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Using Foreign Index, Infrastructure Bonds To Grow N8.2trn Pension Funds



Absence of Foreign Index and Infrastructure Bonds in the nation’s economy is depriving the Retirement Savings Account (RSA) holders improved investment income on their accounts. To this end, stakeholders are now calling for the introduction of the two bonds to enhance pension assets growth. ZAKA ABD-KHALIQ writes.

The fact that the nation’s pension assets has grown to about N8.2 trillion in the last 14 years is plausible. While investment income has risen in high excess of N2 trillion, investing a whooping 70 per cent of the pension funds in federal government bonds, is an indication that the Pension Fund Administrators (PFAs) have few investment windows.

Hence, pension stakeholders are therefore calling for Foreign Index and Investment  Bonds which will serve as an alternative investment window for pension Fund operators to invest the pension assets in. This, according to them, will ensure that the pension assets contributes better to economic growth and development as well as enhance the pension entitlement of contributors when they retire.

Foreign Index Bond

According to the  acting director-general, National Pension Commission (PenCom), Mrs Aisha Dahir-Umar, the non-availability of foreign index bond is impeding desired growth of the pension fund assets

Dahir-Umar, who was represented by the head, Corporate Strategy and Research Department, Dr. Farouk Aminu, while speaking at the Insurance and Pension 2018 Conference held in Lagos recently, said though the fund has grown to over N8.2 trillion, he believe the pension fund would have overshoot if there were better instruments in the country to invest the fund.

He said out of about 200 companies listed at the Nigerian Stock Exchange (NSE), only 60 of them qualify for pension fund investment.

He stated that the Commission is not able to allow investment of the fund at the capital market, noting that their hands are tied.

He called for the enlistment of blue chip firms including Chevron, Mobile, Shell, MTN Nigeria, Glo, among others, at capital market to allow foreign index bond to be available in the country.

He said the Commission is concerned that if there are better instruments, the return on investment to the fund owned by contributors and retirees under the Contributory Pension Scheme (CPS) will be more.

He said: “If there were better instruments, I believe the pension asset would have overshoot. The return on investment of pension fund was 16 per cent and inflation was above 15 per cent. Unfortunately, this is the reflection of the entire financial system in the country. If you look at the NSE, there are just 200 companies listed in the exchange and if we have to go by our stringent regulation, only about 60 of them qualify for pension fund investment. So the money is big when compared with the companies that are qualified to access it.

“Also, we are yet to have an index bond in the country, whether regulatory index or any other index bond. The Commission has been pushing for such bonds to be issued in the market so that the pension asset can be invested on such instruments. Unfortunately, we don’t have that yet. Yes, we have 70 per cent of the fund invested in Federal Government Securities but this is nothing. This is because we have only seen 16 per cent return on the FG securities and up to 18 per cent in 2016,” she added.

Recently, she said there is the push for the fund to go into the telecom industry but unfortunately, this was not realized.

To her, “If there are companies like MTN, Glo among others listed at the capital market, then we would have been able to invest in these kinds of companies. Unfortunately, that is a reality in the country and I hope that we would have better instruments.”

He cited an instance where former President of South African, late Nelson Mandela in a black empowerment mission took a decision that pushed foreign companies to sell their shares to black citizens, noting that this can be done in Nigeria to make the blue chip companies list their shares at the capital market.

He observed that aside from MTN that is not listed, Glo is also not listed at the capital market.

“If these companies can list at the capital market it will give opportunities for Nigerians to invest in the companies. Sectors like banking, insurance, pension will also benefit from such development”, he added.

Infrastructure Bonds

Moreover, the Immediate Past Chairman, Pension Funds Operators of Nigeria (PenOp), Mr. Eguarekhide Longe, said its members are ready to invest in infrastructural bonds whenever the government decides to float them to finance key developmental projects.

Promising that the pension fund managers are ready to engage with government to expand the economic space, even though, it is not their primary objective, Alonge, who is also the Managing Director of AIICO Pension Fund Managers added that, care must be taken not to invest pension fund in a project that will not regenerate it, saying, “if you put pension fund in a project that does not regenerate it, the money is gone and in many cases, as we have found, the project has not been delivered because it was not properly conceived.”

While debunking claims that PFAs don’t want to invest pension assets in infrastructure, he said, the managers had requested the investment banking community to come out with products that abide by the investment guidelines in Pension Act, which operators can finance, noting that this has not been done.

“With about N4 trillion (now N6trillion) invested in infrastructural development through bonds, it shows you that the money has been active. So, the philosophy of managing this money is to add to it. It means that the money has been used profitably,” he pointed out.

“The fact is that there are ample provisions in the investment guidelines that allows for investment in projects, so to say, infrastructure, private equities and real estates, bonds, among others.  But what has happened is not that the money is idle in the PFAs or that the fund managers have not looked for those projects. It is not their jobs to go and create projects, but we have actively sort the investment banking community to develop products that we can invest in,” he pointed out.

Insurance and Pension Expert, Mr Usman Suleiman, noted that government has been floating bonds in the past to meet its financial needs such as payment of salaries and pension, among others, but that the bonds are not tied to specific item.

According to him, “If the federal government is issuing bond, the bond is not tied to anything. You cannot say whether it will go for settlement of arrears of pension or it would go to some other things. But in the recent time, most of the bonds that Government Issue do go to recurrent expenditure, like the pension and payment of salaries.”

The Way Forward

While the aim of investing the pension Funds is to add to it, lack of foreign index bonds and infrastructure bonds is limiting profits that ought to accrue from investment of the N8.2 trillion pension assets.

Agreed, the PFAs have been able to attract investment income of over N2 trillion into the pension assets from investing in federal government bonds, among others, experts stressed the existence of infrastructure and foreign Index bonds would provide PFAs with more investment window options, which would, in the long run, increase investment income into the pension assets in the country.




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