Effects of inflation and high charges on RSAs
At the Bayero University Class of 1983 graduants re-union on July 27, 2819, I saw aged classmates, in place of the vibrant, youthful and energetic assemblage of the late 1970s that were at the School of General Studies (SGS) as sixtermers or four-termers, and the National Certificate in Education (NCE) holders who joined at Part One. Many are now retirees, pensioners.
While we have been able to retain the value of our friendship a n d camaraderie forged at least 38 years ago (SGS period added), I wondered how the Pension Management entities in Nigeria can preserve the value of the millions of Naira in the Retirement Savings Accounts (RSAs) of my elderly classmates and those of millions of other holders of RSAs. Doing so is as important as saving the money.
Agreed that some of those classmates might have other retirement plans for themselves, the bulk of us were the public service type of Nigerians who worked for low public sector pay, married and had children and other dependents, which constrained our ability to have spare money from the takehome pay after all the usual deductions.
Inflation is the main culprit that can have a corrosive effect on the value of pension cash lodged in the RSAs. In effect, it is theoretically possible, and actually so, for the money saved in RSAs over the span of a working and earning period to buy less goods and services due to rising prices, thus serving its master at the hour of need poorly.
The Central Bank of Nigeria (CBN) wants banks to widen their credit lines and lend more to investors in the real sector, but more spending from the extra credit to consumers of durable goods or leisure spending, can trigger inflation that could fly higher than the rate of returns on RSAs investments. This can force the value of the money in the pension cash pot down, or at best, stagnate. If either of these scenarios plays out, it would be harder for the pensioner to live in "minimum comfort."
The CBN, the National Pension Commission (PenCom) and other key stakeholders involved in running the financial system and management of the overall national economy should jointly evolve strategies to effectively ensure that the value of the money in RSAs is not eroded as a result of uncoordinated policy steps by one or more of them.
One of the basic protections that should be given to pensioners' money is to ensure that it is not excessively eroded by inflation; and that money should equally not be available for Ponzi investment instruments and crypto currency traders. Indeed, the investment guidelines of RSA monies for Pension Fund Administrators and Cusdotians bar them from venturing into such unreliable and unsustainable investment instruments. It is on record that the CBN and the Nigeria Deposit Insurance Corporation (NDIC) have been strongly and consistently warning Nigerians to avoid those dangerous schemes.
Another way through which the value of money in retireepensioners' pot is eroded is by annual administration charges by the Pension Management entities. The higher the percentage charged, the more the erosion will be. The pension fund management entities should tame their quest for excess profit by controlling their appetite for a hefty cut from the RSAs.
"Pension companies and investment professionals invest your contributions to make cash. So you will probably pay them a long list of fees, including an annual management charge (AMC), exit or transfer fees and advice fees," says Laura Whitcombe writing at www.moneywise. co.uk.
Laura continued: "These fees are often given as a percentage and at first glance can seem quite small."
In Nigeria, PenCom's approved fee structure was revised in 2018. The fees range from 1.5 per cent to a maximum of 7.5 per cent and would be reviewed in 2021.
The fees should be reduced.
Another way through which the value of money in retiree-pensioners’ pot is eroded is by annual administration charges by the Pension Management entities. The higher the percentage charged, the more the erosion will be.