The contributory pension scheme, which came into being in 2004, may have recorded a landmark in some areas, but not without challenges. At a workshop organized for business editors, finance, insurance and labour correspondents at Enugu, the National Pension Commission took time to highlight some of the challenges in sustaining the contributory pension scheme JOSHUA NSE, DELE FANIMO and BUKKY OLAJIDE w
PENSION system in the country received a boost in 2004 with the Pension Reform Act, which also saw to the setting up of the National Pension Commission.
The commission is saddled with the regulatory and supervisory philosophy of the Commission, which is risk-based and consultative, covering all activities of the Commission with particular emphasis on issuance of guidelines and regulations, surveillance of licensed operators, compliance and enforcement, supervision of investment of pension funds and maintenance of a databank on pension matter.
The commission is also involved in intensified efforts in the on-site inspection of employers, collaboration with regulatory and professional bodies, public enlightenment campaigns and application or regimes of sanctions.
The industry has continued to record modest achievements as 4.92 million Nigerians had registered on the scheme as at November this year.
There are currently about 40,794 retirees from the public and private sectors under the Contributory Pension Scheme who are collecting their monthly pensions either by programmed withdrawal or annuity. They have collected over N115.6 billion as lump sum at the point of retirement and are collecting about N1.284 billion as monthly pension.
Additionally, assets worth N2.4trillion have been accumulated as at November 2011.
Speaking at the event, the Director-General of the Commission, Mr. Muhammad Ahmad who was represented by the Commissioner of Administration, Mr. Manzuma Mamman said that as part of their consolidation efforts during the year under review, the Commission raised the capital requirements for PFAs from N150 million to N1billion, of which the deadline is June 2012.
His words: “We have aggressively intensified our compliance mechanism by taking legal action against defaulting employers. The Bureau of Public Procurement (BPP) has continued to support the industry by ensuring that service providers to the Federal government comply with BPP Act with regards to the Pension Reform Act 2004.” Compliance by the informal sector received a major boost during the year as the two million membership of the National Union of Road Transport Workers (NUURTW) signed their intention to embrace the scheme.
Ahmad appealled to other unions in the informal sector to emulate the NURTW by subscribing to the scheme as it is a veritable source of income for all categories of employees after retirement.
“The commission also continued to collaborate and engage the state governments in the implementation of the Contributory Pension Scheme in the states.” According to the director general implementation of the scheme had increased to 18.
“Also, the support of the Debt Management Office (DMO) was obtained to ensure that, as a condition, state governments desirous of obtaining Bonds must key into the Contributory Pension Scheme,” he said.
As the commission consolidates its achievements in the implementation of the pension reform in the coming year, a number of initiatives were promised.
His words: The Retirement Savings Account (RSA) transfer mechanism would be made operational as the framework is currently being reviewed by the industry. To provide RSA holders with choices of investments, a multiple fund structure would be introduce subject to specific guidelines by the end of the second quarter of next year,
Additional disclosure requirements would be required of operators to promote further transparency and accountability in the industry. The risk management and analysis system, which is the core supervisory application would be finalised and greatly improve the efficiency and effectiveness of the Commission.
Speaking on status and level of compliance, the commission’s head of compliance and enforcement, Mr. Mohammed Bello Umar informed that implementation efforts include recovery of outstanding contributions.
According to him, the Commission would commence the recovery of outstanding contributions together with interest from defaulting organisations in line with Section 11(7) of the PRA 2004, selection of firms interested in providing services of recovery agents would be concluded during the month, the recovery exercise would commence January 2012.
Talking about plans for addressing challenges, Umar said that it was by developing a comprehensive employer data base, engagement of consultants for recovery of outstanding monthly contributions, introduction of the framework for voluntary contribution and informal sector participation in the CPS, increase capital base to N1 billion with a deadline of June 2012, review of the PRA 2004 to address identified lapses, working with other regulators to develop financial market and create alternative investment securities and increase public awareness.
Speaking on dynamics of pension fund investment, the Commission’s head of Investment Supervision Department, Mr. Ehimeme Ohioma committed that their regulatory philosophy had been consultative, prudent and conservative, with qualitative and quantitative restrictions on investments, while the major objectives of pension fund investments were to ensure safety and maintenance of fair (real) returns on investment.
Ohioma mentioned some challenges of pension fund investments,
macroeconomic stability in terms of inflation and interest rates, limited investment outlets/windows to match the rapid build-up and liability profile of pension funds.
The Nigerian financial market is in its developmental stage, as the capital market is still considered shallow - relatively low number of quoted companies and limited corporate bond issuances.
Addressing the challenges, he mentioned periodic review of investment regulation, in the light of changing macro-economic factors, introduction of multiple funds to meet the demographic distribution and varying risk appetites of contributors, that is, there will be separate funds for the different categories of contributors, for example, young, middle age, those close to retirement and pensioners.
He also mentioned encouragement of the development of more eligible asset classes/securities and inflation-indexed/floating rate bonds for pension fund investments, in liaison with SEC, DMO and asset management companies and development of a Risk Management and Analysis System (RMAS) to enhance efficiency in pension supervision
His words: “The Commission, as part of its key responsibilities, will continue to ensure the safety and maintenance of fair returns on pension fund investments.
Amendments to the investment regulation is currently ongoing and would include, amongst other issues, the introduction of multifunds structure in order to satisfy the varied risk appetites of contributors as well as enhance the risk/return profiles of the pension funds.
“The National Pension Commission will continue to encourage the development of instruments/securities which meet the investment criteria of pension funds in order to enhance portfolio diversification and returns on investment as well as further develop our local economy.
“Identify key stakeholders in the system, how they have benefitted from the pension scheme and their role in sustaining the scheme. Lastly, I will conclude the paper by highlighting the outlook of the pension industry and discussing some broad policy recommendations,’’ he said.
Also speaking at the event, the Chairman of Pension Operators of Association of Nigeria (PenOp) and managing director of Pensions Alliance Limited, Mr. Dave Uduanu, said that the pension industry had witnessed significant changes over the years.
According to him, Pension assets had grown at a CAGR of 25 per cent in the last five years to N2.2 trillion, representing approximately seven per cent of Nigeria’s GDP. This growth is attributed to fresh inflows by contributors and investment income among other factors.
Even though this figure looks high, he said, they pale in size when compared with other emerging economies in the World. Chile and South Africa have pension assets of $155 billion and $300 billion respectively representing on the average 73 per cent of GDP. Pension Funds are widely regarded as the most stable long term funding source for projects in any economy.
Infact, he stated, empirical research had established a link between the size of a country’s pension funds and the growth rate of the economy. The link is that pension fund are used to finance the engine room of most economies – be it infrastructure, power, housing and heavy industries which tend to require very long term funding of the type not readily available at commercial banks.
His words: “As at the end of December 2010, a total of N950 billion and N358 billion have been invested by Pension Funds in Bonds and Equities representing about 30 per cent and eight per cent of the total Bonds outstanding in the market and stock market capitalisation respectively. As at the end of 2010, Pension Assets have grown to up to 15 per cent of total banking assets.
“The industry has created a lot of new jobs as a result of employment levels at the Pension Fund Administrators, Pension Fund Custodians and third party marketers. As at the end of 2010, more than 3,000 new jobs have been created by the industry. We expect this number to quadruple to up to 10,000 as the industry enters the new growth phase with the introduction of multi-funds and the entry of the huge informal sector into the scheme.
“At the state level up to eight states have raised a total of N251billion in bonds. These state bonds have enabled the state governments to finance the much-needed infrastructure required to sustain growth and to augment allocation from the Federal Government.
“Pension Funds accounts for more than 40 per cent of state Bonds issued and are increasingly seen as the main source of financing for these instruments. Similarly, Pension Funds have stepped up to the plate to provide financing to the country’s big corporation by investing in debt instruments issued by these companies. As at the end of 2010, Pension Funds had about N51billion invested in Corporate Bonds representing close to 50 per cent of total bond issuance. Pension Funds are increasingly disinter mediating banks in providing long-term debt capital to corporations in Nigeria.
From the foregoing, it is evident that PFAs are increasingly contributing to the deepening of Nigeria’s financial services sector.
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