‘N17trn pension assets not in PenCom’s custody – DG
Non-onterest funds complies with Shasia principles Mrs Aisha Dahir-Umar, the director-general of the National Pension Commission (PenCom), in an interview with journalists recently, spoke on issues relating to pension matters in the country.
It has been three years since the PenCom management team was inaugurated. How would you describe your experience, both the highs and the lows? Reflecting on this period, I can describe the journey as a blend of achievements and challenges. On the positive side, we have made remarkable strides in enhancing the efficiency and transparency of the Contributory Pension Scheme (CPS). Our efforts include the implementation of crucial reforms aimed at optimising procedures and fostering compliance among pension contributors and employers.
The outcomes are impressive: pension assets have surged by N5.94trillion over the last three years, growing from N11.35trillion in August 2020 to N17.29trillion in August 2023. Furthermore, over a million new contributors have keyed into the CPS within this timeframe.
One of our outstanding achievements is the recapitalisation of the shareholders’ fund of Pension Fund Administrators (PFAs) from N1billion to N5 billion. The significant increase in the number of registered contributors and pension assets under the management of PFAs had necessitated increased capital injection in order to meet minimum service standards and address various operational needs in the pension industry. Following the successful conclusion of the recapitalisation exercise, PFAs have become financially stronger and better equipped to offer quality service to Retirement Savings Account (RSA) holders.
PenCom had, as part of efforts to clean the database of contributors under the CPS and pave way for RSA holders to initiate transfers from one PFA to another, deployed the Enhanced Contributor Registration System (ECRS) in June 2019. The ECRS replaced the Contributor Registration System (CRS), which had become obsolete. Accordingly, PenCom directed all PFAs to commence the Data Recapture of RSA holders registered on the legacy CRS. The exercise, which involves the recapturing of contributors’ biodata and biometrics, applies to all RSA holders who registered with PFAs before 1 July 2019.
Over 1,103,237 RSA holders have, from the inception of the exercise in August 2019 to September 31, 2023, been recaptured on the ECRS.
The deployment of the ECRS has also enabled the commission to launch the Retirement Savings Account (RSA) Transfer Window on November 16, 2020. The RSA Transfer Window provides the platform for RSA holders to seamlessly transfer their RSAs, with the associated balances from one PFA to another once every year.
In 2022, PenCom issued the Guidelines on Accessing Retirement Savings Account (RSA) balance towards Payment of equity contribution for residential mortgage by RSA holders.
The guidelines gave effect to the provisions of section 89 (2) of the Pension Reform Act (PRA) 2014, which provides that “a pension fund administrator may, subject to guidelines issued by PenCom, apply a percentage of the pension assets in the Retirement Savings Account towards payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account.”
This landmark achievement by PenCom seeks to ensure that employees
become homeowners while still in service. PenCom has, from the commencement of the implementation of the guidelines to August 31, 2023, approved 339 applications for payment of residential mortgage equity contributions amounting to over N4billion.
One persistent issue is the complaint of low pensions by some of those enrolled under the CPS. You have often suggested ways of supplementing the benefits. Why are we finding it hard to address this issue once and for all?
The challenge of insufficient pension benefits is a multifaceted problem that extends beyond the purview of PenCom. It is imperative to note that several factors are responsible for insufficient pension benefits, but the main one is the issue of low salaries, especially in the public sector.
It is worthy of note that the PRA 2014 has sufficient provisions to address the issue of low benefits. For instance, section 4(4)(a) of the Act provides that an employer may, notwithstanding the pension contributions made by the employer and employee into the employee’s RSA, agree on the payment of additional benefits to the employee upon retirement. Employers, especially those in the public sector, can take advantage of this provision to enhance their employees’ retirement benefits.
Furthermore, employers can consider an upward review of the rate of pension contributions in respect of their employees. Section 4(1) of the PRA 2014 stipulates a minimum pension contribution of 10 per cent by the employer and 8 per cent by the employee. However, the pension contribution rate can be enhanced through a collective agreement between the employer and the employee as provided under section 4(2) of the PRA 2014. An employer may also elect to bear the full responsibility for the pension contribution of his employees.
Achieving a comprehensive solution to the challenge of low pensions requires collaboration between employers and employees. PenCom, however, remains resolute in finding a lasting resolution to the challenge.
PenCom introduced the Non-Interest Fund to cater for the choices of contributors. How well has it been received?
The Non-Interest Fund (Fund VI) is one of the fund types under the MultiFund Investment Structure introduced by PenCom. The key objective of the Multi Fund Structure is to empower pension contributors and retirees to achieve optimum returns by aligning their pension savings with their individual risk/returns objectives. In addition, the structure is meant to provide investment portfolio choices to contributors.
The Non-Interest Fund complies with Sharia principles. It has provided an inclusive option for contributors to save for their retirement while respecting their ethical preferences. The reception for the NonInterest Fund has been positive and PenCom is continually working to expand awareness and access to this option. As at August 31, 2023, the value of the Active Non-Interest Fund and Retiree Non-Interest Fund stood at N42.43bn and N5.24bn respectively.
Nigeria’s pension assets are now over N17trillion. What does this mean in a layperson’s language?
The Nigerian Pension Industry has witnessed a significant growth in assets under management, which, as at August 31, 2023, stood at N17.29trn. This pool of funds has significantly enhanced savings mobilisation, capital market development and economic growth. Specifically, Pension
Funds have been deployed for investment in infrastructure, targeted at financing waste management, independent electricity generation and road construction (Sukuk). Furthermore, pension funds have increased the availability of long-term funds for investment in the real sector of the Nigerian economy.
Some examples of infrastructure projects financed with pension funds include roads built across the six geopolitical zones under the Sukuk programme, Akute power plant, Island power plant, Pipp Genco, Gasco Marine Limited and the construction of 1,200 hostel rooms at the University of Calabar, Cross Rivers State.
In the final analysis, an improved economy and financial system directly benefit individual pension contributors through improved returns on pension savings and enhanced payouts at retirement.
The impression outside is that PenCom is awash with money like the Nigerian National Petroleum Company (NNPC) Limited, Federal Inland Revenue Service (FIRS) and similar institutions. How much of the pension assets are with PenCom?
The roles and responsibilities of all players in the pension industry are well defined by the PRA 2014. PenCom was established by law to regulate, supervise and ensure the effective administration of pension matters in Nigeria. Accordingly, the functions of PenCom include the regulation and supervision of the CPS, issuance of guidelines for the investment of pension funds; and approving, licensing, regulating and supervising pension fund administrators, custodians and other institutions relating to pension matters as the commission may from time to time determine.
On the other hand, pension fund administrators are companies licensed by PenCom to manage and invest the pension funds in the employee’s RSA, while pension fund custodians (PFCs) are responsible for holding pension assets in safe custody on trust for pension contributors. Pension fund custodians receive contributions and settle transactions relating to the administration of pension fund investments on behalf of PFAs.
Based on this explanation, I believe it is clear that PenCom does not have custody of pension assets, neither can it access the funds which are held in custody by PFCs.
You introduced the Micro Pension Plan for individuals and small businesses. It would appear that adoption has been very low. Why is this so?
The Micro Pension Plan (MPP) was introduced to broaden pension coverage, particularly for individuals and small businesses in the informal sector. From its inception to September 2023, about 105,455 contributors have been enrolled in the MPP. However, registration numbers have fallen short of initial projections due to several factors.
First, there are notable challenges within the informal sector, which are related to accessing financial services, building trust and understanding the pension system. Secondly, the current unavailability of appealing incentives associated with the product has made it less attractive to our target clientele. PenCom is actively exploring the introduction of incentives, such as health insurance coverage for MPP participants in order to address this challenge.
Finally, the economic situation in the country, characterised by high unemployment, inflation and rising poverty levels, has slowed down the uptake of the MPP. The MPP remains a vital initiative and PenCom is committed to making it more accessible and appealing to a broader spectrum of individuals and small businesses in the informal sector.