Brainstorming Over Pension Industry Growth Strategy

Given bureaucratic intricacies of avoiding the public’s prying eyes, it is not appealing for institutions to engage media partners on development and growth processes within their domains. But the National Pension Commission (PenCom) is an exception to this unwritten rule. Away from their hectic schedule of superintending over the fast-growing pension industry, the Commission’s management off-loaded their activities and action plans for scrutiny by journalists in the Finance, Insurance and Labour sectors. COBHAM NSA and CHINYERE OBIORA agree proceedings at a two-day media retreat in Transcorp Hotel, Calabar were quite illuminating in all ramifications.

A significant milestone in bequeathing Nigeria an enduring, sustainable and efficient pension system, the Pension Reform Act (PRA), 2004 has effectively addressed protracted challenges of pension matters in both public and private sectors. And highlighting PRA 2004 are the Contributory Pension Scheme (CPS), that replaced the old Defined Benefits Scheme (DBS), as well as the establishment of National Pension Commission (PenCom), to solely regulate Nigeria’s pension industry. Due largely to the CPS’ fundamental structures, implementation of PRA 2004 has continued to record modest successes despite poor and unreceptive attitude towards the scheme by some organizations. Gladly, sound financial minds have endorsed PenCom’s position that the cardinal principle of extricating custody from management and supervision of pension funds has boosted the Scheme’s integrity with strong internal mechanisms for transparency and accountability. Here, the Pension Fund Administrators (PFAs), saddled with the responsibilities of managing the funds, do not have direct access to them because custody is vested in the Pension Fund Custodians (PFCs) while the Commission ensures both parties adhere strictly to regulations governing the funds’ operations. The Journey So Far Interestingly, the media interaction demonstrates PenCom’s unwavering resolve to constantly equip and update journalists with the internal workings of the CPS and its creditable deliverables in the last 12 years. The Commission says its robust media partnership remains an integral part of on-going public enlightenment campaigns and education drive to constantly increase awareness level across Nigeria. Commission’s Director General, Mrs Chinelo Anohu-Amazu painted the big picture of a growing, safe and sustainable pension sector as encapsulated in the retreat theme titled, “Understanding the new Corporate Strategy of the Pension Industry.” She said under the CPS, pension fund assets has hit a whopping 5.9 trillion Naira and still growing. To her, PenCom’s key success indicators include steady growth in a large pool of pension assets invested in structured and safe financial instruments. Others are registration of 7.2 million pension contributors; capturing of 170,000 retirees under the Scheme; a regime of openness and transparency in the industry. Represented by the Commissioner, Inspectorate, Professor Abubakar Ka’oje, the Director General said aside visible signposts; the PRA 2004 has recorded its fair share of teething challenges and setbacks. Issues arising from implementation underlined the imperative for an extensive review of the Act to consolidate on the reforms. According to her, “The re-enactment of the PRA in July 2014 provided a sound basis to guide the second decade of the Nigerian Pension Reform. The PRA 2014 sought to ensure that more tangible benefits accrue to retirees towards a more blissful retirement.” Major developments in the revised law include an increase in monthly pension contributions to 18 per cent from 15 per cent to ensure retirement benefits are enhanced under CPS for contributors’ benefit; reduction in waiting period for contributors to access their Retirement Savings Account (RSA) in the event of temporary loss of job from six (6) months to four (4) months; and stiffer penalties and sanctions for infractions; establishment of Pension Transitional Arrangements Directorate (PTAD) to co-ordinate the smooth administration of the old DBS of the public service among others. She said PRA 2014 serves as the “basis for implementing the new Corporate Strategy Plan; and expanding the CPS’ coverage to the underserved economic sectors through our micro pension initiative is a key priority of our strategic vision.” As PenCom seeks to increase registered pension contributors to at least 20 million by 2019, the informal sector participation through the Micro Pension Plan (MPP) is expected to provide impetus. Mrs Anohu-Amazu said States do enjoy enhanced support meant to facilitate their adoption and effective implementation of the Scheme through a tailored technical assistance from PenCom’s State Operations Department and Zonal Offices in the six geo-political Zones. New Investment Proposals Chairman of Pension Fund Operators (PenOp), Eguarekhide Longe, who spoke on “Understanding the Investment of the Pension Funds”, noted the slight differences in the investment guidelines of 2012 and the draft investment guidelines of 2014, adding that these were reflected in the reduction of investment proposal from 75 to 60 per cent; and introduction of non-interest bearing sharia compliant investment instrument such as Sukuk. Longe said apart from functions specified in the new Act, there was need to set up Investment Strategy Committee and formulate internal investment strategies to ensure compliance with these regulations, taking into cognizance the macro-economic environment. The PenOp chief, who sees possession of landed property at affordable rate as critical to housing plans anywhere in the world, Nigeria inclusive, said “Funding for housing requires a single digit mortgage interest rate, but in the environment we find ourselves, rates are in double digits.” However, hinting that contributions into RSA have gone down drastically due to the recession, Longe said things are still looking good for Nigeria because recession is not a curse but only a passing phase that prompts nations to realise they are not doing very well and therefore need necessary adjustments going forward. Heading the Micro Pensions Department of PenCom is Mr Polycarp Anyanwu who believes in the initiative of providing pension coverage to self-employed Nigerians. He said plans have reached advanced stage for the Commission to unveil its MPP that will cater for informal sector operators, adding that the initiative covering three strata of the low, middle and high income earners, targets 20 million self-employed by 2019. Among these groups are artisans, mechanics, tailors, farmers and other forms of small businesses in the informal sector. He said the micro scheme was an offshoot of the pension industry 5-year strategic plan to expand the CPS’ coverage to 20 million contributors in the next four years, noting that the informal sector, which is largely uncovered by any structured pension arrangement, represents over 70 per cent of Nigeria’s total working population. Anyawu said existing peculiarities of individuals operating within the informal sector include: Irregular flow of income; highly mobile and flexible jobs; Lack of permanent work addresses; Lack of official means of identification and other relevant documents. Though section 2(3) of the Pension Reform Act, 2014 extended coverage of the CPS to self-employed persons; the micro pension has moved to address this yawning gap by focusing mainly on family support and the need to avert old age poverty. Anyanwu’s presentation titled: “Understanding Micro-Pension Scheme Features, Prospects and Expectations”, further explained that key features of micro pension features were the simplified registration process; flexible frequency of contribution; and easy method of contribution remittance, explaining that contributions would be split into two parts with a smaller percentage as savings and accessible to the contributor while the greater percentage shall be set aside strictly for pension payments. Anyanwu says PenCom will partner trade Unions/Associations to bring their members on board the Scheme’s pilot phase while media professionals are expected to assist in enlightening the public and creating awareness on the benefits and imperative of Micro Pensions. Besides targeting 250,000 contributors within six (6) months, the Commission is set to deploy ICT as part of instruments for ensuring wider coverage in the scheme. PRA 2014: Successes And Challenges Despite the CPS’ success story, Commission’s Secretary and Legal Adviser, Muhammad S. Muhammad said most organizations are in default maintaining deductions from workers’ salary without remitting same to the PFAs. But the good news is that PenCom has recouped over N11 billion from erring firms through its recovering agents between 2013 and October 2016. Describing non-remittance of pension funds as criminal, Muhammad said PenCom is working with the Economic and Financial Crimes Commission (EFCC) to ensure all outstanding contributions are recovered and remitted to the appropriate quarters as required by law. Speaking on “PRA 2014: Matter Arising”, he said non-remittance could arise from a situation where the company did not start deductions from the word go and as such, the pension liabilities have accumulated for quite sometimes, adding that in such situations, PenCom’s recovering agents are authorized to recover both principal funds as well as the penalties for non-remittance. He said a situation where employers make deductions but do not remit same has seen the Commission’s criminal investigating department moving against such companies with appropriate sanctions. “You see situations where companies hold on to funds and don’t remit or you have others that will tell you that they have transferred it to insurance companies. Where it is with insurance companies, we engage the National Insurance Commission (NAICOM) and they will then take appropriate measures to ensure the funds are transferred to the Pension Funds Administrators and Pension Funds Custodians (PFCs)”, he explained. Highlighting the primary difference between investment guidelines 2012 and draft guidelines of 2014, the Commission Scribe said with the Multi-Fund structure, there is a re-jigging of requirements for how much pension funds may be deployed to specialized investment instruments (such as Infrastructure and Private Equity securities) located in Nigeria; as well as introduction of non-interest bearing (Sharia compliant) investment instruments such as Sukuk. He said, “The Investment Strategy Committee, in addition to other functions specified in the Act, shall formulate internal investment strategies to enable compliance with this Regulation, taking into cognisance the macro-economic environment as well as the investment objectives and risk profile of the respective PFA Funds.” These internal investment strategies shall be approved by the PFA in a formal Board Meeting at least once every year or as frequently as changes occur in the macro-economic environment that may affect the pension fund assets while the Risk Management Committee shall determine the acceptable risk profile of each investment portfolio, draw up risk assessment and measurement systems, monitor their portfolio against risk tolerance limits, as well as other functions relating to risk management to be determined by the PFAs Board and the Commission, from time to time. Mainstreaming The Media Also, media mainstreaming in pension matters came to the fore with strong views that its decade-long operations notwithstanding, low awareness still trails the industry’s operations in Nigeria. Managing Editor, Northern Operations of the Nation Newspapers, Yusuf Alli believes there is an urgent need by relevant stakeholders to improve awareness about CPS if pension assets and contributors must grow on a sustainable basis. Addressing the topic: “Role of the Media in Reporting the Pension Industry” Yusuf said sustained training would effectively provide more clarity and deepen the knowledge of journalists about the CPS, its existing and emerging challenges, prospects and successes as well as the application of acquired knowledge in enlightening Nigerians about pension issues. The Communiqué Rising from the two-day session, the forum nine-point communiqué said the pension industry urgently needs rapid deployment of Information and Communications Technology (ICT) to achieve its set target of 20 million contributors by 2019, adding that using ICT to drive the pension scheme is germane to its success. Insisting the pension industry must undertake massive enlightenment campaigns on the scheme through trade associations and unions for adequate capturing of the informal sector, participants want strong media engagement in propagating the pension gospel nationwide. The Forum also canvassed aggressive marketing of pension products and services by industry operators to meet the 20 million contributors’ base in the next three years, just as it agreed on attractive incentives to bring more subscribers on board. For proper co-ordination and investment of pension assets in infrastructure, it was agreed government must be consistent in policies’ formulation while also developing reliable investment templates for injection of pension funds in real sector. Other recommendations include: Pension funds investment in an energy sector that boast of accurate and adequate database of power users; The need for regulators, insurance and pension operators to address the issue of de-marketing of Programmed Withdrawals and Annuity with the media required to verify all information on pension matters before reportage as non-verified information cause negative perception about the industry. Applauding PenCom for organizing the seminar to sensitize the media, deepen pension penetration and reportage in the country, participants said increased education and sensitization on the CPS and micro-pension would ensure all set targets are achievable. They equally urged the Commission to extend enforcement of pension scheme to media houses so that employers can remit monthly contributions as and when due. Also, PenCom was advised to set aside 1.5 per cent of its annual budget for media workshop, seminars and other forms of trainings as well as carry the media along in its foreign travels and seminars towards broadening journalists’ knowledge about the industry and creating news for the media.