Nigerian Pensioners’ Net Worth Plummets by 30% in Dollar Conversion

In the midst of a hopeful narrative regarding the growth in the net asset value of pension funds by administrators, retirees in Nigeria are confronted with a stark reality – the substantial depreciation in the actual value of their pension assets when assessed in terms of the US dollar. This situation underscores the complex interplay between economic factors, currency devaluation, and inflation, which is affecting the financial well-being of pensioners.

As of July 2023, data from Nigeria’s Pension Commission, also known as “Pencom,” reveals that pension funds have reached a net asset value of N17.07 trillion. This marks an impressive 13.85% increase compared to the N14.99 trillion reported in December 2022. On the surface, it might seem like a substantial achievement for pension fund managers, suggesting significant profits in the offing. However, a closer examination reveals a less optimistic picture when these net asset values, which are denominated in the local currency, the naira, are translated into US dollars.

**Currency Devaluation and its Implications**

Contrary to initial expectations, Nigeria’s ongoing currency issues have intensified following the government’s efforts to unify the exchange rate. Despite the anticipation that unification would bring about economic stability, the naira has faced significant depreciation. On June 16, the government unified the naira, leading to a devaluation of the currency from approximately N450/$1 to over N700/$1. Subsequently, the official exchange rate has dropped even further to as low as N848/$1, while the NAFEX rate now stands at N783/$1. This depreciation in the currency’s value has wide-reaching consequences across the nation, affecting various assets valued in naira, including pension funds.

**The Dollarized Reality**

By July 2023, when applying an official exchange rate of N800/$1, the net asset value of N17 trillion converts to a dollarized value of $21.3 billion. This represents a significant 36% decline in dollar terms compared to the net asset value of $33.3 billion calculated at an exchange rate of N450/$1 for the previous net asset value of N14.99 trillion. Using alternative exchange rates, such as the black-market rate of N1200/$1, as opposed to the N750/$1 rate in December 2022, still results in a substantial decrease in asset value, roughly at 28.8%.

**Inflation’s Added Impact**

Further complicating matters is the rising inflation rate, which erodes the purchasing power of the Nigerian population, including pensioners. The average inflation rate now stands at 26.7%, a considerable increase compared to the average inflation rate of 22.9%. Even after adjusting for inflation, the purchasing power of pension assets has dwindled. The current average inflation rate of 22.9% surpasses the 13.85% return on pension funds. Although when annualized, these returns slightly improve to 23.8%, the impact of inflation remains a significant challenge for retirees.

**What Lies Ahead?**

Confronted with the daunting task of identifying lucrative investment opportunities that can outpace the dual threats of inflation and exchange rate devaluation, pension fund managers face a perplexing dilemma. The current financial climate presents formidable challenges that necessitate well-considered strategies to secure the financial future of retirees.

In this context, the harsh reality is evident: retirees may face the distressing prospect of witnessing their pension investments erode at a rate that could potentially outstrip both their current income and future earning potential. This situation underscores the urgent need for immediate and well-informed action, emphasizing the critical importance of navigating this turbulent financial landscape with caution and expertise.

The predicament of pensioners in Nigeria underscores the broader challenges associated with managing financial assets in an environment marked by currency depreciation and inflation. It serves as a reminder of the need for prudent financial planning, diversification of assets, and vigilance in protecting the financial security of retirees in the face of economic uncertainties.