Despite challenges, PenCom has been making positive strides, says Anohu-Amazu

The National Pension Commission has experienced a turnaround after the reform in 2004. The total  value  of pension  industry  assets  under  the  contributory pension scheme  stood  at about N4.6  trillion  as at September,   2014  with  an average  monthly  contribution of N20 billion  and 30 per cent yearly  growth  rate. The Director-General of the commission, Mrs Chinelo Anohu-Amazu has consolidated the agency’s linkages and affiliations with  global fora of pension regulators and professionals such as the World Pension Summit (WPS), Amsterdam. In this interview with BUKKY OLAJIDE, Anohu-Amazu talked about the achievements of the organization so far and the challenges facing the industry. Excerpts:

CAN you give an assessment of the Contributory Pension Scheme (CPS) so far?

Pension    administration     has   been   a subject    of debate    because    of   its connection   to other areas of economic and social policies.  Apart  from  pockets of pension  schemes   in the  private  sector the  administration   of pension  in the Nigerian   public  service   has  gone  through   a paradigm   shift  from  the  Defined Benefit  (DB)  Pay-As-You-Go    Scheme   to  the  Contributory    Pension   Scheme.

 The  DB scheme   across  the three  tiers  of government   was  marred  by various controversies   of inadequate  funding  as a result  of late and  untimely  release  of funds.  This led to huge accumulation    of pension arrears   and annual painful verification    exercise.   By  2003,   it  became   very  clear  that  the  DB  schemes could  not be sustained  with an estimated   Federal  Government   liability  of about N2 trillion.

  Given  the  foregoing   and  in the  quest  for  a sustainable   pension   scheme  that would   provide    a  stable,    predictable    and   adequate    source   of   retirement income,  the  Pension  Reform  Act  2004  (the Act)  was  signed  into  law.

  The Act Introduced   the  Contribution    Pension   Scheme   (CPS)  that  was  fully  funded, privately   managed   and  based  on  individual   accounts   for  both  the  public  and private   sector   employees. The Act also established    the   National   Pension Commission   as the sole regulator and supervisor   on all pension matters in the country

  The  total  value  of pension  industry  assets  under  the  CPS  stood  at about N4.6  trillion  as at September,   2014  with  an average  monthly  contribution of W20 billion  and 30 per cent annual  growth  rate. This pool of pension funds is a potential platform   for   attaining   the   transformation     agenda   of   Federal Government of   Nigeria    in   the    provision    of   infrastructure,     energy, employment generation and the real sector of the economy.

 The total number of registered participants   in the CPS stood at 6,263,811 employees as at third quarter of 2014.  The public sector accounted for a proportional contribution of   48.69    percent,    while   the   private    sector accounted for the balance of 51.31 percent.

  The CPS has simplified   the process   of payment   of retirement   benefits through the issuance   and implementation    of effective   regulations   and guidelines.  The  regulation  requires  employees   to commence   the  process of  accessing   their  benefits  6  months  before  the  date  of their  retirement. This allows for smooth transition   into retirement   life as retirement benefits are currently paid as and when due.

 A total of 96,063 workers had retired under the CPS as at the first quarter of 2014.    While    86,851    (90.41    percent)    of   the    retirees    opted    for programmed withdrawal   method of collecting   periodic pensions   including those who   retiree   under   health   ground,   9,212(9.59    percent)   went   for annuity.  Accordingly,   the Commission   had paid the sum of N236.27 billion and  N25.27  billion  as  lump  sum  and  pension  to  retirees  respectively.   In addition, N45.27   billion was   paid as premiums   to insurance   company offering annuity   products.   Similarly,   N52.99 billion death   benefits   were

paid  to  20,136  beneficiaries   of “deceased  workers   in the  private  and  the public  sectors  during  the same  period.

What are the  challenges currently facing the scheme?

 Compliance and enforcement.  The issue of compliance among ·the small sized private sector employers   remains a critical challenge   in the implementation    of the CPS.   These organizations   see the CPS as additional cost to their operations and are not willing to implement the scheme.

  Extending   coverage    to    the     informal    sector and self  employed   persons   lack  a coherent structure  and  have  an unwieldy  composition,   which  renders  their integration   into the  new scheme  a difficult  task.  Policy issues like contribution    rate,   mode   of collection    and   enforcement    in the informal sector are still being addressed by the commission.

  The  need  to  broaden  the  universe   of  investible   instruments   for pension  fund  investment   is of importance   in the  presence  of the continuous   growth  of  pension  funds.   Similarly,  the  drive  for  tax efficient   laws  that  would   promote   the  introduction   of  alternative assets  is critical  in the  commission’s   effort  to  ensure  the  safety and sustainability   of pension  funds  and assets.

   As  part of the efforts  to enhance  compliance   with  PRA 2014  and to ensure  that  stakeholders   understand   the workings  of the CPS, the commission    would   scale   up  its  enlightenment    campaigns across different segments of the country.  These would include participation   in workshops,  seminars,   and advocacy   programmes to address   identified   challenges    in the   implementation     of the CPS.                                                                       

  The   commission    would   continue    to   finetune   its risk-based supervisory    approach    in the   discharge    of its supervisory    and regulatory   functions.     In this  regard,  PenCom   has  deployed   and implemented   a Risk  Management   and Analysis   System  (RMAS), which  allows  off-site  examination   of pension  operators   as well  as generate  timely  industry  reports.

  The commission      employs     dynamic     investment     monitoring procedures   that focus on risk issues as they affect the investment portfolios   of pension funds.    This is backed by support activities toward the   development     of   new   financial     instruments     and deepening   the financial market.  Thus, plans are in the pipeline to introduce   multi-funds,   investment   in infrastructure   fund and bond as well    as    real    estate.     In    order    to    ensure     successful implementation of these   programmers,   research   capabilities   are being enhanced in investment and risk management.

  In conclusion,   the Nigerian   pension   reform has become   a model for many countries on the continent.  The commission   has played host to countries   like Malawi,    Tanzania    and    Ghana    who    had   sent   their    representatives     to understudy the Nigerian pension model. Indeed,  the future  of the  industry  is bright.  

  However,  a stable  and  predictable macroeconomic     environment    is  a  necessary    condition    for   its  continuous contribution   to  the  benefit   of  the  Nigerian   workers   and  the  economy.   The commission   will  continue   to  leverage   on  collaboration   with  sister  regulatory agencies   in order  to  achieve   a strong  and  virile  pension   industry.   Similarly, PenCom   would   continue    to   improve    its   service   delivery    standards    and framework,    intensify   public   education   as well as promote   compliance    and capacity building in the industry.

  The   long  term   strategic   plan  was  designed   to  cope  with  the  current   and perceived   challenges   of the  industry  in terms  of efficiency  of service  delivery and effectiveness   in the regulation  and supervision  of the industry. It is in the news that pension   fund   is going   to be invested in infrastructure.  

How do we unlock this pension funds for infrastructure development without compromising the interest of  the contributors?

  Section 5.2.3 of the Regulation   on Investment   of Pension Fund Assets outlines         the    investment    criteria    for   pension    fund    investments     in Infrastructure, as follows: the Infrastructure   project shall be: Not less than N5billion in value and must be  awarded   to  a  concessionaire    with  a  good  track   record through   an   open   and   transparent    bidding   process   in accordance with  the  due  process  requirements   set out  in the Infrastructure Concession and       Regulatory Commission  (ICRC)  Act    and    any    regulation     made pursuant thereto and certified by the Infrastructure Concession  and  Regulatory  Commission   (ICRC)  and approved by the Federal Executive Council (FEC).

  Core infrastructure projects, whose business plans and financial projections indicate that they are viable as well as economically and financially rewarding for investment by pension funds.

  The    bonds   or   debt    instruments    issued   to   finance    the infrastructure project shall in addition, have robust credit enhancements  for example, Guarantees by the Federal Government   or   eligible    bank!    Development finance institution or MDFOs; Multilateral Development Finance Organisation for example,  International Finance Corporation (IFC), African Development Bank (AfDB) and so on.

  The value of the Infrastructure Fund shall not be less than N5billion, while the   Infrastructure Fund shall have well defined and publicized investment objectives and strategy as well as disclosures of pricing of underlying assets, including any other     necessary    information.    All    annual   financial statements of the Fund shall be audited by reputable firms of chartered accountants.

 Also, the Infrastructure Fund shall have satisfactory pre-defined liquidity/exit routes, and  be managed by experienced   Fund managers,    versed    in    infrastructure    financing    and registered with the SEC as Fund Managers.

  A minimum of the 75 per cent of the Infrastructure Fund shall be invested in projects within Nigeria.The National  Pension  Commission   and the licensed  PFAs would  ensure that the pension  funds  are only deployed  into infrastructure   projects  that are safe and generate  stable streams of revenue to adequately  repay institutional  investors, such   as PFAs.

Has PenCom got any plan to invest in foreign assets?

Section 87(1) and (2) of the Pension Reform Act 2014 provides that a  Pension   Fund  Administrator    may  invest  the  pension  funds  in units  of any  investment   outside  Nigeria  within  the  categories   of investments      set  out  in  Section   86  of  this  Act,  such  as  quoted equities, government securities, corporate debt securities, money market instruments and so on.

 Subject to the   subsisting   Central Bank    of   Nigeria foreign exchange rules, PenCom may recommend to the President for approval, the portfolio limits for investment of pension fund or assets outside the territory of the Federal Republic of Nigeria.

  Accordingly, PenCom intends to develop guidelines on pension fund investment    in foreign   assets,   shortly.  This   would   ensure   further classification of the pension investment portfolios as well as provide some hedge or cushion to pension assets against fluctuations in the exchange rate of the Naira.

What efforts are you making to bring in the informal sector and irregular workers in the contributory pension scheme?

Section  2 (3) of the PRA 2014 provides  that employees  of organizations  with less than three employees  as well as self-employed   persons  shall be entitled to participate  under the scheme  in accordance  with guidelines  issued  by the Commission.

  In pursuance   of the  statutory  responsibility   set  out  in Section  2  (3)  of the PRA,   the   Commission    has   already    developed    a   Framework    for   the Participation  of persons  operating  in the  Informal  Sector  of the economy  in the Contributory   Pension  Scheme.  The Guideline for the participation is also being prepared. 

   The strategies the commission intends to adopt in ensuring the participation of    persons    in   the    informal    sector    includes    awareness     campaign, collaboration    with   Unions   and   Associations    and   Town   Hall   Meetings. Incentives  like  apportionment   of contributions   where  one  portion  is treated as   savings   for   pension   and   the   second   portion   treated   as   voluntary contribution   which  could  be accessed   not  more  than  four  times  in a year.

  The contributions could also be used as collateral for mortgage, provision of health insurance etc.  The framework  also sets out the registration  process,  medium  of remittance of  contributions   which  would   include  the  use of mobile money  transfer, internet  banking  etc.  It also highlighted how benefit could be accessed by contributors.

  The commission is on the verge of commencing   nationwide’ consultations with Informal Sector Unions, and Associations. During the consultations’   the inputs/comments of the Sector Union/Associations    on the draft Guideline would be collated.

Pension investment seems to be going in the way of bonds for obvious   reasons.  Why are the proceeds not also invested in equities?

The current exposure of pension funds to quoted equities is averagely 15 per cent of the total pension fund assets, while the maximum allowed limit is 25 per cent.  In view of the limited number of companies quoted on the Nigerian Stock Exchange (NSE) as well as the number of such quoted companies which satisfy the investment criteria of pension fund assets, this   actual   percentage   investment   is very   reasonable.   It  is  the expectation of the pension industry that more companies in the growth sectors   of   the   Nigerian   economy,   such   as   telecommunications, petroleum exploration I  production  and  power generation,  would  get listed on the NSE in order to broaden the  investment horizon of the pension funds.