Are Nigerians better off with a pension plan?

Aug 10, 2022|Adesola Afolabi

Gbemi is 25 years old with an annual gross salary of ₦4,800,000. She and her employer save ₦864,000 every year towards her pension. By the time she retires at 60 if the current trend of inflation (18.6%) continues and her salary doesn’t change, her ₦30.2 million saved will only be worth ₦25 million.

Key takeaways:

Inflation erodes the returns on savings and investments, including pension contributions. And with the rising inflation, lower returns on pensions are beginning to discourage Nigerians from taking up the idea of saving for their future.
RSA active funds comprise over 99% of the total contributors in the industry. As of 31 March 2022, this fund invested ₦6.2 trillion, representing 64% of the funds' total active assets, in Federal Government securities. But, interest/coupons received on fixed-income securities investments amounted to ₦228.1 billion, a 5% decrease compared to the sum of ₦239.72billion recorded in Q4’2021.
But, dividends received on RSA grew four-fold increase between the same period. This different and positive performance suggests there is room for PenCom to be more flexible in reviewing regulations that won’t help workers get the biggest bang for their contributions.

The scenario above has been playing out across the country in multiples. Some Nigerians have even taken to sharing their frustrations online. The truth is, public opinion about pensions hasn't been the best, and people are worried about the value of their pensions dropping. These concerns are valid, given the rising rate of inflation eroding the returns people get on their savings toward retirement.

This declining value in pension assets is not peculiar to Nigeria. Due to inflation, many pension schemes in the UK have been forced to sell off assets, such as equities, to secure their long-term plans and reduce the risk of being unable to pay the retirement income promised to members.

Unfortunately, with such value erosion, some Nigerians are now considering dropping out of the pension scheme altogether. For instance, one tweet solicited the government to cancel pensions, making it voluntary as opposed to the current compulsion. Although the reason behind this advocacy was primarily based on value erosion, the writer raised other issues showing she had little trust in Nigeria’s pension scheme.

Lower returns