Operators in the nation’s pension industry are currently experiencing between 15 and 30 percent drop in their monthly revenue following recent fees cut implemented in the industry.
The operators include Pension Fund Administrators (PFAs), Pension Fund Custodians (PFCs) and even the regulator, National Pension Commission (PenCom).
The cut was intended to reduce the fees charged on contributors’ savings and interest income as part of incentives to enhance growth of their final payout.
Operators in the industry earn their monthly income as fees on percentage of total fund assets under management of each contributor as stipulated by PenCom.
The fees cut which was first implemented in July 2018 and second phase in January 1, 2019, according to industry experts, has impacted negatively on the revenue generation of some of the operators, particularly the smaller PFAs.
The next phase of the cut will be January 1, 2020, while from 2021 the fees would be reviewed based on pre-determined triggers, according to PenCom.
“The fees cut is already impacting negatively on our income, so we are under pressure now not to spend,” a chief executive officer of one of the PFAs told BusinessDay.
“As we speak, my monthly revenue has dropped by over 20 percent, so I am constrained to spend on certain things, and this is the general situation with every stakeholder that earns from the managed funds,” the chief executive said.
The National Insurance Commission (NAICOM) had in a circular on 21 June, 2019 announced a revised fee structure for the pensions industry covering the period 2018-2020.
The circular also broke down to specifics the charges across the multi-fund structure which commenced 2 July, 2018.
From the breakdown, total fees earned from Fund 1 effective July 2018 are 2.25 percent, where PFAs earned 1.6 percent, PFCs 0.40 percent, and PenCom 0.25 percent. From January 2019, the fees dropped slightly to 2.025 percent, while PFAs earn 1.5 percent, PFCs 0.30 percent, and PenCom 0.225 percent.
For Fund 2, which is the default fund for contributors aged 49 and below and effective July 1, 2018, a total of 1.925 percent was charged, where PFAs earned 1.4 percent, PFCs 0.30 percent, and PenCom 0.225 percent.
In 2019, effective January 1, a total of 1.79 percent was charged where 1.3 percent goes to the PFAs, 0.275 percent to PFCs, and 0.215 percent to PenCom.
In 2020, a total of 1.65 percent will be charged by all parties with 1.2 percent going to PFAs, 0.25 percent to PFCs, and 0.2 percent to PenCom.
For Fund 3, which is the default fund for contributors aged 50 and above, the regulation required that effective July 2018, a total of 1.8 percent was charged with PFAs taking 1.3 percent, PFCs 0.275 percent, and PenCom 0.225 percent. Effective January 1, 2019, a total of 1.65 percent was charged with 1.2 percent going to PFAs, 0.25 percent to PFCs, and 0.20 percent going to PenCom. In 2020, 1.5 percent will be charged, with 1.1 percent going to PFAs, 0.225 percent to PFCs, and 0.175 percent to PenCom.
Fund 4, which is for retirees, stipulates that effective July 2018, a total of 7.5 percent was charged with 5 percent going to PFAs, 1.5 percent to PFCs, and 1 percent to PenCom.
Aderonke Adedeji, president, Pension Fund Operators Association of Nigeria (PenOp), said as at the end of February 2019, pension fund assets under management had risen to N8.74 trillion, with retirement savings account holders now 8.5 million.
According to her, 274,000 retirees are already receiving their pensions either through programmed withdrawal or annuity.
Modestus Anaesoronye
