Worry for PFAs as pandemic-induced unemployment lowers new pension accounts

Pension fund managers (PFAs) in Nigeria have a new problem to worry about, following a drastic decline in the rate at which new retirement savings accounts are opened. Nairametrics understands that this is happening because many companies have been unable to recruit new employees in recent times, no thanks to the COVID-19 pandemic.

As you may well know, a lot of Nigerian companies were forced to partially shut down after the virus hit, as Nigerian authorities adopted lockdown measures and restricted movements. Many companies and the Nigerian economy were adversely affected by this, a situation that was further complicated by the oil crisis.

Now, many of these companies are unable to create new jobs, hence the problem pension fund managers have noticed. Wale Okunriboye, the Head of Investment Research at Sigma Pensions Limited, told Bloomberg that this is a major problem.

“If companies aren’t hiring we can’t sign people for pension plans. Businesses will go through a difficult time and try to manage costs, as a result, we expect unemployment numbers to increase,” he said.

In April 2020, new retirement savings accounts declined by as much as 85% compared to what was obtained in April 2019. But the situation may not really be affecting the pension fund assets that are being managed by PFAs in Nigeria. This is because as of April, Nigerian pension fund assets stood at N10.6 trillion, the same figure in February this year.

At this point, it is unclear if pension assets will ever be adversely affected by the low rate of new pension fund accounts. However, one thing that is clear is the fact that a number of factors (including Nigeria’s inflation rate) are bedevilling these pension assets. An earlier analysis by Nairametrics explained this in detail.

Back to the main issue at hand; Nigeria’s unemployment crisis is projected to worsen, with the unemployment rate rising to 34% by December unless actions are taken immediately to mitigate that. Meanwhile, bearing in mind that some previously-employed Nigerians have recently lost their jobs, there is also the possibility that PFAs may soon start getting requests from people asking for their pension savings. As Okunriboye explained, fund managers are already worried that contributors will start making such requests, especially if they remain unemployed for more than four months.

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