Pension Fund Administrators have channelled more than N14.5tn of workers’ retirement savings into Federal Government securities as of March 2025, reinforcing the industry’s deep dependence on sovereign debt.
According to figures obtained from the National Pension Commission, investments in Federal Government securities stood at N14.48tn in the first quarter of 2025, representing 62.09 per cent of the total pension assets of N23.33tn. In June 2023, the comparable figure was N10.86tn, equivalent to 64.78 per cent of assets valued at N16.76tn.
This means PFAs increased their holdings in government paper by N3.62tn over six quarters, a rise of 33.3 per cent, even though the asset class shed 2.69 percentage points in overall portfolio weight. The data show that Federal Government bonds remain the cornerstone of pension portfolios.
Holdings in bonds climbed from N10.40tn in June 2023 to N13.79tn in March 2025, an increase of N3.39tn or 32.6 per cent, though their share of total assets dropped from 62.07 per cent to 59.1 per cent. Treasury bills recorded an even sharper surge, rising by N400.8bn or 208.3 per cent from N192.4bn to N593.2bn, lifting their weight from just 1.15 per cent to 2.54 per cent.
Sukuk declined from N152.4bn to N94.8bn, a fall of N57.6bn or 37.8 per cent, while agency bonds shrank from N12.1bn to N7.4bn, a reduction of 38.9 per cent.
Green bonds all but disappeared, collapsing from N96.7bn in 2023 to only N2.5bn in 2025, representing a dramatic 97.4 per cent decline.
The rapid expansion in nominal allocations underlines the gravitational pull of government debt in Nigeria’s financial system, but the falling weight in percentage terms suggests that growth in other asset classes, particularly equities and corporate debt, has modestly outpaced sovereign securities.
Nevertheless, the fact that nearly two-thirds of pension assets remain tied to government borrowing highlights the conservative approach of PFAs in an uncertain economic environment. Commenting on this, PenCom noted in its Q1 2025 report, “Investor demand for government securities remained strong, with yields adjusting slightly downward amid expectations of lower inflation and stable interest rates.
“The Federal Government of Nigeria continued to issue sovereign debt to finance fiscal operations, further supporting market depth and performance.”
Total pension assets grew by N6.57tn between June 2023 and March 2025, a rise of 39.2 per cent. Of this increase, government securities alone accounted for 55 per cent, meaning more than half of the industry’s asset growth in the past two years was absorbed by federal debt.
While contributors’ funds are technically safe, the sustainability of this strategy is questioned, especially as inflation averaged above 20 per cent during the same period. Equities saw the sharpest proportional improvement in pension portfolios. Domestic ordinary shares doubled from N1.27tn in 2023 to N2.57tn in 2025, an increase of N1.30tn or 102.8 per cent.
Their weight rose from 7.57 per cent to 11.02 per cent, reflecting the strong rally on the Nigerian Exchange, where the All Share Index surpassed 105,000 points by early 2025. Yet, equities remain far behind government securities in absolute value, underlining PFAs’ risk aversion.
Corporate debt also expanded, but at a slower pace. Investments rose from N1.88tn in 2023 to N2.35tn in 2025, an increase of N466.4bn or 24.7 per cent, though the share of the total portfolio slipped from 11.25 per cent to 10.07 per cent. Bank placements grew from N1.38tn to N1.76tn, up by N379.2bn or 27.4 per cent, while commercial papers rose from N170.6bn to N250.3bn, an increase of N79.7bn or 46.7 per cent.
Alternative assets remain a marginal slice of the portfolio despite regulatory encouragement. Real estate grew from N216.4bn to N259.1bn, a rise of N42.7bn or 19.7 per cent, but its share fell from 1.29 per cent to 1.11 per cent.
Infrastructure funds nearly doubled from N127bn to N233.9bn, a gain of N107bn or 84.3 per cent, while private equity surged from N43bn to N164.3bn, up by N121.3bn or 282.1 per cent. Despite the impressive percentage growth, their combined weight remains under 3 per cent of total assets.
State government securities, once a modest diversification channel, have lost ground. PFAs’ exposure fell from N277.4bn in 2023 to N249.7bn in 2025, a contraction of N27.7bn or 10 per cent, while their weight dropped from 1.65 per cent to 1.07 per cent.
The decline reflects concerns about the repayment capacity of states, many of which rely heavily on federal allocations and are struggling with rising debt obligations. The heavy concentration in government securities has reignited debate over the long-term implications for contributors.
Although the Pension Reform Act promotes a conservative investment stance to safeguard funds, inflation continues to erode real returns. Regulators are not blind to this reality. In its first quarter 2025 report, PenCom identified diversification as one of its six strategic priorities, urging PFAs to expand into infrastructure, private equity, and other alternative investments to reduce dependence on FGN securities.
However, the structural dominance of sovereign debt, combined with liquidity constraints in other asset classes, makes the transition difficult. PenCom further noted, “While this conservative strategy ensures portfolio stability, it also highlights the need for broader diversification to enhance returns and manage exposure to inflation and interest rate risks.”
In its Financial Market Outlook for Q2 2025, PenCom acknowledged the economic headwinds confronting fund managers. It noted that the Central Bank of Nigeria was unlikely to ease its contractionary monetary stance given persistent inflationary pressures.
“There is little room for a policy rate reversal in the short term,” the Commission warned, adding that inflation, driven largely by food and transport costs, would keep interest rates elevated.
PenCom explained that the prevailing conditions would shape the cautious approach of PFAs in the coming months. It stated, “Pension fund administrators are likely to maintain a conservative investment approach, focusing on capital preservation and steady returns.”
According to the regulator, this strategy was expected to sustain demand for high-yield government securities as well as corporate debt instruments that still offer positive real returns. “This strategy is expected to favour continued investment in high-yield Federal Government securities and investment-grade corporate debt, which currently offer attractive real returns in the high-interest rate environment,” PenCom noted.
The commission further stressed that despite bouts of market volatility, the equity segment would remain supported by consumer staples, telecoms, and select industrial stocks, which continue to benefit from resilient demand. “These segments tend to maintain steady demand despite inflation, helping to sustain earnings and valuations,” it said.
Earlier, the Managing Director and Chief Executive Officer of TrustFund Pensions Limited, Mr Uche Ihechere, said that inflationary pressures and naira depreciation are undermining the real value of pension returns, despite improved performance across the industry.
“In terms of returns, yes, positive returns in the gross sense,” he said. “But if you now benchmark it to inflation, it’s negative returns.” He added, “The industry has continued to grow, but it’s not growing as fast as inflation. So, in terms of real returns on investment, we are lagging.”
He said the existing investment pipeline was narrow and called for a more robust legal and regulatory framework to support infrastructure-backed instruments and other growth-oriented assets. While commending the efforts of the National Pension Commission, Ihechere noted that the regulator must go beyond compliance enforcement and focus more on market expansion.
The Chief Executive Officer of Chapel Hill Denham, Mr Bolaji Balogun, said that strong investment performance is the only way pension fund managers can effectively protect contributors’ savings from inflation.
He explained that outperforming inflation requires increased investments in equities, infrastructure, and alternatives, rather than relying heavily on fixed-income instruments.
The National Pension Commission recently urged pension fund administrators to diversify their investment portfolios by increasing allocations to alternative assets in a bid to enhance returns and ensure long-term sustainability.
The Director-General of the Commission, Omolola Oloworaran, made this call during a sensitisation workshop on investment in alternative assets held in Lagos for Chairpersons of the Board Investment Strategy and Risk Management Committees of PFAs.
She stressed that the current macroeconomic environment, marked by inflation, foreign exchange volatility, and declining purchasing power, requires dynamic and resilient investment strategies.
“In this context, alternative assets provide a complementary pillar to the core investment strategies of pension funds,” she said. “Investments in infrastructure and private equity, in particular, help align pension fund portfolios with their investment horizon, provide opportunities for diversification, and enhance risk-adjusted returns.”
The PenCom boss stated that the misperception of safety in liquidity has limited the ability of PFAs to fully optimise the investment potential of pension funds, despite Nigeria’s favourable demography. She reminded PFAs of their fiduciary duty to retirement savings account holders, urging them to make decisions based on sound strategy and robust risk assessments.
