Pension Funds Surpass N14.5tn in Investments in Government Securities through PFAs

Nigerian Pension Funds Lean Heavily on Government Debt, Sparking Diversification Debate

August 21, 2025 – 10:00 AM

Lagos, Nigeria – Pension Fund Administrators (PFAs) in Nigeria have substantially increased their allocation to Federal Government securities, reaching over N14.5 trillion as of March 2025.This trend underscores a continued preference for sovereign debt within the nation’s pension system, even as concerns mount regarding the need for greater diversification and protection against inflationary pressures.

Surge in Government Securities Holdings

Recent data released by the National Pension Commission (PenCom) reveals that investments in Federal Government securities totaled N14.48 trillion in the first quarter of 2025,constituting 62.09 percent of the total N23.33 trillion in pension assets.This represents a ample increase from the N10.86 trillion invested in June 2023, when total pension assets amounted to N16.76 trillion.

Over the six-quarter period from June 2023 to March 2025, PFAs augmented their exposure to government paper by N3.62 trillion, a rise of 33.3 percent. While the proportion of sovereign debt within overall portfolios decreased slightly from 64.78 percent to 62.09 percent, it remains overwhelmingly dominant.

The composition of these securities shifted notably.Federal Government bonds experienced considerable growth,climbing from N10.40 trillion to N13.79 trillion. Treasury bills also saw a significant surge,increasing by 208 percent from N192.4 billion to N593.2 billion. Conversely, investments in sukuk, agency bonds, and green bonds declined, falling by 37.8 percent, 38.9 percent, and 97.4 percent respectively.

Inflation and the Call for Diversification

Analysts indicate that the concentration in government debt reflects a conservative investment strategy adopted by PFAs in response to ongoing inflationary pressures and market volatility. Inflation in Nigeria has remained above 20 percent on average, impacting the real returns on pension investments.

Uche Ihechere,Chief Executive Officer of trustfund Pensions,commented that pension funds are expanding in nominal terms but not at a pace sufficient to outstrip inflation. Bolaji Balogun,CEO of Chapel Hill Denham,emphasized the necessity for pension funds to broaden their investments into equities,infrastructure projects,and option asset classes to effectively safeguard the savings of contributors.

Omolola Oloworaran, Director-General of PenCom, recently encouraged PFAs to reassess their investment approaches, asserting that “alternative assets provide a complementary pillar to core pension fund investments” and are vital for achieving enduring long-term returns.

asset Allocation Trends

Total pension assets increased by N6.57 trillion between June 2023 and March 2025, with over half of this growth directed toward Federal Government securities. Equities experienced the most substantial proportional increase, doubling from N1.27 trillion to N2.57 trillion, thus elevating their share from 7.57 percent to 11.02 percent. corporate debt increased to N2.35 trillion, although its portfolio share decreased to 10.07 percent.

Investments in real estate and infrastructure funds showed modest growth but continue to represent a small fraction of overall pension assets,collectively accounting for less then 3 percent. State government bonds saw a 10 percent contraction,falling to N249.7 billion, attributed to concerns regarding repayment risks.

Asset Class	June 2023 (N Trillion)	March 2025 (N Trillion)	% change
FG Securities	10.86	14.48	+33.3%
Equities	1.27	2.57	+102%
Corporate debt	2.02	2.35	+16.3%
State Govt.Bonds	274.6	249.7	-9.1%

Did You Know? Nigeria’s Contributory Pension Scheme (CPS) was introduced in 2004 to address the challenges of the previously unfunded defined benefit scheme.

Pro Tip: Regularly review your pension statements and understand the asset allocation of your fund to ensure it aligns with your risk tolerance and long-term financial goals.

Understanding Pension Fund Investment Strategies

Pension funds globally face the challenge of balancing the need for safe, stable returns with the imperative to generate sufficient growth to meet future obligations. government securities are often favored for their low risk, but their yields may not always keep pace with inflation. Diversification into other asset classes, such as equities, real estate, and infrastructure, can potentially enhance returns but also introduces greater volatility.

The Nigerian pension system, like many others, is subject to regulatory oversight aimed at protecting the interests of contributors. PenCom plays a crucial role in setting investment guidelines and monitoring the performance of PFAs.

Frequently Asked Questions about Nigerian Pension Funds

• What are pension funds? Pension funds are investment vehicles designed to provide income to individuals after they retire.
• Why are nigerian pension funds investing in government securities? Government securities are perceived as relatively safe investments, notably in times of economic uncertainty.
• What is the risk of investing heavily in government debt? The primary risk is that returns may not outpace inflation,eroding the real value of pension savings.
• What are alternative assets? Alternative assets include investments like equities, real estate, infrastructure, and private equity.
• How does PenCom regulate pension funds in Nigeria? PenCom sets investment guidelines, monitors PFA performance, and ensures compliance with regulations.
• What is the current rate of inflation in Nigeria? As of late 2025, inflation in Nigeria averages above 20 percent

what are your thoughts on the current state of pension fund investment in nigeria? Share your opinions in the comments below!

What percentage of total PFA investments in FGS are currently allocated to Federal Government Bonds (FGB)?

The Growing Role of Pension Fund Administrators (PFAs) in Nigeria’s Economy

Nigeria’s pension industry has witnessed significant growth, with total pension fund assets under management (AUM) exceeding N14.5 trillion, largely invested in Federal Government Securities (FGS) through Pension Fund Administrators (PFAs). This surge in investment highlights the crucial role PFAs play in shaping Nigeria’s financial landscape adn supporting government initiatives. Understanding these investments – including the types of securities, the benefits, and potential risks – is vital for both contributors and stakeholders.

Breakdown of Investments in Government Securities

The bulk of these N14.5 trillion in pension funds is strategically allocated to various FGS, offering a balance between security and returns. Here’s a detailed look:

Federal Government Bonds (FGB): These remain the largest component, offering relatively stable returns and long-term investment horizons.As of Q1 2024 (latest available extensive data),FGB accounted for approximately 60% of total PFA investments in FGS.

treasury Bills (T-Bills): Providing short-term liquidity and lower risk, T-Bills are utilized for managing immediate cash flow needs within the pension funds. They typically represent around 25% of FGS holdings.

State Government Bonds: while a smaller portion, investments in state government bonds are increasing, offering diversification and potentially higher yields, albeit with slightly increased risk. Currently around 8%.

Sukuk Bonds: Islamic finance compliant bonds issued by the Nigerian government, gaining traction as a viable investment option for PFAs seeking Sharia-compliant assets. Approximately 7% of FGS holdings.

Regulatory Framework Governing PFA Investments

The National Pension Commission (PenCom) is the primary regulator overseeing the activities of PFAs in Nigeria. PenCom establishes investment guidelines to ensure the safety and soundness of pension funds. Key regulations include:

1. Investment Limits: PenCom sets limits on the percentage of pension funds that can be invested in specific asset classes,including FGS,equities,and real estate. This diversification requirement mitigates risk.
2. Risk Management: PFAs are required to have robust risk management frameworks in place to identify, assess, and manage investment risks.
3. Reporting Requirements: PFAs must regularly report their investment activities to pencom, ensuring clarity and accountability.
4. Due Diligence: PFAs are mandated to conduct thorough due diligence on all investment opportunities before committing pension funds.

Benefits of Investing Pension Funds in Government securities

investing a significant portion of pension funds in FGS offers several advantages:

Reduced Risk: FGS are generally considered low-risk investments,backed by the full faith and credit of the Nigerian government. This is crucial for preserving the capital of pension contributors.

Stable Returns: While not offering the highest potential returns, FGS provide relatively stable and predictable income streams, essential for long-term pension planning.

Government Funding: These investments directly support government financing needs, enabling infrastructure development and economic growth.

Liquidity: T-Bills and other short-term FGS provide PFAs with liquidity to meet redemption requests from pension contributors.

Impact on Nigeria’s Economic Development

The considerable investment of pension funds in FGS has a ripple effect on the Nigerian economy:

Infrastructure Financing: Funds raised through FGS are often channeled into critical infrastructure projects, such as roads, railways, and power plants.

Reduced Borrowing Costs: Increased demand for FGS can help lower government borrowing costs, freeing up resources for other priorities.

Financial Market Development: The active participation of PFAs in the FGS market contributes to the development and deepening of Nigeria’s financial markets.

Economic Stability: Stable investment in government securities contributes to overall economic stability.

Challenges and Future Outlook for PFAs

Despite the positive trends, PFAs face several challenges:

Inflation Risk: High inflation can erode the real value of fixed-income investments like FGS.

Interest Rate Risk: Changes in interest rates can impact the value of FGS holdings.

Limited Investment Options: Regulatory constraints can limit the investment options available to PFAs.

Need for Diversification: Over-reliance on FGS can expose pension funds to concentration risk.

Looking ahead, the future of PFAs in Nigeria hinges on:

Regulatory Reforms: Potential reforms to PenCom regulations to allow for greater investment diversification.

Infrastructure Investment: Increased focus on investing in option assets, such as infrastructure funds, to generate higher returns.

Technological Innovation: Adoption of fintech solutions to improve efficiency and reduce costs.

Financial Literacy: Enhancing financial literacy among pension contributors to promote informed decision-making.

Case Study: The Impact of Sukuk Bonds

The issuance of Nigeria’s first sovereign Sukuk bond in 2017, and subsequent issuances, provided PFAs with a Sharia-compliant investment option. These bonds, used to finance road projects, demonstrated the potential for diversifying FGS