PenCom Raises Alarm as PFAs Sink N17.1trn Pension Funds Into FG Securities

The National Pension Commission (PenCom), however, has warned that the heavy concentration of pension assets in Federal Government securities could limit the industry’s ability to generate returns that consistently beat inflation over the long term.

The commission disclosed this in its assessment of the pension industry’s investment portfolio for the first quarter of 2026.

‎According to PenCom, Federal Government securities remain an important investment avenue for pension funds because they provide capital preservation and relatively stable returns.

‎ However, the commission stressed the need for greater diversification to strengthen long-term, risk-adjusted returns for pension contributors.

‎“With 58.07% of pension assets invested in Federal Government securities, greater diversification is needed to support stronger long-term risk-adjusted returns,” PenCom stated.

‎The commission added that it would continue to supervise PFAs to ensure that pension assets are managed prudently and in compliance with investment regulations and in the best interests of contributors.

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‎PenCom noted that the pension industry must maintain a financially sound, diversified and resilient investment structure capable of withstanding economic shocks and delivering sustainable value to contributors over the long term.

The commission said the allocation to Federal Government securities had helped preserve capital and generate stable returns, but warned that excessive concentration in the asset class could constrain the industry’s capacity to deliver inflation-beating returns.

‎“The FGN allocation continues to preserve capital and generate stable carry, but it also caps the ability of the system to deliver inflation-beating returns over the long horizon,” the commission said.

‎Meanwhile, PenCom observed growing interest in alternative investment instruments, describing the development as an early indication that PFAs were beginning to adjust their portfolios in response to revised investment guidelines.

‎It disclosed that investments in mutual funds increased by 47.84 per cent, while private equity allocations rose by 8.76 per cent during the quarter.

‎The commission expressed expectations that the trend would accelerate in the second and third quarters of 2026 as PFAs recalibrate their investment strategies under the addendum to the Regulations on Investment of Pension Fund Assets issued in December 2025.

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‎PenCom further disclosed that the proportion of pension assets invested in Federal Government securities declined moderately from 59.50 per cent at the end of 2025 to 58.07 per cent in the first quarter of 2026.

‎In contrast, domestic equities increased from 14.41 per cent to 18.50 per cent, largely driven by the performance of the equities market.

‎Alternative asset classes also increased to 3.95 per cent, comprising mutual funds, private equity, real estate and Real Estate Investment Trusts (REITs).

Vanguard reports that the commission said the first-quarter portfolio composition reflected an industry still heavily reliant on Federal Government investment instruments but gradually beginning to explore a broader range of assets.

‎PenCom maintained that deeper diversification would be essential to strengthening the resilience of the pension system and improving the prospects of sustainable, inflation-adjusted returns for contributors.