The Contributory Pension Scheme the system that pools pension funds since inception in 2004 and still held firm by Pension Reform Act 2014, has been on the upward swing earning the cynosure of the economy as the fastest funds growing industry. That record however, by mild industry figures though, lost the uninterrupted streak in growth in January 2021.
The flying high pension funds figures lost some power and dropped from high altitude to moderate level but enough to give concern to the operators to realign their investment options and hedge against future occurrences.
The dip picked by the National Pension Commission in the latest report captured the CPS for January 31 as N12.299tr, N7bn lower than the figure for December 31 2020, which was N12.306tr.
The views of high calibre operators gathered by www.businesspost.com.ng hinged the drop in the value of pension funds on the adoption of International Financial Reporting Standard (IFRS). Pointing to the cause of the drop, the managing director at Access Pension Fund Custodian, Mrs Idu Okwuosa, pictured above, said the drop in the value of pension funds are unrealised losses due to fluctuations in the pricing and valuation of pension portfolios.”
Okwuosa explains: “Before the adoption of IFRS, most bonds were valued at amortized cost. However, a reasonable amount of bonds are now marked to market. The drop in value as announced by the Commission, are as a result of these adjustments.”
The managing director, Fidelity Pension Managers Limited, Mrs Amaka Andy-Azike, also tracing the drop in value of pension funds linked it to the adoption of IFRS 9 which required that certain portion of the bond portfolio can be marked to market.
The Fidelity Pension Managers chieftain puts the drop in perspective: “For most part of 2020, the price of FGN bonds increased persistently as CBN’s deliberate monetary policies, pushed down the interest rates. However, the market is now in a corrective phase after a long period of high price and the market expects government borrowing in the midst of poor fiscal conditions to crowd out other players and reverse the gains made in the prior year.”
Despite the concern over the drop, Okwuosa said the industry has not experienced dropped heads and does not share the opinion that it is a sign post to a higher drop in the future. Her response was, “No. Most operators have adopted the IFRS and in compliance with the regulator and have adopted business models that should protect the interest of unit holders.”
Still driving the industry assertion of controlled spill, Andy-Azike said: “Every investment in financial instruments is exposed to market risks. The ‘ups’ and ‘downs’ in the financial market are part of the risks as the economy grapples with growth and recession. Managing the risks is key to a sustainable investment growth.”
