AISHA DAHIR-UMAR
As Nigeria grapples with dearth of
critical infrastructure, which where exists, is deplorable, the
ever-increasing pension funds, appear to be the needed succour. In this
interview with Kunle Aderinokun, the Acting Director-General,
National Pension Commission (PenCom), Hajia Aisha Dahir-Umar, provides
insights on how the
nation can leverage pension assets for
infrastructure development. Dahir-Umar also speaks on some other areas
of concern in the pension industry. Excerpts:
Can you give the current value of Pension Assets?
The net assets value (value of pension
funds net of fees and other charges) of pension fund asset was N9.44
trillion as at 31 August, 2019. Specifically, pension fund assets were
invested in 11 asset classes among which include quoted ordinary shares,
FGN securities, state govt. bonds, corporate debt securities and
supranational bonds etc.
Pension funds remain crucial for the
country’s infrastructural development till date. What portion of the
funds has been committed to infrastructure?
Total pension fund Investment in
Infrastructure as at 31 August, 2019 was N160.36 billion (Sukuk Bond
N70.99 billion, Infrastructure Funds N30.69 billion, Infrastructure Bond
N10.18 billion, Green Bond N13.07 billion and Agency Bond N9.96
billion, and Corporate Green bond N25.42 billion). This amount
represents 1.70 per cent of the total pension assets as at 31 August,
2019
The Sukuk was deployed for road
infrastructure while the Infrastructure Funds consist of Investments in
ARM Harith Fund that invested in the Azura-Edo Independent Power Plant
(IPP) Project in Edo State and Afri plus Fund that invested in the
Constructions of 1,200 hostel rooms in University of Calabar, Cross
Rivers State. On the other hand, the proceed of the Infrastructure Bond
(Viathan Infrastructure Bond) was invested in power projects (Akute
Power Plant, Island Power Plant, Pipp Genco and Gasco Marine Limited) in
Lagos State.
Pension assets in Nigeria are currently
the largest available pool of patient capital. Infrastructure is
adequately suited for pension funds and is a potential avenue for
pension funds to reap higher and consistent returns on investment, if
adequate policies, structures and regulations are instituted. Several
countries in Europe, Latin America and Africa have successfully utilised
part of the accumulated pension funds by investing in new
infrastructure projects or renewing dilapidated ones. Globally,
productive investments in infrastructure are majorly made possible by
long term funds/savings such as pension funds. The commission continues
to engage relevant stakeholders (government agencies, private sector
participants, multilateral development finance organisations) in
developing infrastructure assets that meet requirements for pension fund
investment.
Recently, there was a report that
PenCom directed PFAs to invest a minimum of 60 per cent of their
infrastructure funds in projects in Nigeria. This is laudable! Is PenCom
collaborating or partnering with agencies like InfraCredit, Nigeria’s
premier infrastructure credit guarantee company, to ensure optimum
utilisation and success of these funds, ultimately protecting pension
assets?
It is pertinent to clarify that the
commission as a regulator is responsible for establishing rules,
guidelines and standards for pension fund investments by licensed
Pension Fund Administrators (PFAs). Consequently, making investment
decisions on the percentage allocated to Infrastructure is the sole
responsibility of PFAs, which have to make investment decisions in line
with regulations set by the commission.
The commission is one of the agencies
implementing the Financial Sector Strategy (FSS) 2020 and has been
collaborating with all the relevant agencies including private
organisations such as the Infrastructure Credit Guarantee Company
(InfraCredit), towards achieving its targets on the initiatives,
including investment of pension assets for the development of
infrastructure in Nigeria. The FSS2020 along with the commission and
InfraCredit are working to build acceptable investment models that would
encourage pension fund participation in infrastructure financing.
The commission has recorded a number of
successes as a result of its collaborative initiatives with stakeholders
including InfraCredit and is further committed to sustaining all
existing collaborative relationships.
In their show of confidence in the
domestic bond market, the PFAs fully subscribed to a 10 -year N10
billion Guaranteed Infrastructure Bond (called the Viathan Bond), which
21 per cent of its proceed was used to finance the construction of a
compressed natural gas (CNG) plant in Ogun State earlier in the year.
Arguably, that was the first time the nation witnessed pension fund
coming into play in infrastructure financing. It was unprecedented! What
more and when should we expect to happen in this regard?
Licensed PFAs have continued to make
investment decisions in line with the Regulation on Investment of
Pension Assets (the Regulation) which allowed pension fund assets to be
used for Infrastructure Financing. However, there are limited
Infrastructure Bonds and Funds available for pension funds to invest. It
is expected that PFAs would continue to make pension funds available
for infrastructure financing as long as the products offered are viable
bankable and meet the requirements of the Regulation. The commission
would continue to work with relevant stakeholders to encourage the
development of appropriate instruments for pension fund investments,
with focus on infrastructure financing.
In as much as the commission is desirous
of encouraging pension fund investments in infrastructure and housing,
it will not compromise on the major objectives of pension fund
investments, which are safety of the assets and maintenance of fair
(real) returns on investments.
How do you see the impact of IFRS 9 on pension fund administration?
IFRS 9 is an International Financial
Reporting standard issued by the International Accounting Standard Board
and adopted by the Financial Reporting Council of Nigeria. The major
area of the Standard that deals with reporting pension funds are the
accounting treatment of impairments as well as classification and
measurement of financial assets. The pension funds in Nigeria have
complied with this standard in their various financial reports to
stakeholders and regulators.
At the initial stage of IFRS
implementation by the pension industry, there were fears about its
adoption due to perceived lack of understanding by the public on fair
value measurements or disclosures, particularly in classifying debt
instruments, which had only two options. However, these fears were
addressed by the issuance of another portion of IFRS 9 which addressed
aspects of applying fair value options in financial reports.
Early reaction to market information on
the adoption of IFRS 9 indicates an overall positive response to the
IFRS 9. The adoption of the Standard will promote accountability,
transparency and good corporate governance that will impact positively
on various stakeholders. Furthermore, the adoption of IFRS by the
pension industry would help to provide accurate information on the
financial position and financial performance of pension funds.
Compliance to pension regulations by
employers, particularly in the private sector remains a challenge. How
much has the commission done to enforce obedience?
The commission has a framework for
compliance with the provisions of Pension Reform Act 2014 (PRA 2014).
The framework outlined the strategies to be adopted by the commission.
The strategies include appointment of recovery agents to recover
unremitted pension contributions and penalties from defaulting
employers, Issuance of Pension Clearance Certificates, Compliance
Monitoring through onsite inspection of employers, Public Awareness and
Engagement and Collaboration with social partners and relevant
stakeholders. The details of the implementation of each of the
strategies are as follows:
Appointment of Recovery Agents: To
ensure compliance by employers of labour with respect to remittance of
pension contributions, the Commission developed a Framework for Recovery
of Outstanding Pension Contributions with Penalty from defaulting
employers. Based on the Framework, the Commission had engaged recovery
agents for the review of the pension records of employers and recovery
of unremitted pension contributions plus penalty. The recovery exercise
which has been largely successful, has boosted the confidence of
contributors and by extension encouraged non-participating
employees/employers to embrace the Scheme. Through this initiative, the
sum of N16.37 billion representing principal contribution (N8.37
billion) and penalty (N8.00 billion) have been recovered from defaulting
employers. Both the principal contributions and penalty have been
credited into the workers’ Retirement Savings Accounts (RSAs). The
penalty is meant to compensate for the income that would have been
earned if the contributions were remitted as and when due.
The commission is also prosecuting
recalcitrant employers who failed to remit its employees’ pension
contribution into their RSAs.
Issuance of Pension Clearance
Certificates: The Commission commenced the issuance of Pension Clearance
Certificates to organizations in 2012. The certificates are renewable
annually and serve as a confirmation of compliance with the provisions
of the PRA 2014 by an employer. The Certificate is one of the key
requirements for doing business with Federal Government Ministries,
Departments and Agencies (MDAs). From January to September 2019, the
Commission has received applications from 17,400 organizations out of
which 16,603 organizations were issued certificates. The 16,603
organizations that were issued certificates remitted the sum of N89.45
billion into the RSAs of 272,974 employees. The Commission has a
transparent, efficient and effective process that ensures timely
issuance of Certificates to qualified applicants. The Commission is on
the verge of automating the process of issuing Pension Clearance
Certificate.
Compliance Monitoring through onsite
inspection of employers: The Commission has continued to monitor
compliance with the PRA 2014 by private sector employers through the
Risk Management and Analysis System (RMAS) as well as through complaints
received from employees. Defaulting employers are engaged in line with
the Regime of Sanctions and On-site Inspection by the Commission. The
engagements are aimed at ensuring that employees opened RSAs and pension
contributions (plus penalty) are remitted to the RSAs. In that regard,
the Commission had engaged 1,490 private sector employers. These efforts
have proven very useful in ensuring private sector compliance with the
PRA 2014 as most of the affected organizations have provided evidences
of remitting pension contributions to their employees’ RSAs.
Public Awareness and Engagement: The
commission has continued to engage in sensitization workshops on the
workings of the CPS for the Organized Private Sectors. In this regard,
several interactive sessions on the Scheme have been held with the
private sector employers. The sessions have been very useful in
providing a platform for the Commission to enlighten private sector,
address their concerns/fears and obtain useful feedback that would
improve compliance.
Collaboration with Social Partners and
Relevant Stakeholders: The commission has been engaging and
collaborating with Social Partners like the Nigeria Employers’
Consultative Association (NECA), Nigeria Labour Congress (NLC), Trade
Union Congress (TUC), Nigerian Union of Pensioners etc. The interactive
sessions, provides the platforms for the Commission to interact with
critical stakeholders in the OPS on the implementation of the Scheme.
Also, the sessions provide opportunity for the Commission to keep
stakeholders abreast of developments, address concerns, clarify issues
and discuss the expectations of contributors, with a view to improving
compliance with the provisions of the PRA 2014. The interactions further
allay the fears of contributors about the Scheme. In addition, the
commission obtained useful feedbacks from the OPS on the implementation
of the CPS through the sessions.
Meanwhile, the commission has a fully
functional complaints monitoring and resolution team which attends to
complaints on non/late/under-remittance of pension contributions into
employees Retirement Savings Accounts. The Team has a Regime of
Sanctions which guides the administrative steps to be taken when
complaints are received.
The process followed in the Regime of
Sanctions are Letter of advice, Caution letter, Sanction letter and
Legal action. Accordingly, we appeal to all stakeholders, including the
media and employees to forward to the Commission the names and addresses
of employers that are not in compliance with the provisions of the PRA
2014.
How many pension law offenders have so far been prosecuted since the enactment of the Pension Reform Act 2014?
The commission has been prosecuting
recalcitrant employers who failed to remit its employees’ pension
contribution into their RSAs. As at date, the Commission had instituted
legal actions against 191 recalcitrant employers. Out of that number,
79 had opted to settle out of court with the Commission, 35 Judgments
have been obtained while 77 are at different stages in the courts.
What are the challenges of the new pension regime- that is, contributory pension scheme?
In the light of the challenges of the
Defined Benefits Scheme, the Pension Reform Act (PRA) 2004 was enacted.
The Act established the National Pension Commission to ensure proper
supervision and regulation of the Contributory Pension Scheme (CPS) and
the Defined Benefits Scheme as well as the administrative structures
established pursuant to its provisions. The main objective of the reform
is to ensure prompt payment of retirement and terminal benefits. Though
the CPS has been largely successful since its introduction fifteen
years ago, there are some challenges that the commission is constantly
seeking ways to address. Notable amongst these challenges are;
inadequate enlightenment on the CPS; delay in payment to Federal
Government retirees; database and technology issues (multiple PINs);
inadequate retirement and financial planning, low public awareness; low
compliance by state governments and delay/non-remittance of
contributions by the private sector.
At the centre of the challenges in the
implementation of the CPS is the low level of public awareness and
knowledge on the workings and benefits of the CPS. The commission, in
collaboration with other critical stakeholders such as the organized
labour unions continue to make spirited efforts to enlighten the general
public on the tenets of the CPS. It might interest you to note that the
commission, through various platforms such as the conventional and
social media, continues to educate the public while at the same time
respond positively to requests from various organisations for
enlightenment session on the CPS.
Delays in payment of pension benefits to
FGN retirees owing to budgetary inadequacies is another onerous
challenge bedevilling the smooth implementation of the CPS. The
Commission has been engaging all relevant stakeholders with a view to
ensuring adequate budgetary provisions and timely release of funds so as
to reduce the backlog of outstanding accrued rights. These efforts have
resulted in significant improvement in the funds released over the past
year. It is expected that with the renewed commitment of the Federal
Government to defray these liabilities, more timely payments will be
achieved.
The issue of multiple registration has
also been a challenge under the CPS. The Commission has however,
deployed the Enhanced Contributor Registration System (ECRS) to address
the deficiencies of the Contributor Registration System. The ECRS is an
electronic platform for the submission of requests by Pension Fund
Administrators (PFAs) for the registration of contributors and issuance
of Personal Identification Numbers (PINs). It provides a more dynamic
and user friendly interface and has also been integrated with the
National Identity Management Commission (NIMC) for authentication of the
uniqueness of individuals seeking to register under the CPS. The
deployment of the ECRS will greatly enhance the integrity of
contributors’ data and also provide a platform for the Registration of
Micro Pension Plan Participants and Cross Border individuals.
Ultimately, it would facilitate the opening of the transfer window which
would enable contributors to move their RSAs from their current PFA to
another, should they desire such transfer.
The issue of inadequate retirement and
financial planning is a major challenge faced by retirees under the CPS.
As you may be aware, all choices with regards to the selection of PFA
to mode of retirement benefits withdrawal reside solely with the
individual contributors, hence lack of knowledge in retirement and
financial planning often hindered effective choices by many retirees
under the CPS. Although, the pension operators offer such value added
services for the benefit of their clients, the Commission and other
critical stakeholders are making various efforts to provide guidance to
prospective retirees through the conduct of the annual nationwide
Pre-retirement workshops.
Another challenge that the Commission
currently grapples with in the implementation of the CPS is the delayed
or non-remittance of pension contributions by many private sector
employers. Recall that the PRA 2014 made it mandatory for employers with
at least three employees to participate in the scheme. However, some
private sector organizations have been indulging in delayed or
non-remittance of pension contributions of their employees to the
RSAs. To address this challenge, the Commission has engaged the
services of recovery agencies to ensure recovery of the outstanding
contributions and the penalties thereof as prescribed in the PRA 2014.
This effort has been yielding results even though there is still room
for improvement.
Furthermore, 25 States of the Federation
have adopted the CPS by enacting relevant legislation. However, full
compliance by State Governments with the implementation parameters such
as remittance of both employer and employee pension contributions,
payment of accrued rights, institution of the Group Life Insurance
Policy etc., are still relatively low. The Commission has been
intensifying efforts at ensuring that State Governments comply with the
CPS by providing technical assistance through its six Zonal Offices, one
in each of the geo-political zones of Nigeria.
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