Pencom: Expanding the pension scheme

Aisha Dahir Umar, the Acting Director General of the National Pension Commission (Pencom), is hardly in the news. But Pencom is making news lately, pushing the pension figures upward. Pencom is extending the Contributory Pension Scheme (CPS), to underserved sectors of the economy through the creation of a Micro Pension Scheme.

The initiative is in line with the Commission’s strategic objective of extending coverage to under-served sectors and the continuous increase in the number of persons joining the scheme.

The number of people on the pension platform rose from 7.5 million on March 31st 2017, to 7.9 million as at February 28, 2018.This has pushed the net asset of the fund up from N7.52 trillion to N7.79 trillion as at February 28, 2018. Pension Fund Administrators (PFAs), have also increased their yield on investments of the balance on the Retirement Savings Accounts (RSA), leading to the formation of the Pension Enhancement Programme.

By next month, a multi-fund investment structure for all contributors under the Contributory Pension Scheme will also take off. Under the new fund structure, all active young contributors under 49 years would be under Fund 2, with about 60 to 70 per cent of contributions to be invested in bonds and treasury bills. The balance would go into money market and other instruments.

Fund 3, which is a pre-retirement fund, would be for those in the 50 to 60 years old bracket, with 80 per cent of the funds to be invested in bonds and treasury bill, while the 4th fund would be a retirees fund set aside for those aged 60 years and above.

The introduction of the multi-fund investment structure for Retirement Savings Account (RSA) funds would address the varying risk appetite of contributors, as the different funds are tailored to fit the ages and risk profiles of contributors.

Expanding the scope of allowable investment instruments and fund classes available to contributors would also improve returns on pension funds, as minimal limits have been set for variable income instruments which generally gives higher returns over a given period.”

Apart from boosting returns on pension funds, the initiative would help resolve the challenge of assetliability risk management by pension funds by better aligning the risk return expectations of contributors, better matching of pension assets and liabilities and diversifying pension fund portfolios.

The Acting DG recently revealed that increased pension fund assets now amounts to about N270 billion following enrollment of Contributory Pension Scheme by over 390,000 contributors, from 7.50 million as at March 31, 2017 to 7.90 million as at February 28, 2018.

The commission is also putting in place measures to guard against money laundering by enacting relevant provisions, while plans were on to settle outstanding pension liabilities. The commission has also been working with the government to ensure all outstanding allowances are settled. PenCom served as a member of an Inter-Ministerial Committee that was set up by the President to ascertain the total pension liabilities of the Federal Government under both the CPS and the Defined Benefits Scheme and advise the government on the amount required to be provided in the budget to cover the pension obligation.

In a country where pensioners are owed up to 10 years arrears, pension liabilities have become a huge challenge for Pencom and the government. But somehow, things appear to be falling into place and pension arrears may soon become a thing of the past. The current management has prioritized payment of pension liabilities in a way that retirees need no longer nurse apprehension about life in retirement.

The outstanding accrued rights of federal government employees who retired in 2017 as well as the amount due to those retiring in 2018, have been submitted for appropriation in the 2018 budget, and everything been equal, it is a faith accompli. The acting DG said government was committed to settling outstanding pension liabilities, and this was demonstrated in April 2017 when the federal government released about N54 billion for the payment.

The Acting DG and the management team must be given credit for the fresh energy in the commission. The Acting DG had carefully restructured the management to ensure it delivers on its mandate.

This has no doubt led to some decision considered by some staff of the commission as controversial. For instance, the management has increased the number of General Managers from 10 to 17 while severance pay for staff has been increased by 300 percent. The management also reviewed the earlier recruitment exercise(s) to: ensure compliance with Extant Laws and due process. The action was taken also to ensure recruitment is within approved manpower establishment; and to make provision for required infrastructure to accommodate new appointees.

These developments have not gone down well with some staffers of the commission who criticized the management for alleged insensitivity to the plight of those employed but yet to be absolved by the commission. Some have also condemned the increase in exit pay as going against the current economic realities of the country.

PenCom has also been responsive and flexible. Last month, in response to complaints by retirees that their monthly pension was too meagre to meet their obligation, the commission reviewed the 50 per cent lump sum given to retiree as gratuity through a revised template to Pension Fund Administrators to ensure that the retiree get 50 per cent of his last salary on retirement for some years.

The monthly 50 per cent pension is calculated and deducted from the RSA and the balance is what is paid as gratuity to a retiree as gratuity. What it means is that lump sum as gratuity means low pension while big monthly pension means low gratuity,

The move became necessary following complaints by retirees that their monthly pension was not enough to meet their obligations. Retirees were initially entitled to 50 per cent of their RSA as lump sum (gratuity) after retirement but because of complaints by retirees, PenCom reviewed the template to enable the retiree get 50 per cent of his last salary on retirement as his monthly pension.