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.