Micro pensions space offers room for growth because of the large informal sector – Odutola

WALE ODUTOLA is the president of the Pension Fund Operators Association of Nigeria (PenOp). It is an independent, non-governmental, non-political and non-profit making body established to promote the operations of the pension industry, provide for self-regulation and ensure that international best practices relating to the industry are observed by the operators registered in Nigeria. In this interview with TELIAT SULE, Odutola shared his views on the developments in the pensions industry, the impact of COVID 19 and the future outlook for 2021 and beyond. Excerpts:

To what extent did PENOP contribute to the recently launched Retirement Savings Account (RSA) Transfer System?
As you know, PenOp is the umbrella association of all licensed pension operators in the country, so quite naturally, any issue that affects all the operators, PenOp gets involved. PENCOM runs a very collaborative and consultative regulatory approach, so most of the RSA transfer system processes were discussed with all the operators before launch. In addition, there are some shared services that are required for the effective take-off and smooth running of the RTS, and these shared services are housed in a framework under PenOp.

With companies cutting costs, retrenching staff, how do you see pension remittances being affected in the light of the recession and COVID 19?
The pension industry is not isolated from the global and local economy, which as you know is in a recession. Industries that were badly hit by the pandemic, like hospitality, airlines, manufacturing sector, etc have had their revenues drop and have had to lay off staff, so this trickles down into reduced contributions and increased payout. However, we believe this is only for the short term, and we look forward to a gradual bounce-back from 2021, as the global and local economy recovers.

Micro pensions was launched in 2019, even though the enabling law was enacted in 2014, could you provide an update on what progress has been made and the biggest obstacles to its implementation?
The micro pensions space is one that offers significant room for growth because of the large number of Nigeria’s informal sector. However, as you insinuated, this hasn’t picked up as anticipated.The pensions industry is still trying to understand the needs and behaviours of those in that sector. We found out that many of the people in the informal sector still have apathy towards formal savings and investment schemes because of past failures. We have also realized that we all need to reduce our cost to serve this segment for it to make commercial sense. In addition, we also realize that we need to incentivize this sector with some form of immediate benefit. These are some issues we have noticed, and the operators and the commission are working together to increase penetration in the micro pension space.

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It has been in the news that states, and the federal government want to access pension funds, what is PENOP’s perspective on this current debate?
Unfortunately most of the information in the news is misleading and wrongly reported. The facts of the matter are that the National Economic Council (NEC), the Central Bank of Nigeria (CBN), the Nigerian Sovereign Investment Authority (NSIA), PENCOM, the pension industry and some other pertinent stakeholders have been having discussions on how best to make infrastructure attractive as an asset class that will attract local and foreign investments, including pension funds. The intention is to create a legal framework that ensures that a number of infrastructure assets in the country can be pooled and managed independently on a commercial basis and made attractive for pension funds to invest in. It goes without saying that those investments must appeal to the individual pension funds and must be in line with the pension reform act and the investment guidelines issued by PENCOM before any PFA invests.

Assessing the pension industry in the world with respect to Nigeria’s pension industry. How far have we come? How far is the journey from where we are?
Nigeria’s pension industry has come a long way from when the pension reform act was initially passed in 2004. We have moved from a largely unfunded pension system to one that is fully funded, professionally managed and private sector driven. So, in that respect, the industry has made lots of progress. There is also progress with respect to the level of professionalism within the industry. The pension industry has raised the bar for investment professionals locally, and the investment professionals can be compared to their counterparts anywhere in the world.

There are areas though, where we lag behind other countries. One area is the level of pension penetration. Nigeria currently has a pension penetration rate of circa 11 % of its labour force. This pales in comparison to 19 % in South Africa, 20 % in Kenya and 77 % in the UK. Another area of improvement is the level of pension assets to GDP. Nigeria’s level is a little over 7 % while in developed markets, it is typically above 100 %. So, in summary, while we are holding up well in some areas, in some other areas, we need to improve. But overall, I do not think we have done badly considering that the industry is just a little over 15 years.

What is your vision for PenOp and the industry during your tenure?
The executive committee I preside over has incredible and passionate individuals who work together to craft and actualize the association’s vision and the industry at large. Also, we are continuing on the good work done by our predecessors, having said that the pillars of our tenure will be centred on market development, service delivery, national impact, upskilling of pension professionals and maintaining a sound and ethical environment within the industry.

– On market development, we have to work with market operators, the exchanges, the regulators and international organizations to develop new and alternative products that pension funds can profitably invest in. It is in ours and our contributors’ interest to continually find new products and markets that meet our objectives.

– On service delivery, the industry needs to reduce its cost to acquire and serve its current and future contributors. We need to increase the level of technology adoption and collaboration within the industry on shared services and the likes.

– In addition, we are working towards ensuring that the pension industry has a greater positive effect on national development by increasing our funding for infrastructure and transformational companies, sectors and projects in a sustainable manner.

– We also need to continue the process of improving professionalism within the industry by focusing on learning and development and adoption of international best practices in our operations

– Then, we must work to protect the integrity of the industry, by ensuring a level playing field for all operators and a process to address grievances and other issues through a self-regulatory framework.