Pension fund investments in infrastructure remain stagnant.
In the face of the nation’s massive infrastructure deficit, pension fund investments in infrastructure have remained at or below 1%, much below the 15% threshold set under the Pension Reform Act.
Experts claim that the lack of suitable financial market instruments is to blame for the development, even while the investment climate in the infrastructure sector remained favorable.
According to the National Pension Commission’s (PenCom) August pension industry report, investments in infrastructure funds totaled N172.5 billion, or 0.82 percent of the overall pension fund assets, which stood at N21. 1 trillion.
Additional research reveals that N169.7 billion was invested in infrastructure funds in July, which represents.
Infrastructure fund investments totaled N162.5 billion in June, or 0.7% of the N20.5 trillion in total pension fund assets. In the meanwhile, the majority of the pension assets are placed in risk-free federal government bond borrowing.In August, N12.6 trillion was invested in FGN bonds, representing 59.7% of the total assets of the pension fund. N12.4 trillion, or 59.6% of the pension assets, were invested in FGN bonds by the pension fund in July, whereas N12.2 trillion, or 59.7% of the pension assets, were invested in FGN bonds in June.
In the meantime, infrastructure should receive 15% of the entire pension asset, according to the Pension Reform Act of 2014. In response to the subpar infrastructure fund investment, experts said that the allocation pattern was influenced by the FGN bond’s superior security and yield, while the infrastructure sector’s investment atmosphere remained unappealing.
PenCom claims that the lack of suitable financial market tools is the primary obstacle preventing Pension Funds Administrators, or PFAs, from allocating pension assets for infrastructure development. PenCom said, “Efforts to issue eligible instruments for pension funds to support infrastructure development in Nigeria would be supported by the Commission and the pension industry.”
PenCom did stress, however, that these investments have to be made in safe, well-structured vehicles that comply with the Regulation of Investment of Pension Fund Assets and the Pension Reform Act.
This eliminates all doubt regarding the actual market prices and tradability of the assets by establishing transparency and fair assessment. Then, PFAs can easily purchase and sell at the going rates in the market. According to PenCom, the eligibility condition guarantees that the assets are genuine, liquid, and within acceptable risk ranges.
“Pension funds are long-term investable funds that can be leveraged for economic development, given the right institutional and legal framework as well as economic conditions,” said Mr. Ivor Takor, Director of the Center for Pension Rights Advocacy.
It is regrettable, he continued, that the lack of suitable mechanisms in the infrastructure sector prevents pension fund administrators from allocating additional pension money to this industry. If it were the other way around, the nation’s massive infrastructure deficit would have decreased over time.
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