The core of the exploitation charge lies in the stark difference between the growth of pension funds in naira terms and their value in real, spendable terms.
· Growth on Paper, Loss in Reality: While the nation’s pension assets have grown impressively to over N20.48 trillion, this figure is misleading . When converted to dollars, the value of these assets has been devastatingly eroded by naira depreciation. An investigation revealed that from 2014 to 2024, pension assets lost over 100% of their value in dollar terms . What was worth $27.15 billion in 2014 was worth only about $13.31 billion in 2024, despite the massive naira increase .
· A System-Wide Challenge: This devaluation affects the entire economy, not just pension funds . However, for retirees on a fixed income, the impact is catastrophic. As the naira loses value, the monthly pension payments, which are made in naira, purchase less and less . With inflation at a high 33.5%, the real value of these payments and retirees’ purchasing power are severely diminished .
The PFA’s Role and Regulatory Constraints
It is crucial to understand the framework within which PFAs operate, as this defines the boundaries of their responsibility.
· The Mandate of PFAs: By law, PFAs are required to “administer the contributions and invest in such a way that will ensure safe and reasonable returns on investment” . Their primary function is not currency hedging but the prudent management of the funds under the regulations set by the National Pension Commission (PenCom) .
· Naira-Denominated System: A key regulatory point is that the pension system is fundamentally naira-based. Contributions and pension payments are designated in naira . Therefore, a PFA’s obligation is to pay the retiree the naira amount they are entitled to, regardless of currency fluctuations . From this perspective, the issue is not that PFAs are withholding higher naira payments, but that the system itself may be failing to protect against macroeconomic shocks.
The Path Forward: Demands for Systemic Reform
The solution requires moving beyond the current framework to introduce more robust protective measures for pension assets.
· Offshore Investment Push: The pension industry, through the Pension Fund Operators Association of Nigeria (PenOp), recognizes the devaluation challenge and has been advocating to invest a portion of pension assets offshore in hard currency . This would directly hedge against naira depreciation.
· Inflation-Indexed Bonds: While National Pension Commission (PenCom) is intensifying efforts to encourage the floating of inflation-indexed bonds . Such instruments would help enhance real returns on pension investments by linking them directly to the inflation rate, thereby preserving purchasing power.
· The Argument for Greater Access and Autonomy: My original argument for allowing retirees to withdraw a larger lump sum, or even the total amount, to manage themselves is a direct response to this failure. If a retiree could invest their entire N20 million savings in government treasury bills at 15%, they could earn about N246,575 monthly without depleting the capital, a stark contrast to the paltry N55,555 offered by some programmed withdrawals. This highlights the frustration with a system that controls capital and returns that do not trickle down sufficiently to the retiree.
A Revised Call to Action
The problem is not just individual PFAs acting in bad faith, but a pension system struggling to adapt to severe macroeconomic pressures. The true exploitation lies in a rigid structure that fails to adequately shield the lifetime savings of Nigeria’s elders from inflation and a devaluing currency.
The collective will of Nigerians must therefore demand that regulators and lawmakers take decisive action. The push for offshore investments and inflation-indexed bonds must be accelerated.
Furthermore, the debate on allowing retirees greater control over their lump-sum benefits deserves serious national consideration. It is time to reform the system to ensure that a lifetime of labor is rewarded with dignity and financial security in old age, not eroded by economic headwinds.
