Nigeria’s new pension-to-mortgage policy unlikely to ‘move the needle’

By Temitayo Lawal
Posted on Wednesday, 12 October 2022 12:27

Children are seen at the entrance of a wooden stilt house at the Makoko fishing community in Lagos, Nigeria February 26, 2022. Picture taken February 26, 2022. REUTERS/Temilade Adelaja

Earlier this month, Nigeria’s pension regulatory body, The Nigerian Pension Commission (PenCom), announced a new policy that would allow active workers to spend up to 25% of their pension savings domiciled with several private pension fund administrators (PFAs) as down payment for a residential mortgage.

With this policy, the commission hopes to tackle housing or home ownership challenges among the country’s workers.

Applicants, together with their employers, must have contributed to their Retirement Savings Account (RSA) for a cumulative minimum period of five years to be eligible. Contributors to the Micro Pension Plan (MPP), a new pension scheme launched by President Muhammadu Buhari in 2019 for entrepreneurs and informal sector workers, must also have cumulatively remitted for at least five years. Couples can also jointly apply as long as they satisfy the requirements individually.

However, the policy is unlikely to “move the needle”, say some.

Mortgage banks (distinct from the regular commercial banks that rarely offer mortgage packages) do not have the capital base to fund the residential mortgage drive that could stem from the new policy.

25% of the savings withdrawn from the pension fund administrators (PFAs) is to be deposited with mortgage banks, which are expected to raise the counterpart funding that will be repaid by the workers over a period of time.

Many Nigerians are not employed in the formal sector or signed up to the Micro Pension Plan

“We are looking at a mortgage equity contribution of around N3.6trn [$8.1bn] from the pension Retirement Savings Accounts. If we take this as a 20% down payment, it means the mortgage banks will be providing N14.4trn in loans,” says Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham.

The mortgage industry in Nigeria is valued at N6.4trn, under half the amount that may be requested.

Ibrahim argues that “mortgage banks may have to recapitalise if the focus is strictly on them to provide the loans”. They will need to do this to re-energise their capital structure to be able to power this new policy.

Mergers and Acquisitions are another option for mortgage banks to expand their assets and capital base, says Ibrahim.

In 2022 alone, the pension industry has witnessed one merger and six acquisitions, according to recent research by Chapel Hill Denham. Four out of the six acquisition deals were done by commercial banks. The ongoing consolidation in the pension industry also shows what is possible for the mortgage industry.

This is why Ibrahim opines that commercial banks need to be involved to drive this new mortgage policy and one of the viable ways to do that is by acquiring smaller mortgage banks and positioning them for the task ahead.

Expensive property

If the mortgage banks are able to provide counterpart funding, the new policy may have little impact on the overall housing or homeownership rate in the country, especially in Lagos and Abuja where the property is much more expensive.

Ibrahim believes that the 25%, particularly for private sector workers, may be enough, for “low-cost housing depending on which area and the quality of the home, but public sector workers in these areas may struggle“.

Moreover, many Nigerians are not employed in the formal sector or signed up for the Micro Pension Plan in any case, so the policy will unlikely “move the needle”, says Ibrahim.

Out of a total workforce of 46.49 million, only a fifth of them (9.7 million) are signed up to a pension scheme, yet 30.57 million of these Nigerian workers are in full-time employment, according to National Bureau of Statistics numbers for the last quarter for 2020.

The pension contributor base has, on average, grown by about 430,000 people annually since 2010, while the recent emigration of the Nigerian middle class has also increased withdrawals from the pension scheme, according to the Chapel Hill Denham research.

The role of the private sector

Governments at various levels have intervened to plug Nigeria’s 28 million-wide housing shortfall. The government’s efforts have yet to significantly close this gap, considering the rate of population growth and the consequent need for shelter.

However, private sector involvement, which is meant to complement the government’s efforts to sustainably drive housing or home ownership for different classes of citizens, has also been pulled back by macroeconomic issues, chiefly inflation and interest rates.

The high costs of input and interest rates (to make up for the depreciating naira) have hiked the price of property and effectively shut off low-middle-income earners from the market. These (on the supply side), with other factors like unemployment and poverty (on the demand side), are the issues that the government needs to also address to effectively drive up home ownership in the country.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options