• Friday, July 19, 2024
businessday logo

BusinessDay

Growing the pension industry for infrastructure, housing development

businessday-icon

The nation’s pension industry has the potential to get bigger if all stakeholders contribute their own quota to develop the sector. This will not only provide investible funds for economic development, it would facilitate economic growth, reduce poverty and enhance the social welfare of both the old and the young.

With over N4.6trn in assets today, managers of the fund, Pension Fund Administrators (PFAs) are the cynosure of the eyes of big corporations, government, infrastructure developers and operators in capital intensive sectors.

Corporations want to access the fund to grow their businesses, states and federal government desperately want to use it to develop infrastructure, contributors want it used to finance housing programmes for them, and other Nigerians want it used to fix roads, electricity and other infrastructure.

Infrastructure development remains a key driver and a critical enabler of sustainable growth in Nigeria and Africa as whole, therefore underscores why the pension industry which has shown clear path to becoming a major provider of long term funds 10 years after its reform would need every one’s support to deliver on this expectation.

With other supporting indices and analysts forecast that Africa and the current favourable economic landscape on the continent provides a unique opportunity for the public and private sectors to collectively address the infrastructural gap, re-emphasising the need to develop the pension industry to support infrastructural need.

At a forum last year, stakeholders discussed pertinent issues about pension in Africa and explored how to channel pension funds into infrastructure and real estate and how to leverage technology to add value to pensioners and contributors

They deliberated on issues concerning risk management and how to improve corporate governance in the pension sector to enthrone a regime of best practice and ensure that the continental pension sector champions the needed growth and development in Africa.

They also reviewed the challenges before pension operators and regulators with a view to establishing a befitting retirement benefit scheme and creating systems that are relevant to the fundamental needs of Africans.

Many issues were thrown up during the programme including the need to allow contributors to borrow from their accumulated savings for specific purpose and how to woo informal sector workers into the Contributory Pension Scheme (CPS) among other things.

Closing the infrastructure gap

Nigeria like many other African countries have huge infrastructure gap that needs to be filled for attain expected development. Government had said Nigeria would require $2.9trn in the next 30 years to bridge its infrastructure gap.

During a high profile policy dialogue on ‘Infrastructure and Structural Transformation in Nigeria’ organised by the African Development Bank (AFDB), it was stated that 52 percent of this amount will come from the treasury, while the private sector is expected to cover the balance of 48 percent.

What this means is that sectors like the pension and insurance industries which are generally providers of long term funds would have major role to play and so requires every body’s attention to make it work.

Funding mortgage to boost housing sector

Housing deficit is a major problem facing Africa and in Nigeria this cuts across all the states in the federation. Many people live on the streets while most workers cannot afford a decent home.

Some have resorted to borrowing from banks at very high interest rate to build their homes only to lose these houses to banks when they become unable to repay the loan over accumulated interest.

It is obvious that Nigerian workers represented by the Nigeria Labour Congress (NLC) favour using pension fund to provide houses for them.  They say this is the best way to deploy pension funds to benefit contributors directly.

About N25trn is needed to bridge the housing gap estimated at 18 million units and growing by two million yearly, according to a report by Consolidated Discount Limited tagged: “Retrogressive View on the Mortgage Refinance Company (MRC).”

Underscoring the need for pension fund managers to channel pension asset to finance housing for workers, Edward Odundo, the chief executive officer of the Kenyan Retirement Benefits Authority and chairman of the International Organisation of Pension Supervisors (IOPS), had during a presentation in Nigeria that houses are expensive when mortgage institutions and other intermediaries build for sale to workers, stating that Kenyan workers are allowed to borrow from their retirement savings to build houses at friendly interest rates, using accumulated savings as collateral

For example a contributor who has N10m in his RSA and needs N5m to build a house should be allowed to borrow from his accumulated savings instead of going to the bank to borrow N5m to build a house at 30 percent interest rate, or buy a house worth N5m at N8m from mortgage institutions.

Pension stakeholders in Nigeria should make it possible for Retirement Saving Account (RSA) holders to borrow from the scheme to meet specific infrastructure needs, and this is why the pension sector must be encouraged by all stakeholders to assist the housing sector in mortgage financing.