In this interview with ZAKA ABD-KHALIQ, the acting director-general, National Pension Commission (PenCom), Mrs. Aisha Dahir-Umar, spoke on the activities of the regulator to reposition the pension industry for the betterment of all stakeholders.
It seems only the private sector players are the ones complying with the new 18% monthly pension contributions, while states and federal government are yet to begin implementation. What can you do as a regulator to ensure that government comply with this rate?
The pension contributions of permanent employees of the federal government of Nigeria are deducted regularly at source by the Budget Office of the Federation (BOF)/Office of the Accountant General of the Federation (OAGF) and credited to the Contributory Pension Account (CPA) at the Central Bank of Nigeria (CBN). Thereafter, the National Pension Commission (PenCom) remits the pension contributions of such employees from the CPA into their respective Retirement Savings Accounts (RSAs) with Pension Fund Administrators (PFAs).
However, the BOF/OAGF has continued to deduct and make releases based on the 15 per cent minimum rates of pension contributions as provided in the Pension Reform Act (PRA) 2004, as against the reviewed rates of pension contributions provided by the PRA 2014.
Section 4 (1) of the Pension Reform Act (PRA) 2014 provides that: “the contribution for any employee to which this Act applies shall be made in the following rates relating to his monthly emoluments –
- a) A minimum of 10 per cent by the employer; and
- b) A minimum of eight per cent by the employee’’.
The Commission had so far made efforts through continued engagement with relevant stakeholders to ensure implementation of the 10 per cent employer and eight per cent employee rates of pension contributions.
While this will enhance the Contributions and RSA balances of workers and retirees, thereby engendering greater acceptance and confidence in the Contributory Pension Scheme (CPS), it is expected to also serve as an impetus for States and other Private Sector employers to comply with the provisions of the Act.
The increment will equally improve the pension benefits of retirees, thereby, providing a more comfortable livelihood at retirement.
It is, therefore, important for the federal government through the Budget Office of the Federation to urgently review the rates currently being applied in line with the provision of Section 4 (1) of the PRA 2014.
How is the Commission advising the federal government on its huge pension arrears?
The huge pension arrears and delay in payment of retirement benefits of government employees who had retired since June 2017 was due to the insufficient funding of the Retirement Benefit Bond Redemption Fund (RBBRF) by the federal government for settlement of the accrued pension right benefit of the retirees. The situation arose as a result of decline in the revenue of the federal government over the years.
However, the Commission has constantly been engaging relevant stakeholders in ensuring provision of adequate funding for settlement of outstanding pension arrears. The Commission had also advised the federal government to consider inclusion in the 2019 budget, the sum of N63 billion that represents the shortfall in the 2017 budget which has also been the cause of the backlog of arrears of accrued rights payment in the last two years.
Moreover, PenCom had equally advised the federal government through the Debt Management Office (DMO) to make special funding arrangement through borrowing (loan/bond) to finance the shortfall of N63 billion.
Under your tenure as the acting director-general, the pension fund has accrued to over N2 trillion. What is the secret?
Upon assumption of duty in April, 2017, we refocused the Commission’s priorities towards some fundamental aspects of the Contributory Pension Scheme (CPS). The Commission, thus, renewed impetus on ensuring the safety and growth of the pension fund assets through its strict enforcement of the Investment Regulations. The security of pension assets remains a significant indicator of the effectiveness of the CPS. It is indeed gratifying to note that pension assets increased from N6.42 trillion as at the end of March 2017 to N8.63 trillion as at December 2018. This indicated a growth of N2.4 trillion (37.4 per cent) over the period.
Regarding the specific reasons for the growth of the Pension Fund Assets during the period, there were several efforts made by the Commission to enhance its growth. There were emphasis on coverage expansion, due to enhanced enforcement of compliance. The Recovery Agents engaged by PenCom to recover pension contributions from non-compliant organisations have continued to facilitate significant recoveries. We have also intensified our strategy for covering more workers into the Contributory Pension Scheme by continuous engagement of the public through education and awareness campaigns.
Furthermore, the Regulation on Investment of Pension Fund Asset was reviewed to introduce the Multi-Fund Structure for RSA Funds. This entailed the segregation into various Funds that are structured demographically to fit the risk appetite of contributors.
The initiative allows the Funds to be invested in more alternative instruments, which would enhance return on investments. The Commission has also implemented a reduction in fees charged on the pension funds. The new fee regime was hinged on the need to reduce the costs to pension funds and thus enhance returns to beneficiaries. This action assists greatly in enhancing the balances in the Retirement Savings Accounts and consequently, the size of the periodic pension during retirement.
We are confident that the foregoing initiatives would continue to further boost the growth of pension assets.
Since the introduction of the new Multi-Fund structure of the pension assets, has anything changed for the better?
The RSA Multi-Fund Structure which commenced in July 2018, was conceived by the Commission to align contributors’ risks appetite with the investment of their pension contributions, at each stage of their life cycle.
As at 31 December, 2018, the RSA Fund had been successfully split into four Funds, while the sensitisation of RSA contributors is still ongoing to create awareness on the features and benefits of the RSA Multi-Fund Structure.
RSA holders now have the opportunity to choose a Fund that best suits their risk-return profile.
It is necessary to note that the RSA Multi-Fund Structure is still at the very early stages of implementation, approximately eight months. A lot of public education/sensitisation is still required; and the Commission, in collaboration with pension operators, is already implementing aggressive campaigns via newspaper adverts and editorials; television and radio appearances; and maintaining active presence on other alternative (social media) platforms such as Twitter (@PenComNig) and Facebook (National Pension Commission).
It is expected that the RSA Multi-fund Structure would achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles; provides investment portfolio choices to Contributors; and enhance safety of pension assets through adequate portfolio diversification, increased investment in equities and alternative assets such as infrastructure and private equity.
Some analysts have questioned the investment strategy of the pension industry such that most of the funds are invested in federal government bonds. Don’t you think pension funds can also be utilised to fix infrastructural challenges the country is currently facing? If yes, how can this be done?
Section 8.0 of the Regulation on Investment of Pension Fund Assets prescribes allowable asset classes and investment limits for pension fund assets. Accordingly, pension funds may be invested in Quoted Ordinary Shares, FGN Securities (FGN Bonds, Treasury Bills, Agency Bonds, Sukuk Bonds, Green Bonds), State Government Securities, Corporate Debt Securities, Money Market Securities, Mutual Funds (Open-Close-end Funds, REITs Private Equity Funds and infrastructure Funds.
The major objectives of pension fund investment are “safety” and “fair returns”. FGN Securities are viewed as “risk-free” securities, and over the last couple of years, the Nigerian fixed income market had been dominated by FGN Securities which offer relatively high yields. This situation is however not peculiar to the Nigerian capital market as most emerging and frontier markets are dominated by sovereign bonds. The high yields and low risk offered by FGN Securities as well as the volatility of the stock market in recent years, had influenced the “flight to safety” approach adopted by pension fund managers to safeguard the value of pension assets and minimise losses to contributors.
However, pension funds may be utilised to fix infrastructural challenges via investment in allowable instruments such as Infrastructure Bonds or Infrastructure Funds, which are specialised Funds or Schemes that invest primarily in infrastructure projects; or special purpose vehicles created for the purpose of facilitating or promoting investment in infrastructure.
Pension funds are being currently invested in infrastructure, via Infrastructure Bonds and Funds. However, the pace of growth is slow and availability of bankable infrastructure projects in the country is a big challenge. The Commission is working closely with stakeholders to bring some of these projects to the market.
It was learnt that PenCom is working on a draft that will allow pension contributors use part of their savings for mortgage. What is the latest development on this?
The main objective of Section 89 (2) of the Pension Reform Act (PRA) 2014, is to facilitate access by Retirement Savings Account (RSA) holders, to residential mortgages as well as stimulate the housing/mortgage finance sector.
The Commission is currently working with the Central Bank of Nigeria (CBN) and other stakeholders in the mortgage sector in developing appropriate Guidelines. These guidelines are expected to be issued in 2019, and will allow RSA Contributor to access and utilise part of their RSA balances towards equity contribution in respect of home ownership mortgages.
This is a boost to the housing/real estate market and contribute to socio-economic development of Nigeria.
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