PenCom set to review Pension Act 2014

By Favour Nnabugwu

 

The National Pension Commission (PenCom) has embarked on  another pension reform act with solutions to implementation challenges of the PRA 2014,.

The commission organized a retreat on the review of the Pension Reform Act 2014 (PRA 2014) in Abuja last week

The retreat aimed at salient issues to be reviewed in the PRA 2014 as a prelude to advancing legislative action on the bill. It is expected that the National Assembly would subsequently organize a public hearing in order to provide an avenue for stakeholders to formally make input into the proposed
amendments.

The PRA 2014 was enacted following a review of the initial Pension Reform Act of 2004, which introduced legal and institutional frameworks of the
Contributory Pension Scheme (CPS) and established PenCom to regulate and supervise all pension matters in Nigeria.

Speaking during the opening ceremony of the retreat,  the Director General of PenCom, Aisha Dahir-Umar (pictured), informed the participants that the PRA 2014 codified one of the most important socioeconomic reform initiatives of the Federal Government, leading to a pension industry that has accumulated pension assets in excess of N13 tn invested in various aspects of the Nigerian economy.

Dahir-Umar noted that the review is a corollary to some implementation challenges encountered with certain sections of the Act not long after its enactment in July 2014. Several opinions have sprout challenges certain provisions the current act.

This is in addition to persistent calls from stakeholders for the amendment of some sections of the Act, which resulted in several legislative initiatives
through the sponsorship of bills for amendment of the PRA 2014 by the National Assembly.

PenCom is working to coordinate and harmonize the various efforts in order to achieve a more comprehensive and constructive exercise for the review of the PRA 2014.

Kenya to invest pension funds in 17 infrastructural projects

By admin

The Kenya Pension Fund Investment Consortium, whose members control about $2.63 billion in assets under management, says it has identified 17 infrastructure projects in the water, energy, affordable housing and roads sectors that are viable for investment.
Kenya pension funds recorded the biggest growth in lending to government in 2021, helped by the National Treasury’s consistent issuance of long-term bonds, which favour their investment preferences.

Central Bank of Kenya (CBK) data shows that pension funds grew their holdings of government debt by $1.8 billion to $11.05 billion between January 1 and December 17, ahead of banks, whose holdings went up by $1.55 billion to $17.9 billion.

Total domestic public debt stood at $35.54 billion in December, up from $30.63 billion in January, with the share held by pension funds going up from 30.3 percent to 31.3 percent in the period. Banks in the meantime saw their share of domestic debt fall from 53.3 percent to 50.3 percent.

For pension funds, long-term bonds align more closely with their long-term investment outlook, unlike banks which prefer shorter dated paper due to their shifting liquidity needs and the short term nature of deposits.

Kenya’s Treasury has largely floated longer dated bonds this year in an effort to lengthen the maturity profile of domestic debt and reduce refinancing risk for the exchequer.

 

Kenya pension funds increase investment in long-term govt bonds

FG releases additional N31. 97bn for accrued pension

By admin

 

The National Pension Commission (PenCom) announced an additional release of N31.97 billion by the Federal Government for the payment of Accrued Pension Rights to 2021 retirees of Treasury-funded Ministries, Departments and Agencies (MDAs).

A statement by the Head Corporate Communications Department PenCom Peter Aghahowa, the release followed an earlier release of the sum of N16.67 billion, thus bringing the total amount released for payment of the 2021 accrued pension rights to N48.64 billion.

The Federal Government had earlier settled all arrears of accrued pension rights payments to the verified and enrolled retirees up to December 2020.

Inspenonline gathered that the released fund is being processed by PenCom and would be made available to pension operators before the end of this month for payment to the retirees.

PenOps, AVCA partner to release maiden report on pension with private equity

By Favour Nnabugwu

 

Pension Fund Operators Association of Nigeria (PenOp) in partnership with African Private Equity and Venture Capital Association (AVCA) set plan in motion to  release report on Nigerian Pension funds engagement with private equity.

The release of this flagship report aims to bridge the gap between these two complimentary industries by investigating and assessing the role of Nigerian pension funds in empowering local investors in Nigeria’s private equity industry.

The Pension Funds and Private Equity in Nigeria Report finds that Nigerian pension funds display a strong appetite for private equity investment both locally and across the continent. 75% of the pension fund managers that participated in the survey plan to accelerate or maintain their current pace of capital commitments to African PE in the next five years, citing a desire for portfolio Diversification and Performance as the most important factors driving their investment plans.

The report also catalogues some of the obstacles faced by pension funds investing in the asset class. Respondents highlighted a perceived weak exit climate and a limited number of established African GPs as significant challenges for pension funds investing in African private equity. However, 49% of survey participants did not consider any of the current pension investment regulations to be prohibitive, suggesting that respondents view the existing regulatory environment as conducive for investment in alternative asset classes.

The partnership with AVCA helps us to work with industry stakeholders to identify and address these bottlenecks for our mutual benefit

Speaking on the publication, the CEO of PenOp, Mr OgucheAgudah, said “Local pension funds have expressed a desire to increase their allocation to private equity and more impactful investments.

However, there are a number of bottlenecks that restrict them. The partnership with AVCA helps us to work with industry stakeholders to identify and address these bottlenecks for our mutual benefit, and the benefit of the local economy

The CEO of AVCA, Abi Mustapha- Maduakor, said “Increasing interest in Africa’s private equity industry from domestic and international investors alike underscores the need to analyse the perceptions and concerns of institutional investors to promote an open dialogue on the continent’s unique business environment. This joint publication exemplifies AVCA’s commitment to championing private investment in Africa: bridging the knowledge gap between industry stakeholders by providing topical, informative research on the opportunities private equity has to offer Nigerian pension funds.”

PenOps, insurers to provide health insurance, lost of job policies, others

By Favour Nnabugwu

Arrangements are in top gear on the parlety between Pension Fund Operators Association of Nigeria (PenOp) and insurers to rovide health insurance, term life assurance, loss of job policy amongst others as incentives for their micro pension contributors.

One of the incentives, which is term life assurance and also known as pure life assurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life assurance policy to terminate.

Managing Director/CEO Access Pension Fund Custodian and Head, Media Committee of PenOp, Mrs. Idu Okwuosa, told insurance & Pension Journalists in Lagos that said the association is working assiduously to embed robust incentives into the micro pension plan.

Okwuosa stated, “PenOp and the National Pension Commission (PenCom) desire a better lifestyle for micro pension contributors and are working to see that aside the benefits of retirement and contingency savings, contributors maximise other robust incentives.

Head, Micro Pension Department, National Pension Commission (PenCom) Dauda Ahmed, at the event reiterated the benefits of micro pension plan, stating that it will improve the standard of living of the elderly as it provides a regular stream of benefits at old age.

He also said it will provide access to other incentives; secures financial autonomy and independence of retirees and that contributions will be passed to the next of kin in case of contributor’s death.

PFAs already meet N50bn, more to come

By Favour Nnabugwu

 

In less than five months to the recapitalisation of deadline for Pension Fund Administrators (PFAs), the PFAs have met N50 billon while the other are still struggle to beat the April 2022 timeline.H

Head Surveillance Department of the commission,  Ehimeme Ohioma made this known to members of the National Association of Insurance and Pension Correspondents (NAIPCO) at a one day seminar  in Lagos yesterday

He said others are currently undergoing either mergers or acquisition to meet the new capital requirement.

Explaining further on the need for recapitalisation, he said the objective of the  recapitalization exercise  was to improve the financial stability and operational efficiency in the industry.

“Tthe last exercise was done in 2011, the share capital of Pension Fund Administrators (PFAs) at the start of Contributory Pension Scheme (CPS) was N150million and it was later increased to N1billion in 2011. This is the second increase of the share capital of PFAs within this scheme.

” It is obvious the industry has really grown. it’s Assets Under Management has increased, the number of registered contributors has also increased and this requires increase in capital that the PFAs will have to deploy into its operations.

.”We are competing with the banks, fund managers and they need to attract talents and they need capital to do that.”

“Another area is the digitalization and automation of our operations. We need to do a lot of investment in ICT infrastructure and this cost money too. All these involves providing very topnotch service delivery by PFAs, he said”

He noted that the PFAs has actually be responsive to the ongoing consolidation within the industry.

“We are having bigger players and big opportunity for financial sector to come and play in the industry.”

Also, Managing Director/CEO Access Pension Fund Custodian and Head, Media Committee of PenOp, Mrs. Idu Okwuosa, hinted plans by the operators to work with some insurance companies in 2022  to provide more robust incentives such as health insurance for micro pension contributors.

She listed loss of job policy and term life assurance as some added incentives that the industry will looking for contributors under the micro pension plan.

Okwuosa said some operate have visited market such as the Alaba International market to enlighten them on the need to save and plan for retirement through the MPP.

She said they have commence discussion and hopefully next year when the incentives are concluded they will be registered fully

PenOp annual retreat for NAIPCO members in Lagos

 

L – Managing Director/CEO Access Pension Fund Custodian, Idu Okwuosa; Head, Micro Pension Department, National Pension Commission, Dauda Ahmed; Head, Benefits and Insurance, S Bwala; President, Pension Fund Operators Association of Nigeria, Wale Odutola; Head, Investment Supervision Department, Ekanem Aikhomu; Head, Surveillance Department, Ehimeme Ohioma; Managing Director/ CEO First Pension Custodian Nigeria, Oloruntimilehin George and Principal Manager, South-West Zonal Office, Sola Adeseun at the event.

PFAs Performance in Challenging Economy

By admin

 

The Contributory Pension Scheme administered by the Pension Fund Administrators has since inception 17 years ago recorded some achievements as well as met some obstacles. In this report, Ebere Nwoji takes a look at the performance of the scheme in the face of the down turn in Nigeria’s economy

The Contributory Pension Scheme (CPS) regime in Nigeria was established by the Pension Reform Act 2004 amended in 2014, which put the management of pension fund in the hands of private organisations called Pension Fund Administrators (PFAS).

The investment of the contributed fund was also placed in the hands of different set of investment experts called Pension Fund Custodians (PFCs).

Both have their activities regulated by the National Pension Commission (PenCom), which also stands as federal government adviser on pension matters.

With the establishment of these bodies and enactment of laws guiding their operations, Nigerian pension system which hitherto was enmeshed in huge deficit of over N2 .56 trillion during the defined benefit pension scheme era, suddenly wriggled out of the deficit track to gain its present ground of conveniently sitting on huge accumulated N13 trillion assets.

This has automatically positioned the pension sub sector as a vibrant part of the finance service sector of the economy.
The above N13 trillion represents the quantum of contributions made by both employees and employers of over nine million Nigerian workers who have so far keyed into the scheme.

The fund contributors were all registered by the 22 licensed Pension Fund Administrators in the country and their investment into various investment portfolios specified by the law is managed by four registered pension fund Custodians in Nigeria.

Licensed PFAs

The 22 licensed PFAs include: AIICO Pension Managers Limited, APT Pension Fund Managers Limited, ARM Pension Managers Limited, CrusaderSterling Pensions Limited, FCMB Pensions Limited, Fidelity Pension Managers, First Guarantee Pension Limited, IEI-Anchor Pension Managers Limited, Investment One Pension Managers Limited, Leadway Pensure PFA Limited and Nigerian University Pension Management Company (NUPEMCO).

Others are NLPC Pension Fund Administrators Limited, NPF Pensions Limited, OAK Pensions Limited, Pensions Alliance Limited, Premium Pension Limited, Radix Pension Managers Limited, Sigma Pensions Limited, Stanbic IBTC Pension Managers Limited, Tangerine Pensions Limited and Trustfund Pensions Limited and Veritas Glanvills Pensions Limited.

The PFCs

As stipulated by the laws guiding pension fund investments, the investment of the funds generated by these PFAs is determined by the following four PFC; First Pension Custodian Nigeria ltd, UBA Pension Custodian Ltd, Zenith Pension Custodian Limited, and Access Pension Custodian Limited.
They Play the role of undertaking the responsibility for keeping safe custody of pension assets on trust on behalf of contributors.
The main functions of PFCs are to receive pension contributions on behalf of PFAs; settle transactions and undertake activities relating to the administration of pension fund investments on behalf of PFAs and to notify the PFA within 24 hours of the receipt of pension contributions from employers.

The CPFAs

Operating side by side with these existing and licensed 22 PFAs are five other organisations called Closed Pension Fund Administrators (CPFAs)
These are managers of Pension schemes in the private sector existing prior to the introduction of the Contributory Pension Scheme (CPS) in June 2004.

After Pension Reform Act 2001 was enacted, these were allowed to continue as CPFAs, subject to guidelines issued by PenCom.

The companies are required to have operated a fully funded existing pension scheme with assets of at least N500 million. A condition precedent on the issuance of a CPFA license is that the company must possess the requisite capacity for the management of pension fund assets and show that it had managed its pension scheme effectively for at least five years prior to the commencement of the CPS.

The CPFAs operate mostly as Defined Benefits Schemes with a guarantee from the sponsor companies over any funding deficit.

But the Pension Reform Act, 2014, an amendment of 2004 Act, has foreclosed new entrants into the CPFAs.

The amended Act stated that effective from July 1, 2014, all new employees of the sponsor companies are required to join the CPS and open Retirement Savings Accounts (RSAs) with a PFA of their choice. Furthermore, an existing employee still reserves the right/option of pulling out of the CPFA to join the CPS.

Currently, there are five Closed Pension fund administrators in Nigeria, which are: Chevron closed PFA, Nestle Nigeria Trust Limited, Nigeria Agip CPFA Limited, Progressive Trust CPFA Limited, Shell Nigeria Closed Pension Fund Administrators ltd and Total (E&P) Nigeria CPFA Limited.
Pension experts said these CPFAs are still in good conditions as most of their employees and retirees are comfortable with their operation and management of their retirement Benefits.

PFA performance

Both the PFAs and PFCs have from their inception been doing well even up to the present time though currently they are faced with a lot of challenges.
Their impressive performance over these years was no doubt aided by the compulsory nature of pension contribution by both the public sector and private sector employers and employees.

The PRA 2014 mandated both the employers and employees to contribute 18 per cent in the order of 10 percent by the employer and eight percent by the employee.

Regular contributions to the CPS by both the private and public sector workers and their employers boosted the growth of the fund to the present level within a decade and half of CPS regime.

At present, the status of the Scheme is this in the past seven years, according to recent report released by the National Pension Commission, 19,000 workers from the public and private sectors joined the CPS Scheme (CPS) growing the asset by N470 billion.

Data obtained from the National Pension Commission (PenCom) have shown.

The PenCom data, said pension asset stood at N12.31 trillion as of December 31, 2020 but soared to N12.78 trillion by July 31, 2021
On the investment side, N8.13 trillion was invested in federal government securities as of December 2020. This increased slightly to N8.2 trillion by July 2021.

PenCom also noted that as of December 2020, N136.59 billion was invested in state government securities, N1.69 trillion in the local money market while N89.68 billion was invested in state government securities in July 2021 and N2.11 trillion in the local money market.

PenCom Director General, Aisha Dahir-Umar, noted that it was pertinent to reassure stakeholders that the implementation of the CPS remained on course.
She stated that the maintenance of consistent growth continues to justify the Commission’s overriding philosophy of ensuring the safety of pension fund assets.

Challenges

The CPS, which by all parameter of measurement has been adjudged the best scheme for pensioners, is not without challenges and these challenges dates back to its early years.

The downturn in the economy, which started in 2008 during the melt down in the global financial system made the scheme to lose some amount invested in the capital market. But not so much was lost, as the law guiding pension fund investment did not allow much investment in the capital market.

One of the challenges facing PFAs at present regarding the down turn in the economy is the fact that as a result of job cuts in various sectors occasioned by the COVID19 out break, inability of some firms to break even and weakened purchasing power of the masses, there has been low output and low return on investment by most firms, many firms also experienced low profit margin leading to loss of jobs by many Nigerians.

With the loss of jobs, there was pressure on the existing PFAs for withdrawal of 25 percent of their contributed funds as permitted by the law.
The PRA 2014 permits contributors into the CPS below 50 years who lost their jobs to withdraw 25percent of their contributions if they fail to get another job within four months of loss of the previous job.

Closely connected to this is the fact that as these withdraw demands were coming, new employees were not getting fresh jobs to add to the number of contributors and generate more funds for the scheme.

There was also the problem of volatility in the federal government investment instrument. Example is the fluctuation in the yields of federal government bond where over 70 percent of the pension fund was invested.

For instance, the pension fund declined from N12.306 trillion in December 2020 to N12.248 trillion in February 2021, showing N58 billion decline.
Giving explanation to this, the National Pension Commission (PenCom) attributed the decline to volatility in the market.

The commission’s head corporate communications, Mr Peter Aghahowa, however, said this was not a big problem, expressing optimism that the market would bounce back.

Stakeholders in the scheme said main challenges faced by the PFAs are low coverage of the scheme and compliance, inadequacy of benefits and poor awareness about the benefits of pension scheme.

Also the scheme operators themselves highlighted other challenges saying poor outreach of operators to Nigerian workers, the challenge of deepening investment to create impact and low exchange rate of naira to dollar.

They also identified non-compliance by various state governments, most of which are still operating the “pay as you go” system, as a major hitch to further advancement of the CPS scheme.

Accrued Rights

Before now, one of the key challenges of the scheme and the PFAs administration was inadequate or total non- funding of the Redemption Fund against the annual projected pension liability, arising from voluntary and mandatory retirements, death of employees in service and the right of pensioners to pension review in line with section 173(3) of the 1999 Constitution (as amended).

Indeed, since the advent of the CPS scheme, the failure of the federal government and some state governments that have keyed into the scheme, to transfer to PenCom the accrued rights of government workers for onward transfer to the various Pension Fund Administrators (PFAs) managing the workers’ contributed funds has constituted delays to immediate payment of workers’ lump sum benefits after retirement.

The Accrued rights are entitlement of workers from their employers before the enactment of pension Reform Act 2004 that established the CPS.
The result is that in most cases, because of much delay in the release of the accrued rights, most workers don’t receive their benefits two to three years after their retirement.

The situation was worsened by the fact that the Act establishing the scheme did not give room for payment of the fund contributed by the employee and his employer to keep soul and body alive pending the time government would have the necessary funds to pay their accrued rights.
This often makes the retiring workers feel that there is no difference between the CPS, which is funded, and the Defined Benefit Scheme, which is non funded, since the workers who constitute the contributors have to wait for some years for government to release their accrued rights before they can receive their retirement benefits.

But President Muhammadu Buhari recently gave approval for the release of workers’ accrued rights and backlog of differential based on 10 per cent employer contributions according to Pension Reform Act 2014 (PRA2014).

Achievements

With the recent approval of the accrued rights payment by the federal government coming on the heels of commencement of the transfer window, the pension industry has indeed recorded great achievement this year and in the views of the stakeholders stand the chance of tripling the current pension asset figure if other similar hiccups standing on the way of its advancement would be addressed.

Comparison with other countries’ Pension sector: in U.K, the political culture just like in Nigeria is not generally favourable to tax rises to fund welfare including pensions (and in any event both the short and medium term are likely to be dominated by other calls on revenue).

Pension experts in UK, said the savings culture just like in Nigeria is not strong and the pensions sector has been damaged by the unintended consequences of state action, miss‐selling scandals among others.

Similar to Nigerian employers, in U.K, Private employers are dramatically reducing the scale of their contributions towards the pensions of their general workforce.

The president, Pension Operators Association of Nigerian (PenOp ) Mr. Wale Odutola, who is also the Managing Director, ARM Pension Managers, said though the pension industry has raised the bar for professionals locally, as investment, risk and compliance professionals within the industry can favourably compare to their counterparts anywhere in the world. He said that there are many areas where the sector is behind its counterparts in other countries.

“One area is the level of pension penetration. Nigeria currently has a pension penetration rate of approximately 11 percent of its labour force. This pales in comparison to 19 percent in South Africa, 20 percent in Kenya and 77 per cent in the United Kingdom.

“Consequently, it goes without saying that the industry needs to deepen its level of penetration, especially in the informal sector.
Another area of improvement is the level of pension assets to GDP. Nigeria’s level of pensions assets to GDP is only a little over seven percent while in developed markets, it is typically above 100 percent.

“So, whilst the level of our pension assets are relatively large in absolute terms, when you look at it in relation to GDP, it is actually low. This further speaks to the fact that we need to increase the level of penetration of the pensions scheme in general, “Odutola stated.

Former Director General, National Pension Commission (PenCom), Muhammad Ahmad, said the micro pension segment market of the sector needs to be tapped in order to bring every Nigerian in both formal and informal sector into pension coverage.

He said pension operators have a lot of work in this regard, insisting that large chunk of their work is in the area of conviction and building trust.
He said operators’ starting point in tapping the opportunities in the informal sector is analysing the market.

But despite these challenges, the PFAs are not doing badly.

Their financial records in 2020 shows that despite the COVID-19 challenge, they posted impressive returns in the year 2020,
There is healthy competition going on among the operators.

Since the launch of the RSA transfer window in November 2020, the competition amongst Nigerian Pension Administrators has increased as contributors can now easily switch from one PFA to another. In less than two months of the launch, over 6,000 RSA contributors applied to switch over to new managers between November and December 2020 and currently, the number has doubled.

They are now on a very serious race for customer centric service delivery, as each PFA wants to outwit the other in service delivery.

From the recent data released by PenCom, there is every likelihood that before the end of this year, the pension asset will cross N13 trillion margins while number of contributors will be heading to 11 million according to pension experts.

Pension Adjustment: PTAD Completes Arrears Payment

By Favour Nnabugwu

 

The Pension Transitional Arrangement Directorate (PTAD) says it has completed the payment of arrears arising as a result of the consequential adjustment to pensions to three out of the four operational departments in the Directorate.

A statement from PTAD reads: “It would be recalled that following the Presidential approval for a consequential adjustment to pension of the retirees under the Defined Benefit Scheme as a result of the increase in minimum wage in 2019, PTAD commenced payment of the pension increment in May 2021, with an accrued arrears of twenty-four months.

The Civil Service Pensioners were paid nine months out of the twenty-four months’ arrears while the Parastatals, Police, and Customs, Immigration and Prisons Pensioners were paid twelve months’ arrears in May.

In July 2021, PTAD paid an additional 9 months of the consequential adjustment arrears occasioned by the minimum wage increase of 2019 to Civil Service Pension Department Pensioners and 6 months of the same arrears to Parastatals, Police, Customs, Immigration and Prisons Department Pensioners, thus bringing the arrears paid so far to a total of 18 out of the 24 months’ arrears of the Pension Increment

In line with the promise made by the Executive Secretary of PTAD, Dr. Chioma Ejikeme, more of the accrued arrears have been paid, leading to a complete payment in three operational departments, with a promise to pay the remaining arrears before the end of first Quarter of 2022.

The cleared departments are: Parastatals Pension Department, Customs Immigration and Prisons Pension Department, and Police Pension Department; while a balance of three months’ arrears is still being owed the retirees under the Civil Service Pension Department.

While thanking the pensioners for their understanding, the Executive Secretary of PTAD promised to continue promoting the welfare of the Senior Citizens in accordance with the mandate of the Directorate.”