The ongoing recapitalisation exercise in the nation’s pension sector has increase its capacity for service efficiency, as eight of the 22 licensed Pension Fund Administrators (PFAs) have met the target ahead of the March 2022 transition deadline.
Experts in industry are optimistic that the exercise when completed would not only boost capacity of the sector for quality service efficiency, but also enhance value addition for contributors and retirees,
The virtual event tagged: ‘Beyond Capital – A Recapitalisation Strategy Workshop for Pension Operators’ was attended by shareholders and executive management of a number of Pension Fund Administrators, and sponsored by leading advisory firms in Nigeria, namely, Ernst and Young, FBNQuest Merchant Bank, Stanbic IBTC Capital, Detail Commercial Solicitors and Agusto & Co.
Wonuola Kunle-Bello, head, Funds and Investment Managers Rating at Augusto & Co. in her presentation at the event applauded the growth recorded over the years in the pension sector, stating that the recapitalisation exercise would positively impact the Assets Under Management (AUM) of the industry.
She said the largest four operators by AuM had met the capitalization requirement as at 31 December 2020, while another four are estimated to have met the requirements as at 30 June 2021.
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“Post capitalization, operators will still have differing levels of capital and size of AuM will remain a key competitive tool. Bottom 10 most likely to be impacted by the new regulation, she said.
“We project that the Nigerian pension assets should hit the N20 trillion mark by 2023 at a projected annual growth rate of 18 percent; and given the increase in the minimum share capital requirement for pension companies to N5 billion from the N1 billion, we expect to see business combinations and strategic partnerships in the near term.
“We expect that industry operators would explore investments in the foreign markets to provide real returns to contributors, given the dearth of investible assets and the rising inflation rate in Nigeria, and focus will be on quality of enrollees – not just number, the Augusto people said.
While calling on the PFAs to explore all legal windows available to enable them meet the recapitalisation requirement and remain afloat, she said the increase in shareholders fund will boost their capacity in terms of operational efficiency and service delivery.
Oguche Agudah, chief executive officer, Pension Fund Operators Association of Nigeria (PenOp) speaking at the event said the operators have been working assiduously to comply with the recapitalisation mandate issued by PenCom in April this year even as he also expressed optimism that other operators would meet the mandate before the expiration of the deadline issued by PenCom.
He stated that the recapitalisation exercise would help strengthen the industry’s operators, adding that PenOp’s corporate strategy would have been met when the PFAs achieve their set target.
Agudah said “a well-capitalized industry will enable the sector to affect its various shareholders and the Nigerian economy in a positive way.”
The National Pension Commission (PenCom) had in a circular entitled: “Revised Minimum Share Requirement for Licensed Pension Fund Administrators (PFAs),” dated April 29, 2021 and sent to Managing Directors/Chief Executive Officers of all licensed pension fund operators mandated PFAs to raise their Minimum Share Capital from N1 billion to N5 billion.
The increase, according to PenCom “is necessitated by the need to improve the capacity of PFAs, in terms of operational efficiency and effectiveness as well as service delivery.”
The pension sector regulator noted that its board also approved a 12-month transition period, effective April 27, 2021, within which PFAs are to meet the new minimum capital.
“The board of the commission at its 48th meeting on April 27, 2021 approved the increase of the minimum regulatory capital (shareholders’ fund) requirement for PFAs from the current N1billion to N5 billion, unimpaired losses,” it said.
PenOp recently convened a summit focused on providing an avenue for decision makers and executives in the pension industry to engage with various advisers to discuss strategies for raising additional capital and to analyze the outlook of the pension industry post recapitalization.
The backdrop for the event was the announcement in April 2021 by the National Pension Commission (PENCOM) that all licensed pension fund administrators should increase their shareholders fund from the initial amount of N 1billion to N 5billion over a one-year period.
The session had professionals from leading investment banks and legal firms in Nigeria who dissected various strategies for raising capital. The issue of recapitalization was addressed from different angles and the panelists also gave examples and pointers from various industry that had gone through this exercise before.
Some of the questions on the minds of the operators pertaining to shareholder and regulatory considerations were answered by the firms on ground.
The session also comprised of a presentation by Augusto & Co that delved into the recent history of the pension industry, new areas of growth and the outlook for the pension industry post recapitalization.
Overall, all the panelists were of the view that the Pension Fund Administrators should leverage the recapitalization exercise as an opportunity to restrategize and reposition their operations to compete better in a more recapitalized and competitive industry.
The goal for the association was to use the forum to answer some of the questions on the minds of its members and ensure they are well equipped for issues they may encounter as they work on different strategies towards meeting the recapitalization requirement.
