Investing for success of CPS, by Akisanya

Dapo Akisanya is the Managing Director, AXA Mansard Pensions Limited. In this interview with JOSHUA NSE, he said the entry of AXA Mansard global group into the pension industry will witness significant changes that would strengthen the Contributory Pension Scheme (CPS) in Nigeria. Excerpts.

AXA Mansard brand upgrade is coming with portfolio of products, services across all segments, including pension management, what does this entail?
We joined the AXA group as a full member thereby bringing our customers into the world of AXA. AXA is the number one insurance brand in the world and a global leader in insurance and asset management.

For our pension business, Mansard Insurance acquired former Penman Pension Limited in January 2015, about six months ago. Prior to that AXA the global insurance company base in France which is also the largest insurance company in the world, acquired what was previously Mansard Insurance Plc, one of the leaders in the insurance industry in Nigeria which we believe is the best brand in insurance in this country.

For Mansard Insurance, entry into the pension space was an inevitable outcome of an assessment of the financial services business in the country that gave the opportunities that abound here and the direction of growth in terms of where the potentials are. So all that we did was to look at the history of financial services in Nigeria, of course, the natural outcome was the focus on the last decade.

The pension industry was the obvious space and it is a business that fits very well with the insurance industry because there are a lot of similarities and synergies that can be harnessed venturing into pension fund management.

Insurance companies get the premium and cover for their clients. What pension fund administrators do is to collect savings from individuals which they have to manage to safeguard their future. That business combination is a very logical outcome of a very careful thought.

The event we witness today is essentially the unveiling of the new brand identity of what Mansard was to AXA Mansard. What happened was a reflection of the new ownership which is to demonstrate and showcase that we are part of AXA global. It is one of the leading insurance brands in the world, it is located in 50 countries, has a trillion dollars assets under management and over a million clients. There is a lot that the new relationship will confer on their entry into Nigeria and for us in the pension business.

Of course, we are at the point of a very significant transformation because this acquisition by AXA is coming at a point where we also believe the industry will witness a significant change, some of those changes will be an outcome of the amendment to the enabling law which culminated in 2014 Review Act.

There are lots of new things that have been introduced into the law and ultimately what those things intend to achieve is to safeguard pension contributors but at the same time, try to sensitise more workers to save towards pensions by introducing a number of different attributes to the scheme. For example, individuals are further sensitised to save voluntarily in addition to the mandatory contributions that the employees avail themselves beside the incentives which are tax-free.

For instance, all pension contributions today are tax-free. It goes beyond that. If you safe voluntarily, what is called additional contributions are tax free.

However, what the law also says is that if you withdraw those additional contributions from your retirement savings account within five years, tax will be administered on the investment income element of that savings, not on the retirement lump sum. It is going to be on what has accrued on the original of the invested funds. What it does is to encourage long-term savings culture amongst us as a people. What it also does is that it deepens the pool of long-term investment capital in the country. It makes available capital which could be deployed in funding infrastructure, housing, and indirect productive endeavours in different sectors of the national economy. Related to that as another example that came out of the amendment, is allowing a portion of individual retirement savings to be used as equity contribution towards assessing mortgage facility.

Once the guidelines for that come out, it will automatically improve the mortgage industry, and deepen the financial services industry. At this point, we are poised to be part of that move to become a leading PFA in the industry, to be the leader in terms of providing avenues for our clients to benefit from the positive changes that the enabling laws allow us.

How would you assess the performance of the pension system in the past 10 years.
I think the impact has been very positive. There are a couple of points. If you recall the vision which most of us had about pension scheme in this country before the advent of the contributory pension scheme, was a scene of long queues of elderly men and women waiting endlessly for their pension benefits from different institutions, but all of this has changed significantly.

The key difference between the old system and now which is defined contributory system as opposed to what was largely a define benefits system. There was no law or regulation that regulated how those pension scheme was to be administered in different institutions, as companies had different pension systems. The Pension Reform Act has uniform law and regulation that cover pension funds in the country, be it in the federal public and private sectors. One of the key features, for example, is complete protection of pension assets.

The administrator or the pension fund manager is distinct from the custodian. So once the employee and the employer contributes, the money goes straight to the custodian and all four custodians are subsidies of very strong banks, which are under the regulatory oversight of CBN. As you know, they are the best regulators in this country. so that protection is there.

Your money will be safe even in the unlikely event (God forbid) a PFA fails, the funds are secure with the Pension Fund Custodians.

Even as an individual, if there is debt judgment against you, your pension assets cannot be touched, they are safe because of that separation between custody and management. The industry has also built a pool, very deep pool of long-term investible capital which we never had before in this country in addition to about N4.9 trillion assets under management, that money can go to meet a lot of needs in the economy if the right policy framework is put in place.

Some operators believe that the investment windows in the industry are limited, what is your view in this regard?
I think there are a number of reasons why one is tempted to say that the investment alternatives that we have are limited, but that also is a function of the limitations that we have in our economy and financial markets generally. I also think that to a large extent, the regulator is justified in putting in place some of these limitations because if you remember you will agree with me that relatively speaking, this is a new industry, therefore, it is important to safeguard the assets of contributors.

It is important to demonstrate to contributors that this system can be trusted, it is important to demonstrate to them that it is working. The progress will come in incremental steps, we cannot start flying overnight, we have to walk before flying. There is also limitations in terms of expertise locally. Expertise with regard to more sophisticated financial instruments.

For example, the issue of infrastructure funds is a relatively new concept in Nigeria. It will take time for the market to get comfortable, knowhow as we develop. But having said all these, the regulators also do recognise that there is a point in what the operators are saying, and that recognition has now become obvious in the steps the regulators are taking towards loosening some of those restrictive guidelines.

For example, one of the initiatives that has been rolled out over the next half year, or early next year, would be the introduction of a multi-fund structure for the pension fund industry. What the multi-fund infrastructure simply mean is that PFAs would be able to create different types of funds for the RSAs they write based on different assets allocations that reflect the risk tolerance of individual contributors to date. For instance, there is ceiling to what a PFA could have in equities and mutual funds which must not exceed 20 per cent.

So, it does not matter whether you are a 23-year-old graduate or 48-year-old man that is already thinking of retirement as your contributions would be invested same way for management. However, with multi-fund structure, there would be three stages of funds for active employees. For example, a young school leaver or graduate who has just taken employment could decide that since I have may be another 30 years before retirement, I can afford to invest in more risky instruments, which also by definition ordinarily should have a higher expected returns over time. The logic behind it is that if I invest today and the volatility of that investment may be its value for one year, I still have enough time to cover with the performance of the market and my additional contributions. Ordinarily, somebody like that would be the aggressive fund type.

Somebody who is nearing retirement, on the other hand, would be led to be more conservative. The aggressive fund type, for example, could have an exposure limit of may be up to 50 per cent in equities, whereas for the conservative type the exposure to equities and other alternative asset classes may be lower, may be less than 10 per cent so that is the logic behind multi-fund structure. That is what it means. People would be able to choose where they want to base their needs and risk capital.

Would you say that the CPS subscriber base of 6.5 million is a significant achievement so far
From a position of zero contribution 11 years ago to 6.5 million is a significant number. However, when you put it within the context of our total working population, which is estimated to be in the range of 50 to 90 million, then one is tempted to say that we are only just scratching the surface.

However, there are reasons for that gap, one of which is that the greater proportion of our working population are in the informal sectors of the economy.

And when you take into consideration the regulation, it only covers contributors in the formal sector. Even in that sector. we have not achieved 100 per cent compliance because there are still a number of states which have not implemented the scheme in their location. So there are still gap even in the formal sector at the state level.

However, the regulators have also recognized the need to deepen participation in the scheme. Today as we speak, the draft guidelines for the participation of the informal sectors have been exposed to the industry for comments.

There is also a plan to draft the guidelines in a way that encourages or makes it easier for those employed in the informal sectors to participate. I think with time, that number will grow beyond 6.5 million since there are still a lot of potentials in the syste