Nigerian Pensioners face 30% decline in net asset value when dollarized

Amid an optimistic narrative surrounding gains in net asset value by pension fund administrators, Nigerian pensioners find themselves grappling with a significant depreciation in the actual worth of their pension assets when evaluated in dollar terms.....PROCEED.FULL.READING>>>

According to data from Nigeria’s Pension Commission, commonly known as “Pencom,” pension funds recorded a net asset value of N17.07 trillion as of July 2023.

This represents a 13.85% increase compared to N14.99 trillion, the figure reported for December 2022.

At first glance, it appears to be one of the strongest performances by pension fund managers in Nigeria, implying windfall profits for these financial stewards.

However, the narrative becomes considerably less rosy when the net asset values, denominated in naira, are converted to U.S. dollars.

Currency Devaluation and its Consequences
Contrary to initial expectations, Nigeria’s currency woes have only intensified following the government’s efforts to unify the exchange rate.

Despite the prognostications that unification would bring about stabilization, the naira has depreciated significantly.

On June 16, the government unified the naira, effectively devaluing the currency from approximately N450/$1 to over N700/$1.

Since then, the official exchange rate has sunk to lows of N848/$1, while the NAFEX rate currently stands at N783/$1.

The consequences of this currency depreciation reverberate throughout the nation. Most assets valued in naira have lost substantial worth when converted to dollars, including pension funds.

The Dollarised Reality

By July 2023, the net asset value of N17 trillion converts to a dollarized value of $21.3 billion, using an official exchange rate of N800/$1.

This shows a staggering 36% decline in dollar terms compared to the net asset value of $33.3 billion at an exchange rate of N450/$1 for the previous net asset value of N14.99 trillion.
Similar calculations using black-market exchange rates yield equally disconcerting results.
When the black-market rate of N1200/$1 is applied, as opposed to the N750/$1 rate used in December 2022, the decline in asset value stands at roughly 28.8%.

Inflation’s Added Sting

Complicating matters further is the rising inflation rate, eroding the purchasing power of the Nigerian populace, including pensioners.

The average inflation rate now hovers at 26.7%, compared to an average inflation rate of 22.9%. Therefore, even after adjusting for inflation, the purchasing power of pension assets has dwindled.
The current average inflation rate of 22.9% surpasses the 13.85% return on pension funds, although when annualized, these returns slightly improve to 23.8%.

What Lies Ahead?

Faced with the unenviable challenge of identifying lucrative investment avenues that can outpace the twin threats of inflation and exchange rate devaluation, pension fund managers find themselves in a quandary.

The current financial climate presents formidable challenges that require well-thought-out strategies to safeguard the financial future of retirees.

In this context, the stark reality becomes clear: retirees face the alarming prospect of seeing their pension investments erode at a rate that could potentially outstrip both their current income and future earning potential.

The situation necessitates immediate and astute action, highlighting the urgency of navigating this turbulent financial landscape with care and expertise.

Share on Beloud

2.3k