27-01-2016 by 
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Despite the market turmoil of 2015 arising from the global effect of the melt down in China and the oil glut, pension funds in Nigeria were able to finish the year with strong returns. QFAnalytics analyzed data drawn from a number of pension fund management and administration sources for the year ended Dec. 31.  Retiree pension funds performed better than Retirement Savings Account (RSA) funds largely because the former has more of its assets in bond and other fixed income securities than the later. By and large, traditional asset classes such as treasury bills, bonds, and cash equivalents remain predominant in the portfolios of both types of pension funds. RSA funds recorded positive performance of 11.61% on the average with AXA Pension RSA having the greatest return of 11.71% while Investment One RSA finished the year with a performance of 6.26%. 

On the other hand, Retiree Funds ushered in the new year in smiles having seen off the precious year with an average performance of   12.26%.  The league of performers is led by Investment One Retiree Pension Fund whose 13.94% return is more than doubles the return of its RSA counterpart. The least return in this category came from Trust Retiree Fund whole 11.59% is quite laudable given the market events of 2015. When investors factor in the tax benefit of retirement savings, the returns reported above get magnified. The Pension Alliance Gratuity Funds also did very well by returning 13.52% on the average. In a year where the Nigeria Stock Exchange Allshare Index returned negative 17.36% and the pension Index returned negative 18.69%, Nigerian pension fund managers and administrators merit a pat at the back.  

Nigerian Pension Fund, 1/1/2015 - 12/31/2015 (YTD) Return 
Pension Funds Return
NSE Pension Index -18.69
Retirement Savings Account (RSA) 11.61
Penman Pensions RSA 11.71
Premium Pensions RSA 11.4
Fug pensions RSA 11.12
AIICO Pension RSA 10.73
Legacy Pension RSA 10.68
Crusader Pensions RSA 10.13
Fidelity Pension RSA 8.89
ARM Pension RSA 8.75
First Guarantee Pensions RSA 8.09
Pension Alliance RSA 8.02
IBTC Pension RSA 7.95
NLPC Pension RSA 7.59
Anchor Pension RSA 7.15
Trustfund Pension RSA 6.38
Sigma Pensions RSA 6.3
Investment One RSA 6.26
Retiree Account 12.26
Anchor Pension Retiree Account 14.32
Investment One RET 13.94
IBTC Retiree Account 13.92
ARM Pension Retiree Account 13.36
Fidelity Retiree Account 13.26
NLPC Pension Retiree Account 13.19
Premium Pensions Retiree Account 13.14
Penman Pensions Retiree Account 13.07
Crusader Pensions Retiree Account 13.04
Fug pensions RET 12.91
Pension Alliance Retiree Account 12.83
AIICO Pension Retiree Account 12.82
Sigma Pensions Retiree Account 12.79
Legacy Pension Retiree Account 12.61
First Guarantee Pensions Retiree Account 12.31
Trustfund Retiree Account 11.59
Gratuity Fund 13.52
Pension Alliance Guiness Fund 14.19
Pension Alliance Emenite Fund 12.85
Source: QFAnalytics  

 

A look at 2016 

There is no doubt that the good run by pension funds in 2015 was predominantly due to their being overweight on bonds and fixed income securities. However, the current environment is that of low interest rates and that may affect the assets pension funds in 2016. The impact of low interest rates on defined contribution pension plans (as the case is in Nigeria) works through a reduction in the amount of assets accumulated to finance retirement and an increase in annuity prices, which in turn can affect the adequacy of plan members’ retirement income. Plan members as well as the Nigeria Pension Commission should therefore be on the lookout as pension fund managers may become involved in an excessive “search for yield” while trying to secure improved performance by increasing the risk-profile of their portfolio. While it is not a bad idea to strive to achieve increased performance, such may involve such strategy shifts that may be seriously compromising the pension funds’ capacity to deliver adequate retirement income in the event of a negative shock in financial markets if such funds move into riskier investments in search of performance.  

Give and take, 2015 was a good year for pension funds given the circumstances.

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