As the name indicates, the job of pension funds is to manage the accumulation of money put away by people are they worked toward their retirement. These retirement contributions are managed by the pension funds, who invest and grow them in a variety of ways, including purchase of financial instruments and securities.
While most workers are subscribed to the pension funds as an official requirement in through their employers, their services aren’t limited to those only. A self-employed business person and also save toward retirement with a pension fund manager, and will be entitled to whatever benefits accrue fro the process.
Having a pension account is an important aspect of personal financial planning. Under Nigerian law, an employee is required to contribute at least 8% of his or her income to a pension account, where the employer is required to contribute 10%. But out of the estimated 69 million Nigerians in the labour force, only about 7 million have active pension accounts, which leaves huge room for growth.
For the pension fund, the target is usually to make enough returns from investments to outstrip the rate of inflation, otherwise the funds will be losing value in real terms. For many pension fund administrators, it was particularly challenging given that these funds usually rely on safe but low-interest investments in an inflationary environment.
The result is that pension fund administrators in Nigeria have about 70% of their investments in government bonds and Treasury bills. Under new regulations introduced by the Nigerian Pension Commission, they’re now allowed to invest a higher proportion of their portfolios in stocks, which earn higher returns, as one of the measures to further grow the investments.
Useful link: Pension Fund Administrators in Nigeria.