fund I, Fund II and Fund III generated N816.84 billion in interest and coupons. During the same period, the total interest/coupons received from Fund I was N2 billion, of which the commission said a large part came from investments in federal government securities,” the commission said. .

According to PenCom, interest/coupons received from Fund II was N509.47 billion, while dividends received were N29.77 billion. Interest/coupons received from investments in FGN Securities accounted for 80% of total interest/coupons received during the year, he said.
The Commission noted that interest/coupons received on Fund III was N305.37 billion, while dividends were N5.54 billion.

He maintained that the net gain realized on the disposal of shares and bonds on the funds amounted to N11.52 billion, adding that this was mainly attributed to the gains realized in Funds II and III of 5, 97 billion naira and 5.21 billion naira, respectively, while Fund I recorded realized gains of 333 million naira during this period.

Overall, the Managing Director of PenCom, Ms. Aisha Dahir Umar, said in the report that the pension industry in 2020 has made significant progress in its quest to expand pension coverage, adding that the total number of members of pension plans had increased by 3.60%, from 8,949,536 registered in 2019 to 9,271,665. as of December 31, 2020.

“This growth is the result of concerted efforts by the commission and pension fund operators to ensure better compliance by public and private sector employers with the PRA 2014 and the growing acceptance of the Micro Pension Plan by the informal sector.

Similarly, she said that the net asset value of pension funds recorded a growth rate of 20.45% from 10.22 trillion naira in 2019 to 12.31 trillion naira as of December 31, 2020.

The report states that the Fund has reached N13tn and is expected to reach N20tn by 2020 if the current annual growth rate of 18% continues.

According to her, the main sources of growth were contributions, income earned on fixed and variable income securities and the appreciation of stock and bond prices.

“The funds were invested in different asset classes comprising of Federal Government of Nigeria (FGN) securities, state government securities, common stocks, corporate debt securities, local money market instruments, supranational bonds, mutual funds, infrastructure funds and private equity funds,” she said.

She said that pension fund assets were mainly invested in FGN securities, but the sector’s allocation to this asset class had decreased to 66.64% of the total portfolio value, compared to 71.90% in December 2019.

Dolores W. Simon