Pension sector set for transformation on new capital

The National Pension Commission (PenCom) last week announced that 20 Pension Fund Administrators (PFAs) met the new capital requirement which deadline elapsed on April 27, 2022, heralding a new era for the N13.76 trillion industry.

According to PenCom, all PFAs have complied with the commission’s directive to increase the Minimum Regulatory Capital (Shareholders’ Fund) from N1 billion to N5 billion.

PenCom further noted that the sustained growth in assets implies greater fiduciary responsibilities that require more operational capacity by the PFAs. “The urgent need to ramp up PFAs’ capacity to manage the increasing number of registered contributors and value of pension fund assets under management led to the exercise.”

The commission further stressed that with the conclusion of the recapitalisation exercise, stakeholders particularly retirement saving account (RSA) holders, should expect increased effectiveness and efficiency as well as improved service delivery from PFAs.

Paddy Ezeala, formerly working with a leading PFA in Nigeria and now a consultant said the increase to N5 billion of the minimum regulatory capital or shareholders’ funds of PFAs Pension is a welcome development to the extent that it is expected to lead to stronger PFAs with improved capacity for more efficient service delivery.

“Having said that, the real question to ask is: Is a greater percentage of RSA holders satisfied with the Contributory Pension Scheme (CPS)? If not, is the dissatisfaction traceable to low shareholders’ funds?”

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“The truth is that there should be a bridge between growth in Assets Under Management (AUM) and the economic well-being of the generality of RSA holders and retirees under the CPS. It does not augur well when regulators are doing a fantastic job and shareholders in PFAs are smiling to the bank while retirees are gnashing their teeth, Ezeala said

According to him, all the externalities that impinge on the all-around success of the CPS must also be addressed; they are low minimum wage, high inflation rate, low return on investment of pension assets and general economic downturn.

“Above all, a much higher percentage of the return on investment (ROI) in pension assets must be for RSA holders, Ezeala stated.”

Wonuola Kunle-Bello, head, funds and investment managers rating at Augusto & Co. said the recapitalisation exercise would positively impact the AUM of the industry.

She said operators will still have different levels of capital and size of AUM, and this will remain a key competitive tool.

According to her, given the increase in the minimum share capital requirement, 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 the quality of enrollees – not just number,” said Kunle-Bello.

Recall that PenCom had approved the recapitalisation exercise for the PFAs with a 12-month transition period from April 27, 2021, to April 27, 2022. The exercise became expedient as the value of pension fund assets under management and custody had grown exponentially by 244 percent, from N3 trillion in 2012 (when the previous recapitalisation was done) to N12.29 trillion (as of December 31, 2020).

PenCom said 10 PFAs met the new regulatory capital requirement of N5 billion as of December 31, 2021, while the others intensified efforts to meet the deadline of April 27, 2022. This resulted in some mergers and acquisitions, which led to the reduction of the number of PFAs from 22 to 20, it stated.

The commission approved the acquisition of AllCO Pension Managers Limited by FCMB Pensions Limited; and the merger between Tangerine Pensions Limited and APT Pension Funds Managers Limited and the subsequent change of name of the merged entity to Tangerine APT Pensions Limited.

With the conclusion of the recapitalisation exercise, stakeholders, particularly RSA holders, should expect increased effectiveness and efficiency as well as improved service delivery from PFAS.

PenCom also approved Norrenberger’s acquisition of IEI-Anchor Pension Managers Limited, after its acquisition of the majority shareholder, IEI pIc.

The objective of the CPS is to ensure that every person who worked in either the public or private sectors in Nigeria, including the self-employed persons receives his/her retirement benefits as and when due.