Aisha Dahir-Umar, director general, National Pension Commission (PenCom) spoke with John Osadolor on many issues affecting the nation’s pension industry including the roles of the PFAs, PFCs and the growth of pension assets. Excerpts:
How will you assess the performance of the PFAs and PFCs?
An assessment of the PFAs and PFCs could begin with examining the achievements recorded since inception of the CPS. The consistent accumulation of pension assets to N12.78 trillion as at 31 July, 2021 is a significant indicator that all pension operators are conducting their functions as outlined in the PRA 2014. In addition, other key performance indicators such as the number of registered pension contributors and retirees receiving pension under the Contributory Pension Scheme (CPS), have also remained on the growth trajectory. It is noteworthy that the satisfactory performance of the pension operators is engendered by the sound regulatory framework and consistent oversight by PenCom, which monitors closely to ensure strict adherence to laid down regulations.
How much (cash and assets) are in the custody of the PFCs, and how safe are the funds?
Pension Funds are held in custody by the Pension Fund Custodians (PFC). The total value of Pension Fund assets under the custody of PFCs was N12.78 trillion as at 31 July, 2021. The safety of pension fund assets has been addressed through the provision of adequate safeguards for the CPS.
The cardinal safeguard is the ring fencing of pension assets through the separation of management and custody functions. The PFA manages the pension funds without having direct access to the funds, as custody is vested in the PFC. In effect, while the PFA makes day to day investment decisions, in line with the Investment Regulations issued by PenCom, it is the responsibility of the PFC to receive monthly pension contributions from employers and ensure that pension assets are kept in safe custody.
Other key safeguards include the guarantee on pension assets given by the Parent Company of the PFC; daily monitoring of investments by PenCom through reports submitted by the PFA; segregation of pension funds from the assets of operators; strict regulation on investment of pension funds; prohibition of applying pension funds as collateral for loans; amongst others. These safeguards are enforced by PenCom, which ensures that both parties adhere strictly to regulations governing the pension funds.
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What is the current investment portfolio of the PFAs?
The structure of the investment portfolio of pension funds as at 31 July, 2021 skewed towards fixed income instruments with Federal Government Securities accounting for 64 percent. This is followed by Money Market Securities with 16 percent, quoted equities: 8 percent, Corporate Debt Securities:7 percent and other assets recorded 5 percent of the portfolio investments. We should note that the portfolio of pension funds investments was limited to the investment outlets allowed in the Investment Regulations. As more products that comply with the Investment Regulation on pension funds are issued, there is likely to be further diversification by the PFAs.
What are the guidelines and regulations for the investments? And how safe are the investments?
The Pension Funds are invested in line with the provisions of the Regulation on Investment of Pension Fund Assets, issued by PenCom. The Commission ensures adherence to the regulations through daily valuation reports submitted by the PFAs. This also enables early detection of any deviations from the Investment Regulations for timely corrective action.
Regarding safety of the funds, the Investment Regulations has an overriding philosophy of ensuring safety and fair returns on investment for the benefit of pension contributors. There are stringent quality prescriptions for investment outlets to attract pension fund investments, which had resulted in the continuous growth of pension assets.
When there is an outstanding contribution due to a retiring employee, which the employer did not remit into the RSA, how does the PFA collect same and remit to the employee? And how does the PFA calculate, and collect the interest on the unremitted money? (For Employees of Federal Government Ministries, Departments & Agencies {MDAs}).
The pension contributions of employees of FGN Treasury funded MDAs that are yet to migrate to the Integrated Payroll and Personnel Information System (IPPIS), is deducted monthly by the Office of the Accountant General of the Federation (OAGF) and credited to the Contributory Pension Account (CPA) with the Central Bank of Nigeria. Consequently, the Commission remits, on behalf of FGN being the employer, the pension contributions of such employees from the CPA into their respective RSAs maintained with the PFAs, based on employee nominal rolls submitted by the MDAs.
On the other hand, for MDAs that had migrated to the IPPIS, the IPPIS Office under the Office of the Accountant General of the Federation, remits directly to the respective RSAs of employees with their PFAs.
We should note that PFAs are not responsible for the computation of pension contribution of RSA holders. However, they are required to follow up with employers that fail to remit pension contributions of employees. In addition, with regards to unremitted contributions, the RSA holders and the MDAs forward complaints to the Commission or the IPPIS as the case may be. Thereafter, the unremitted contributions are computed with interest thereon and remitted to the respective RSAs.
How does the PFA calculate and collect the interest on the unremitted pension contributions for Private Sector Employees?
Section 11 of the Pension Reform Act (PRA) 2014 specifies that where an employer fails to deduct and remit an employee’s pension contribution within the period stipulated in the Act (7 working days after payment of salary), such employer would be liable to pay a penalty. The penalty shall not be less than 2 percent of the total contribution that remains unpaid for each month that the default continues.
The focus of the Commission is to ensure the continued sustainability of the pension industry by expanding coverage of the CPS, ensuring safety and fair returns
The PFAs are required to advise the Commission of defaulting employers, following which the Commission would assign them to its appointed Recovery Agents to recover the outstanding contributions and penalties for onward crediting into the employees’ RSAs. The penalties are meant to compensate the employees for the loss of investment income due to untimely remittance of the pension contributions into their RSAs.
There is a report that on the back of the huge number of workers who lost their jobs recently that the withdrawals from the RSA are about 50 percent of the total savings. Is PenCom worried about that?
The Covid-19 Pandemic, which created disruptions in the entire global order has impacted negatively on most sectors of the economy. However, it had a somewhat moderate impact on the Nigerian pension industry. Specifically, the impact of withdrawals from RSAs due to temporary loss of employment on the total pension fund assets is moderate when compared with the total pension assets, which stood at N12.78 trillion as at 31 July, 2021. The actual amount paid out to RSA holders as 25 percent of RSA balances due to temporary loss of job was N29.90 billion, from March, 2020 when the COVID restrictions were imposed to date. The provision for this type of withdrawal from RSA is clearly a proactive step enshrined in the Pension Reform Act 2014 to cushion the impact of job losses for an employee provided that he/she does not secure another employment within a period of four months.
Talk us through your expectations on the Contributory Pension Scheme in the next five years. Do you have any fears, doubts or concerns?
The Commission will continue to ensure the full implementation of the various provisions of the Pension Reform Act 2014 through various strategic initiatives. All activities are geared towards achieving the prompt payment of retirement benefits as and when due.
In order to address some existing challenges, the Commission has outlined five strategic focus areas to guide its activities. These are as follows:
i. Enhanced pursuit of the resolution of the problem of outstanding pension liabilities of the Federal Government under the Contributory Pension Scheme.
ii. Unrelenting pursuit of sustainable growth of the pension industry by expanding the coverage of the CPS. The Commission will pay special attention to the Micro Pension Plan and States and Local Governments’ participation.
iii. Portfolio diversification of Pension Fund investment. The Commission will encourage and emphatically support an investment climate that mitigates single obligor risks and hedges pension assets against inflation.
iv. Improvement in Customer Service delivery to address persistent cases of service failure from both the Commission and the Pension Operators. This will ensure the enhancement of the operational capacity of the Commission’s workforce as well as the capacity building and institutional strengthening of the licensed pension Operators.
v. Public enlightenment and education. The Commission will continue to pay huge attention to public enlightenment and education to widen the acceptability of the CPS.
The Commission has already recorded a significant milestone with the approval granted by His Excellency, President Muhammadu Buhari, on the payment of some outstanding pension liabilities of the Federal Government, under the CPS. The Presidential approval covered payment of outstanding accrued pension rights for verified and enrolled retirees of treasury-funded MDAs that are yet to be paid their retirement benefits; payment of the back log of death benefits claims due to beneficiaries of deceased employees of treasury funded MDAs and payment of 2.5 percent differential in the rate of employer pension contribution for FGN retirees and employees, which resulted from the increase in the minimum pension contribution for employers from 7.5 percent to 10 percent, in line with Section 4(1) of the Pension Reform Act (PRA) 2014.
What is the future of the PFAs and PFCs?
The future of PFAs and PFCs is tied to that of the CPS as pension administration/custody is the sole business of these licensed operators. The CPS has witnessed significant accumulation in pension assets, while the number of registered contributors has also grown since inception of the CPS. The total Pension Fund Assets, which stood at ₦815.18 billion as at 31 Dec 2007, increased to N12.78 trillion as at 31 July, 2021, representing a growth of over 1400 percent over the 13 years. The accumulated assets also represent about 8 percent of GDP, while RSA membership under the CPS stood at 9.40million as at 31 July 2021.
These successes are being reinforced with various initiatives within the pension industry to ensure the sustainability of the Scheme. For instance, the Pension Reform Act 2014 expanded coverage of the CPS to the informal sector with the introduction of the Micro Pension Plan. The objective is to tap into the large informal sector of the economy by providing opportunities for individuals to save for old age.
Furthermore, the Commission recently issued new minimum capital requirements for PFAs. The PFAs are expected to increase their minimum capital from ₦1 billion to ₦5 billion by the end of April 2022. The increase was necessitated by the need to improve the operational efficiency and service delivery of pension operators. The new capital requirements would also encourage mergers and acquisitions within the Industry to produce bigger PFAs with the requisite financial strength to drive the objective of developing the pension industry in the 21st century.
As explained earlier, the focus of the Commission is to ensure the continued sustainability of the pension industry by expanding coverage of the CPS, ensuring safety and fair returns on pension fund investments and significantly improving service delivery quality and standards within the pension industry.
