Analysis of the recently released summary of Pension Fund Asset data for the first two months of 2020 by the Pension Commission of Nigeria has shown that pension fund managers are no longer in love with Treasury Bills like they used to be in the past.
Time was when fund managers allocated much of their assets to treasury bills, but that seems to be waning as yields on treasury bills head towards subzero.
According to the analysis, pension fund managers redeemed treasury bills worth N512 million in the two months combined but did not invest any additional kobo into treasury bills within the same period.
Prior to this event, the pension fund had invested a combined sum of N1.88 trillion into treasury bills, representing 18.4% of total pension fund assets.
With that development, pension fund managers allocation to treasury bills now stands at 13%. This is about the first time, in over 5 years that PFM’s are shying away from treasury bills.
The love seems to have shifted to bank placements which attracted additional investment if N420 million from pension fund managers. FGN Bonds continue their camaraderie with pension fund managers as they pumped additional N352 million into FGN bonds in January and February, combined. This seeming reallocation to bank placements is indicative of pension fund managers’ desire to hold on to their cash, while waiting and hoping that yields will trend up anytime soon.
Yield Analysis: Fund managers who are out to seek ways to generate positive alpha or returns for their investors are running away because of the low treasury bill yields. The last Treasury Bill option that was conducted on May 13th, 2020, had stop rates of 2.5%, 2.85% and 3.84% for 91-day, 182-day and 364-day treasury bills respectively. Those rates were not enticing enough for the fund managers.
Strong Market Demand: This does not mean that Nigerian Treasury Bills are no longer in demand because, according to the NTB Auction Results sheet of May 13th, 2020, all the three tenors of treasury bills were oversubscribed.
While the 91-day Treasury Bill had N4,384,80,000 on offer, it attracted a total subscription of N22,334,588,000, the 182-day tenor which had N12,920,900,000 on offer saw N41,194,993,000 being subscribed for, while investors bid N102,030,671,000 for the 364-day tenor which had N16,536,720,000 on offer.
Pension Fund Asset Allocation: All said and done, FGN bonds continue to be the asset type with the highest allocation from pension managers. Out of the N10.5 trillion total pension fund asset value as at February, 29th 2020, N5.6 trillion sits with FGN Bonds, while bank placements come second with an allocation of N1.48 trillion leaving Treasury Bills in the third position with an asset allocation of N1.37 trillion.
RSA Transfer: What to look for in a fund manager
If you are looking at transfering your RSA from one fund manager to another, here are a few things you might consider first.
The National Pension Commission just opened the transfer window for RSA holders to freely transfer from their current PFA to another one. According to PenCom and the code that governs pension accounts in Nigeria, transfer between PFAs is an event that happens once a year, and as such should be taken seriously, after all, the success of a fund has been known to be positively related to the fund manager’s skills.
Why Fire Your Fund Manager: Before you make that transfer, have you asked yourself, why would I fire my current fund manager? One of the reasons, if not the major reason why investors fire their fund manager is because of poor performance. A fund manager that makes negative or near zero returns while his peers or the broad market index makes returns in double-digit will no doubt be on the chopping board during transfer times. However, before you fire that seemingly non-performing fund manager, find out how the market as a whole is doing or did. If the market is doing or did badly, then the issue with your fund manager probably derives from systemic risks that even the best fund managers may not be able to diversify away.
Before Your Transfer: It may be necessary to do your homework before you decide to transfer. Look at the portfolio information of the fund you want to transfer into, what assets is the fund manager investing in and what weights does he give to each asset type, compare that with what your current fund manager is investing in. Because of paucity of investible asset types in Nigeria and adherence to regulatory requirements, most pension fund managers in Nigeria invest in similar assets although with different weights. So pay attention to the difference in weights.
How about Performance: Take a look at the historical performance of the fund you want to transfer into. While past performance does not guarantee future performance, it could give you an indication of the difference between your current fund manager and the prospective one. Ask the fund manager for their performance numbers over the last 5 years and look for out-performance consistency.
How much are you paying for the Services: Take a look at the fees being charged by the fund manager you want to transfer to in comparison with the one you currently have. As required by regulation, Nigerian pension fund managers are required to charge a given percentage of fees, do your research and make sure that the fee requirement is being adhered to by your prospective fund manager.
Customer Services is of importance: Another thing to think through is the responsiveness of a fund manager to RSA holders. How quickly, truthfully, courteously and professionally does your current fund manager and your prospective fund manager respond to enquiries and questions from RSA holders?
Availability of information/data: Think about availability of information and data. In these days, data and information is money, especially when such is provided in a timely manner. Many pension fund managers have the prices of their pension funds readily available on their website but there are still many of them that you would go through the eye of a needle to get the information. There are 2 pension fund managers that I have sent over 10 emails with request for pension fund prices, and they have adamantly refused to respond and the information is not even on their website. For such fund managers, it becomes difficult to know their performance, at least independently and quickly. There is a fund manager that has the information in a format that is not amenable to analysis. If I were to make a change, I will dump those at a blink of the eye.
Explore Data on the Nairametrics Research Website
Experience Matters: Take a look at who the fund manager employees. These days, some fund managers in Nigeria are beginning to publish the names and qualifications/experiences of their fund managers on the fund factsheets, if you can find that information, it will be useful to know that your fund manager is a Chartered Financial Analyst, CFA or the like. Do not be shy, call the fund manager you want to transfer to and they will be happy to give the information, if they know you want to transfer to them, especially if you have large balance in your RSA account.
Fund Managers’ motivation: I know that it may not be that easy to glean information from fund managers, but if you can, find out if the guy overseeing your fund is being paid an incentive fee if he outperforms the index or if he generates a certain return. A fund manager that gets incentivized for his performance tends to be more motivated than one that just gets paid his normal salary irrespective of his investment performance. Therefore, go with those that get performance-based incentive fees.
While the above are only but a few things to ruminate about while you decide on if and where to transfer your RSA account, it is hoped that it will help make the transfer decision a bit easy.
How to transfer your Retirement Savings Account (RSA)
PenCom has made available information that may help you if interested in transferring from one Pension Fund Administrator to another.
In anticipation of the formal launch of the Retirement Savings Account (RSA) transfer system, the National Pension Commission (PenCom) has published steps in which RSAs can be transferred from one Pension Fund Administrator (PFA) to another.
This is contained in a verified tweet by the commission, as seen by Nairametrics.
How To Transfer Your RSA pic.twitter.com/8eF1P4Ymc4
— Natl Pension Comm (@PenComNig) November 15, 2020
Recall that Nairametrics had earlier reported that PenCom had earlier fixed November 16, 2020 (tomorrow) as the date for the official launch of the RSA transfer system.
What you should know
The RSA transfer system involves five different steps which are succinctly explained below;
- Data recapture with the current PFA: You must ensure that your personal details have been recaptured and updated on the ECRS by your PFA (I.e. the PFA that currently manages your RSA).
Note: This applies if you opened your RSA before July 01, 2019 and have not been recaptured.
- Submission of RSA Transfer Request to Receiving PFA: You should approach the PFA that you intend to move your RSA to, (the Receiving PFA) and submit the transfer request by providing the following; Surname, RSA pin, E-mail and current phone number.
- Validation of Identity: You will be required to provide your fingerprint to the receiving PFA for the authentication of your identity on the National Identity Management Commission’s (NIMC) database. Thereafter, the receiving PFA will issue a printed confirmation slip, which should be signed by you as proof that your transfer has been submitted.
- Transfer of RSA and funds to receiving PFA: Your current PFA will transfer all the funds in your RSA to your new PFA at the end of the applicable transfer quarter. The process is closely monitored by PenCom
- Notification to RSA Holder: You will be notified by PenCom and the receiving PFA when your RSA has been transferred.
Nigeria’s Micro Pension industry: A gold mine waiting to be tapped
The Nigerian government expanded the Pension Reform Act (PRA) of 2014 to include provisions for Micro pensions.
According to a report from Price Waterhouse Cooper (PWC), Nigeria has about 59.6 million workers in the informal sector. A projection from the same report says that if those 59.6 million workers set aside N100 weekly into a pension fund in 2016, by the end of 2017, Nigeria’s Micro Pension industry would be worth N61.1 billion if such contributions were invested at a real return of 4.5% per year. Extrapolate that five-year-old projection to today, and you will be amazed at the worth of Nigeria’s Micro Pension industry. In recognition of the potentials hidden within the Nigerian micro pension industry, the Nigerian government expanded the Pension Reform Act (PRA) of 2014 to include provisions for Micro pensions.
The National Pension Commission then followed that up with the design and publication of “frequently asked questions on Micro Pension fund”, a document that seeks to answer potential questions that people may have regarding micro pension scheme. The beauty of that document is that it is in English, Igbo, Yoruba and Hausa, so that those that are not literate in English language still have the opportunity to read, understand and take advantage of the benefits of micro pension funds.
Success Stories Elsewhere: Micro pension schemes have been known to be successful in places like India, and Kenya, but to what extent has it succeeded in Nigeria? There are indications that the scheme has not been as successful as hoped for, in Nigeria, either because of lack of interest by those for whom the scheme was created or due to lack of awareness and enlightenment campaigns.
Nigerians have always relied on their children for their comfort at retirement but that is fast changing with so many of such children unemployed many years after leaving or graduating from schools. It is therefore imperative that parents get into plan “B”, by enlisting into micro pension plans so that if their children fail to provide for them at retirement, they have something to fall back on.
Fund Managers Have A Role to Play: With so much potential in the micro pension industry, fund managers stand to gain by way of the fees they charge, it is therefore of importance that they get into being more active in creating awareness for this laudable scheme. A visit to the various fund managers’ websites indicates that some of them have information about micro pensions on their website. It does not appear, however, that many of them are active in the scheme as lots of them do not have the pricing information of micro pension funds as part of their daily price releases. This copious absence may be an indication of lack of activity.
Micro Pension Fund Performance: Only a few of the pension fund managers seem to have active participants of micro pension scheme and Quantitative Financial Analytics conducted a performance analysis of those few. The few are AIICO, ARM, Premium, AXA, PAL and NLPC. It is quite pathetic that out of about 20 pension fund managers, only 5 are active with Micro pension scheme. Most of the data we collected went back to July 2019 and it is on that basis that the performance analysis was conducted. Of the few active micro pension funds, PAL micro pension fund has the highest return of 5.46%, followed by ARM Micro pension with 5.15%. AIICO micro pensions took third place with a return of 2.95%.
Conclusion: Though the absence of pricing information on the fund managers’ web site may not necessarily indicate inactivity, fund managers are encouraged to include that information among the information provided for the other pension funds as all investors deserve to be equally served. In addition, the presence of such information can act to increase the awareness of prospective pension fund contributors and can as well act as marketing tools for the fund managers. Micro pension scheme is still new in Nigeria and we will continue to monitor and report on progress.