The value of pension funds has undergone a significant decline of 45.18% when denominated in dollars, a consequence of the devaluation of the Nigerian naira. Data from the National Pension Commission’s website reveals that as of September, the net asset value of pension funds was N17.35 trillion, equivalent to $19.83 billion when converted to dollars at the official exchange rate of 874.71/$.
This decline follows the devaluation that occurred in mid-June, initiated by the Central Bank of Nigeria’s efforts to unify the country’s exchange rates. In June, before the devaluation, pension funds were valued at N16.76 trillion, amounting to $36.17 billion in dollar terms, using the exchange rate of 463.38/$ on June 9.
The harmonization of the forex rate, a result of President Bola Tinubu’s inauguration speech, led to the struggles of the local currency against the dollar despite the government’s efforts to strengthen it. In response to the devaluation, the Central Bank of Nigeria began clearing forex backlogs in banks this month to boost investor confidence.
The erosion of the pension funds’ value is also attributed to accelerating inflation, which rose from 22.79% in June to 26.72% in September. Abdulqadir Dahiru, Head of the Corporate Communications Department at PenCom, acknowledged the broader impact of naira devaluation on the economy, stating that it affects everyone and is compounded by inflation.
Dahiru explained that while inflation reduces the value of currency, the advantage for pension funds lies in their diversified investments in various instruments, including fixed-income and variable-income instruments. The latter’s prices fluctuate based on market forces, providing a level of flexibility in managing the impact of economic headwinds.