“By financing social infrastructure, pension funds can provide suitable finance to close the infrastructure gap that Nigeria faces ” -Akinfemi Onadele

Congested roads, lack of constant power supply, and poor schools are just a few of the ways the infrastructure deficit is undermining Nigeria’s economic efficiency and quality of life.  After many years of underinvestment in basic infrastructure, a variety of problems exist that prevent Nigeria from enjoying what other developed nations benefit from.  With Pension funds in Nigeria managing around N8 trillion naira in total, can they go far in bridging the gap in infrastructural deficit in the country?

What is a pension scheme? A pension scheme is a savings plan that enables employees save money for retirement. Pensions enable workers to invest a proportion of their income regularly during their working life to give them an income when they retire. Nigeria pension funds can play a critical role in driving economic growth across the continent. But here’s the challenge: historically, Nigerian pension fund administrators (PFAs) have invested in safe but low-yielding government securities. As at April 2018, 70% of PFA funds were put in government securities e.g bonds.

By the same token, Nigeria’s current pension density is just 5% of GDP (about 7 million Nigerians currently make pension contributions via its formal pension scheme). Low enrolments levels in Nigerian pensions  are largely due to the large informal structure of the Nigerian economy. Awareness is low about pension in Nigeria. Micro pensions scheme policies can provide ways to use mobile tech to get people to save. The Federal Government has implemented a number of reforms aimed at making it more attractive for small scale entrepreneurs and individuals.

Need to know

Economic growth	A country’s capacity to increase the productivity of service and goods compared to previous time periods
The Contributory Pension Scheme	A mandatory minimum contribution of 10% -18% of employee’s monthly emolument by the employer and employee respectively.
Retirement Savings Account (RSA)	Every employee or contributor under the new pension scheme is expected to open a RSA in his/her name with a PFA of his/her choice into which all his/her contributions and returns on investment are paid
Pension Fund Administrator (PFA)	A company licensed by the National Pension Commission (PENCOM) to manage and invest the pension funds in the employee’s Retirement Savings Account (RSA)
Infrastructure deficit	The lack of access to energy, affordable housing, efficient transport, and other social amenities

Source: Google

Pensions allow individuals save into a diversified pool of investments that are managed by professional investment managers. From an economic perspective, the bedrock of any good economy is a good pension system. Looking to the likes of the Netherlands, pension funds can change Nigeria’s infrastructure landscape by investing in projects that can affect the economic development of Nigeria positively. e.g. build better roads, bridges, safe water, and electricity. 

“pension funds can change Nigeria’s infrastructure landscape by investing in projects that can affect the economic development of Nigeria positively“

 

Nigeria’s infrastructure deficit has grown over time as the government has neglected infrastructure spending and higher commodity prices have undercut infrastructure output. The fight to overcome the infrastructure problem can be won by increasing awareness of ways to finance the deficit from within the country. For instance increased awareness can be achieved via micro pensions schemes that encourage the informal sector (i.e. the guy on the street) to save into a RSA by using mobile phones. 

Key takeaways:

• pensions can change the development landscape by investing in projects  (roads, bridges, safe water, electricity etc ) that can affect the infrastructural development of Nigeria positively. This would mean less investment in government securities than we have seen it the past
• Pensions is saving for the future. It allows individuals save in a diversified pool of investments that are managed by professional investment managers.
• The bedrock of any growing economy is a good pension system.
• Awareness is low about pension in Nigeria.
• More reforms could make the pensions industry even larger than Nigeria’s banking industry.
• Micro pensions scheme will need to target policies that include ways to use mobile tech to get people to save.