• Thursday, June 20, 2024
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Ring-fenced pension funds: Despite Edun’s rebuttal, stakeholders warn FG to back off

Pension savings become immediate lifeline with rising unemployment in Nigeria

The alarm raised last Wednesday by Atiku Abubakar, former vice president and presidential flag bearer of the People’s Democratic Party in the last general election through his ‘X’ handle about the Bola Ahmed Tinubu’s administration’s plan to borrow N20 trillion from pensions and other funds to finance infrastructure has continued to generate debate.

While government through Wale Edun, finance minister and coordinating minister of the Economy, has provided clarifications that the Federal Government had no plans to illegally access workers’ pension contributions for infrastructure development, stakeholders including labour, operators and workers and analysts have warned against such plan.

The Pension Fund Operators Association of Nigeria (PenOP) has said severally that pension funds are ring-fenced by the regulation establishing the Contributory Pension Scheme (CPS) such that no individual or player can have access to the funds without regulatory approval of the National Pension Commission.

Read also: FEC: FG to deploy pension fund in bridging housing deficits

Ivor Takor, director, Centre for Pension Rights Advocacy speaking on the Ministers comment stated that pension funds are not liquid cash assets stored in a single bank account that the government can simply access.

He said the assertion by the Honorable Minister is fraught with a lot of challenges regarding the feasibility of sourcing such a substantial fund from pension fund assets and its potential impact on pensioners.

“In the first place, pension funds are not liquid cash assets stored in a single bank account that the government can simply access at will. Secondly, as of March 2024, the total pension fund assets amount to about N19.66 trillion. Additionally, monthly pension payments are made from these assets, highlighting the challenges of utilizing them for other purposes without affecting pensioners.”

Takor said the announcement by the Minister gave the impression that the Federal Government can access pension funds at will or exert influence over bodies like the National Pension Commission (PenCom) and Pension Fund Administrators (PFAs).

“However, it’s crucial to remember that Section 18(c) of the Pension Reform Act 2024 mandates PenCom to regulate, supervise, and ensure effective administration of pension matters and retirement benefits in Nigeria. Likewise, PFAs hold sole responsibility for investing pension funds.”

“One hopes that the assertion by the Minister that the government will provide support, especially in times of high inflation, does not imply that the government, as the promoter of instruments such as infrastructure and housing where pension funds will be invested, will seek to interfere with the rate of return on investment in these instruments.”

Section 85(2) of the Act is clear in its directive, stating that “Pension funds and assets shall only be invested in accordance with regulations and guidelines issued by the Commission, from time to time.”

This provision underscores the authority of the PenCom to regulate and guide the investment of pension funds and assets. It emphasizes the importance of adherence to established regulations and guidelines to ensure responsible and prudent investment practices by PFAs, safeguarding the interests of pension contributors and beneficiaries.

In accordance with the provisions of Section 85(2) of the Act, PenCom issued Regulations on Investment of Pension Fund Assets in February 2019. The purpose of these regulations is to establish uniform rules and standards for the investment of pension fund assets.

Godswill Nwankwo, commenting on Atiku’s statement said in his ‘X’ handle that the Tinubu administration’s plans to lock N20 trillion from the nation’s pension funds might be the last straw that will break the camel’s back.

The pension fund, he noted, represents not merely a financial asset but a sacred covenant, a funded liability earmarked explicitly to ensure the dignified retirement of countless hardworking Nigerians.

“Withdrawals from the pension fund entail a cascade of detrimental consequences that extend far beyond immediate fiscal concerns. At its core, the pension fund symbolises a commitment—a promise made to the workforce, guaranteeing security and stability during their retirement years. To tamper with this fund is to undermine the very foundation of this commitment, jeopardising the financial security and well-being of retirees.”

Nwankwo also said furthermore that the pension fund is not a reservoir of discretionary resources but rather a meticulously structured financial vehicle designed to meet future obligations.

“Any deviation from its intended purpose not only breaches fiduciary responsibility but also jeopardises the long-term sustainability of retirement benefits,” he said.

“Beyond its ethical and moral dimensions, the withdrawal of funds from the pension pot poses tangible economic risks. These funds are not idle assets but are actively invested to generate returns, thereby contributing to the overall growth and stability of the economy. Any diminishment of the pension fund disrupts these investments, potentially impeding economic progress and exacerbating financial volatility,” Nwankwo further said.

Ahmad Damau in his ‘X’ handle said: “Well said your Excellency, Government must not raid pension funds beyond legal limits!”

According to him, “Retirement savings of hardworking Nigerians should be protected. The government should prioritize reforms to attract private investment for infrastructure development.”

Meanwhile, the Federal Government last Thursday denied report making the rounds that it planned to “illegally access” workers’ savings and pension contributions.

In a statement made in Abuja Thursday, Wale Edun, who made the clarifications, noted that there were reports that the Federal Government plans to tap from the pension and life insurance to develop infrastructure in the country.

According to him, “it has come to my notice that there are stories making around that the Federal Government plans to illegally access the hard-earned savings and pension contributions of workers.

“Nothing could be farther from the truth. The pension industry like most of the financial industry is highly regulated. There are rules; there are limitations about what pension money can be invested in and what it cannot be invested in.

“The Federal Government has no intention whatsoever to go beyond those limits and go outside those bounds which are there to safeguard the pensions of workers.”

He said what was discussed was “merely for noting; merely for information, no approval was sought for any action whatsoever was that there was an on-going initiative drawing in all the major stakeholders in the long term savings industry, those that handle funds that are available over a long period to see how within the rules; within the regulations and the laws, these funds could be used maximally; most effectively to drive investment in key growth areas, infrastructure, housing and of course to find a way to provide Nigerians with affordable mortgages within this context.

“There’s no attempt or no consideration to provide less safe investments for pension funds or even insurance funds or any investment funds that are made available.

“No attempt whatsoever to increase the risk, no attempt whatsoever to lower the returns that would otherwise be earned. And we must remember that the Federal Government possesses the ability to provide guarantees where such are needed in order to unlock funding that would lead to growth, creation of jobs and the alleviation of poverty.

“It is an ongoing conversation, a challenge, a test for the best and the brightest in the financial industry to come up with solutions that whilst safeguarding the long-term savings do provide an avenue that can help to boost growth in the economy.”

Atiku Abubakar had said, “My attention is drawn to a disturbing disclosure by the Finance Minister and Coordinating Minister of the Economy, Wale Edun, as he addressed State House correspondents after the Federal Executive Council (FEC) meeting at the Presidential Villa on Tuesday, 14 May.

“There is, according to the Minister, a move by the Federal Government to rev up economic growth by unlocking N20 trillion from the nation’s pension funds and other funds to finance critical infrastructure projects across the country. The Minister has indicated that although ‘the initiative is expected to attract foreign investment interest over time,’ domestic savings are his ‘immediate focus’ for now.

“He provided no useful details, such as the percentage of the funds to be mopped up from the Pension Funds, for example. Even at that, this move must be halted immediately! It is a misguided initiative that could lead to disastrous consequences on the lives of Nigeria’s hardworking men and women who toiled and saved and who now survive on their pensions having retired from service.

“It is another attempt to perpetrate illegality by the Federal Government. The government must be cautioned to act strictly within the provisions of the Pension Reform Act of 2014 (PRA 2014), along with the revised Regulation on Investment of Pension Assets issued by the National Pension Commission (PenCom). In particular, the Federal Government must not act contrary to the provisions of the extant Regulation on investment limits to wit: Pension Funds can invest no more than 5 percent of total pension funds’ assets in infrastructure investments. I note that as of December 2023, total pension funds’ assets were approximately N18 Trillion, of which 75 percent of these are investments in FGN Securities.

“There is NO free Pension Funds that is more than 5 percent of the total value of the nation’s pension fund for Mr. Edun to fiddle with.

“There are no easy ways for Mr. Edun to address the challenges of funding infrastructure development in Nigeria. He can’t cut corners. He must introduce the necessary reforms to restore investor confidence in the Nigerian economy and to leverage private resources, skills, and technology.”