Naira Depreciation: IOCs pension managers increase offshore investments

cover, Financial Markets

At the backdrop of exchange rate instability and Naira depreciation, Closed Pension Fund Administrators, CPFAs, affiliated to international oil companies are investing more of their pension fund assets on foreign money market instruments, apparently for safety.

The National Pension Commission, PenCom, in its unaudited report on pension funds industry portfolio for the period ended May 31, 2024 indicated that the CPFAs invested N107.1 billion during the month, up 10.2 percent from N97.2 billion recorded in the preceding month of April 2024.

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The CPFAs, according to the PenCom report, also increased their stake in foreign ordinary shares by 9.3 percent to N268.7 billion in May from N245.9 billion in April.

Meanwhile, total pension fund assets increased by 2.02 per cent to N20.2 trillion in May 2024 from N19.8 trillion recorded in April.

According to the report, Retirement Savings Account, RSA, registration increased by 0.4 per cent to 10,351,624 in May from 10,315,034 recorded in April.

The pension industry has 19 Pension Fund Administrators (PFAs) and five CPFAs while three of the CPFAs are affiliated to international oil companies namely, Agip CPFA Limited, Shell Nig. CPFA Ltd, and TotalEnergies EP Nigeria CPFA Limited.

Under Nigeria’s existing pension law, only the foreign affiliated CPFAs are allowed to invest offshore while the local PFAs and the other two CPFAs are not permitted to invest offshore.

But the Pension Fund Operators Association of Nigeria, PenOp, has called for an amendment of the Pension Reform Act to allow PFAs invest some of the pension funds offshore to hedge against inflation and naira devaluation.

According to PenOp, the move is necessary to guard against old age poverty being triggered by rising inflation and naira devaluation.

Mr. Dave Uduanu, a member of PenOp and Managing Director of Access Pensions, stated that since the economy is not domesticated to rely less on dollars, the safeguard is to allow some of the pension funds to be invested offshore.

Uduanu said: “Regarding devaluation, what we need to do as a country is that we need to domesticate our economy. As we domesticate our economy and rely less on dollars, we can achieve more sustainable savings and inflation in real terms. But until we do that, the safeguard we have is to allow some of the pension funds to be invested offshore.

“The recommendation is with PenCom now and the Central Bank of Nigeria, CBN, and it will be good to have the input of the senators and House of Representatives members to make sure that this sees the light of the day.”