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Home Pension

Pension Assets Returns Still The Boss Of High Inflation Rate

Nwanne Ikemefune by Nwanne Ikemefune
February 3, 2021
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The concern over the impact of the established long term national 12 percent inflation rate eroding monetary assets and its purchasing power contract, may not be the experience of contributors when their pension benefits are due.

The prevailing inflation rate of 12% which is also taken as the long term inflation rate of Nigeria, has made Mr Bode Agusto, an independent researcher and consultant and former non executive director at National Pension Commission, say that the current rate of inflation creates concern for fixed monetary assets because the rate of inflation is higher than the rate of interest which is hovering at 3-4%.

Agusto spins his concern further, explaining how this could deflate pension assets if the rate of inflation continues for a long period. “The bulk of the pension assets are invested in government securities or other fixed income securities. Today, those assets are earning significantly below the rate of inflation and if that continues for some considerable future period, it means that pension assets are going to be significantly eroded.”

However, Mrs. Amaka Andy-Azike, managing director, Fidelity Pension Managers Limited, said the concern over inflation though germane, still stays clear from impacting on returns on investment. She says, “On the average the current returns on investment is above inflation.”

However, this does not underscore the fact that the yield on financial instruments have dropped significantly. In some ways, the drop in yields has led to capital appreciation for fixed income instruments,” she explains.

The managing director at Access Pension Fund Custodian, Mrs. Idu Okwuosa, says despite the high inflation, the rate of returns in years averages 17%, several points above the national inflation rate. Besides, she said fund managers can only invest based on the investment guidelines as released by National Pension Commission. Dousing fears of future of pension assets, she insists the security of funds is guaranteed, and investments are yielding returns

Mrs Idu Okwuosa MD Access Pension Custodian

While believing that the inflation rate is high, Fidelity Pension boss says its not an oversize for the pension industry. “An inflation rate that is significantly higher than the interest is a concern. In our view this would not continue for too long.”

Taken into account the Nigerian economic environment, Okwuosa said pension managers cannot create their own rules outside the regulation umbrella, and would be content to perform within the limits of the market at the optimum despite the challenges the economy presents.

On the investment of pension funds and concern over returns in a high inflation economy and low interest rate, Andy-Azike says: “The pension funds are invested in a diversified portfolio. By its nature, some of the instruments provide a hedge against inflation over the long term.

“We believe as the market matures and more instruments become available, it will provide the pension fund additional options to diversify its investment,” she asserts.

Another dimension to pension assets is the safety of funds and this correspond with investment instruments. By the structure of the pension industry, Okwuosa said, “Safety of the funds is paramount and more important than the rate of return.”

Andy-Azike said the cutting edge acquired by investment managers will also be a major factor operating above the inflation rate successfully. “In the current yield environment, the tactical allocation strategy of each fund manager will play a key role in the ultimate performance of the fund.”

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Nwanne Ikemefune

Nwanne Ikemefune

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Comments 2

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