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Potential issues that can jeopardize growth of pension industry – Mohammad Ahmad

At second Annual Retreat organised by Pension Fund Operators Association (PenOp) for the National Assembly Joint Committees for Establishment and Public Service of the Senate and House Of Representatives Committee On Pensions held at Akwa Ibom recently, Mohammad Ahmad, pioneer director-general of PenCom outlined some of the factors that could jeopardise the continuous growth of the pension industry.

Ahmad said the fist is the constant clamour for amendments of the Act, which are often times for frivolous reasons.

“I am a firm believer that if something is not working well, it needs to be changed. But why change something that is working well? Yes, we must seek to amend portions of the Act for the benefit of the contributors in particular and the Nation as a whole, but these amendments should be well thought out, reasoned and debated as we are doing here today. “

“So, distinguished Senators and Honourable Members, in the light of the comprehensive amendment of the Act in 2014 after 10 years of enactment, I urge you all not to entertain uninformed amendments to the Act not backed by a need to improve portions of thereof or that are not consistent with the spirit of the Act, which is to provide benefits for retirees and ensure formation of long term capital for national development.”

“The second issue he said is also the clamour by certain groups or classes of people to leave the scheme under any guise. The strength of an effective pension scheme is in numbers and influence. When funds are pooled together, the operating cost is lower, and returns are invariably higher for the fund and contributors. We need to leverage the numbers of the contributors and seek ways to increase the current contributors rather than have groups breaking out.”

“Also, fully funded pension system, is the only sustainable scheme. All over the world, pension funds provide long term capital that is used to fund infrastructure that catalyses national growth and development.”

Read also: NEC to take N2trillion Pension Fund annually for infrastructure devt.

“In Nigeria’s case, we came from a position  where we were not able to pool together those funds in a transparent manner. The reforms that culminated in the Act of 2004 had enabled us as a nation, for the  first time, to pool funds in a transparent manner, such that we have a little over 9.8 trillion  Naira as our total pension funds in Nigeria today. We cannot afford to fritter the work done over the last fifteen (15) years to go waste by clamour for investment in projects that are not bankable, viable and self-sustaining. Everyone should be vigilant so that these funds are not used to fund “white elephant’ projects that destroy that value for the industry, the contributors and the nation in general.

However, I urge PenCom and operators to be more creative and collaborative in seeking ways that these funds can be deployed for infrastructure development.

“There is always agitations to increase the lump sum payment received at retirement from the stipulated 25 percent. I understand these agitations still continue. This is driven by a total lack of understanding of what pensions are meant for. The intention of pension contributions is to provide a similar lifestyle to what one was living on whilst they were working. This will be severely jeopardized if a significant lump sum is provided to them upon retirement, with the consequence of these funds being frittered away by the beneficiary if they receive the lump sum at once, as opposed to a structured program withdrawal.”

“The stability and confidence in pension industry will continue to depend on independent and competent Board of Directors for the Commission. It is our hope and prayer that a board for the Commission would be constituted very soon. A well constituted and functioning board gives the regulator the needed legitimacy and enable them take decision that are well thought out in addition to ensure that they are able to respond more quickly to the changing environment.”

“In order to respond to Corporate Governance challenges especially among public limited companies, the Financial Reporting Council of Nigeria issued the Nigeria Code of Corporate Governance 2018. It is expected that PENOP, as one of the key institutional investors, should promote and ensure strong governance culture in the companies they invest in.”

“As many employees are retiring and electing annuity as option to access their retirements benefits, it is important that the commission continuously engage the National Insurance Commission to ensure that retirees and their benefits are protected. The initial Memorandum of Understanding and joint regulation should be reviewed to address emerging developments. We should always remember that the ultimate responsibility and mandate for the safety and stability of the pension industry squarely rest with the commission regardless of the mode of accessing retirement benefits.”

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