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Biggest PFAs return 4.6% in H1 2019 as total portfolio hits record high

The intensity with which pension funds in Nigeria generate returns for contributors seems to have waned in the first half of 2019.

Although both the Retirement Savings Account (RSA) and retiree fund category of pension funds ended the first quarter of the year with a positive performance, BusinessDay analysis of the half-year return of the seven biggest Pension Fund Administrators (PFAs) reveals that these PFAs delivered an average return of 4.6 percent and 5.2 percent on Fund II and Fund III, respectively, while total portfolio for RSA hit N6.9 trillion.

The choice of Fund II and III is based on the fact that these fund types dominate total RSA funds.

Figures from the National Pension Commission (PenCom) reveal that total funds in RSA as at March 31, 2019, stood at N6.9 trillion, with Fund II at N4 trillion, followed by Fund III (N2.1 trillion), Fund IV (N732 billion), and Fund I (N12.7 billion).

Under the multi-fund structure introduced by PenCom in 2018, the Fund II type is meant for middle-aged contributors – below the age of 49 – and this accounts for 58 percent of the total RSA fund.

Fund III, which is the most conservative fund for active contributors designed for people close to retirement and meant for persons above the age of 50, accounts for 31 percent of the pension fund.

Fund I, which is meant for active contributors who were 49 years and below as at their last birthdays, and Fund IV, meant strictly for RSA retirees, account for a meagre 0.19 percent and 11 percent, respectively.

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Taking account of inflation, which accelerated to 11.40 percent in May, a 0.03 percentage point higher than 11.37 percent in January, PFAs within the coverage of this analysis returned 4.57 percent and 5.17 percent on Fund II and Fund III, respectively, in nominal terms.

This means the funds are largely returning below inflation or negative in real terms.

For Fund II with a maximum 55 percent exposure to variable income securities, Pension Alliance (PAL) emerged top performer with 6.5 percent as the unit price increased from N3.56 on January 2, 2019 to N3.79 on June 30, 2019.

Premium Pension emerged the second top performer with a 5.8 percent return as price per unit from N4.1 on January 2, 2019 to N4.34 on June 30, 2019. ARM Pension’s unit price appreciated 5.8 percent from N3.78 on January 2, 2019, to N4.34 on June 30, 2019. Stanbic IBTC Pension’s unit price climbed 4.7 percent higher from N3.82 on January 2, 2019 to N4 on June 30, 2019.

Sigma Pension returned 4.1 percent as price per unit advanced from N3.14 to N3.27 between January 2 and June 30, 2019. Trust Fund Pension delivered 3.9 percent return as unit price appreciated from N3.34 on January 31, 2019, to N3.47 on June 30, 2019. Leadway Pensure returned 2.5 percent as unit price moved from N3.21 on April 10, 2019 to N3.29 on June 30, 2019.

For pre-retiree Fund III with 20 percent maximum limit to variable investment securities, Premium Pension topped peers with positive half-year return of 6.6 percent as price per unit moved from N1.06 to N1.13 between January 2 and June 30, 2019.

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Within the six-month period, Sigma Pension’s unit price advanced from N1.02 to N1.08 and delivered 5.9 percent return. Pension Alliance (PAL) and ARM Pension returned 5.7 percent as their unit price increased from N1.05 and N1.04, respectively, to N1.11 and N1.10 respectively. Stanbic IBTC Pension’s unit price climbed 4.7 percent higher from N1.05 on January 2, 2019, to N1.11 on June 30, 2019.

Trust Fund Pension delivered 4.8 percent return as unit price appreciated from N1.04 on January 31, 2019 to N1.11 on June 30, 2019. Leadway Pensure returned 2.8 percent as unit price moved from N1.06 on April 10, 2019 to N1.09 on June 30, 2019.

The seven PFAs have a combined 75 percent market share in the pension industry, with Stanbic IBTC Pension leading the space with 37.2 percent. ARM Pension, Premium Pension and Trust Fund Pension have an individual market share of 8.8 percent, 7.9 percent, and 6.4 percent, respectively. These are followed by Sigma Pension (5.5 percent), and Pension Alliance and Leadway Pensure with 4.8 percent share each.

Pension assets rose by 4.5 percent to N9 trillion while pension to GDP stood at 28.3 percent in Q1 2019, from 24.52 percent in Q4 2018. In 2018, total Asset Under Management (AuM) was N8.14trn ($26.6), more than the combined assets in Egypt, Ghana, and Kenya.

In the full-year 2018, Nigeria’s pension to GDP was 6.7 percent. By comparison, it stood higher than Egypt’s 1.5 percent, Ghana’s 4.4 percent but below Kenya’s 12.9 percent. Meanwhile, Organisation for Economic Cooperation and Development (OECD) member countries averaged 53.3 percent in 2018.

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By OLUFIKAYO OWOEYE, SEGUN ADAMS & ISRAEL ODUBOLA

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