Queues for payment of pensions have disappeared under Contributory Pension Scheme
Every one of us, no matter what your income is, when you retire, you would need a form of security to take care of you.
In this interview, Wilson Ideva, Managing Director and CEO, Premium Pension Limited, provides insights on the key achievements, outlook and challenges of the Nigerian pension industry.
Financial Nigeria: What do you consider the key achievements of the Pension industry reform in Nigeria?
Wilson Ideva: Thank you so much. One of the key accomplishments of the Contributory Pension Scheme (CPS) in Nigeria is that the long queues that we used to see before this reform have shrunk. It is not that people are not retiring or being paid pension, but the stress of people queuing up for verification year-in year-out is now a thing of the past. All the people that are retiring under the CPS would have done their verification with the National Pension Commission (PenCom) six months before retirement. Once they retire, they meet their Pension Fund Administrators (PFAs); the PFAs agree with them on their mode of payment, and then documents are exchanged. Thereafter, pension payments become seamless. No matter where you are located, you get your payment when due once you have agreed with your PFA.
You don't have to do any other verification after the first verification you do before retiring. That is one of the first accomplishments of this scheme. So I would start my assessment with the fact that retirement has been a bit stress-free. People are collecting their money as and when due. For us at Premium Pension, our date for payment of our retirees is the 19th of every month. On the 19th, we have about 18,560 retirees that get their payment. Wherever you are, you can go to an ATM and withdraw your money.
The other accomplishment is we are in a country where the savings culture is not well-developed. But the pension scheme provides a form of mandatory savings. Once you are under CPS, you are contributing and your employer is also contributing. So you are forced to save. With this, we have been able to accumulate a pool of funds. As you are aware, there is close to N6 trillion as we speak. If you look at the deployment of these funds, you would see that over 60 per cent is deployed on government instruments. This means that some of the projects we see government doing, whether at the state or federal level, much of the funds for those projects are from pension assets. If we didn't have this reform, this source of funding for government projects would not have been there. For me, we are playing a major role in helping government meet its obligations.
The third accomplishment of the CPS is that it has created employment for a teeming population of Nigerians. As we speak, there are over 30 players, comprising of PFAs, PFCs (Pension Fund Custodians), and Closed PFAs. The big PFAs have over 400 staff each, the smaller ones have about 100 to 150 staff. So you have about 6,000 people who would not have had employment without the scheme.
Another positive development with the scheme is that in the past, pension was equal to tension. People who lost their loved ones in the course of an employment had to move from pillar to post before they got whatever was due to them. But one of the requirements of the CPS is that employers are required to have a group life insurance for their employees. So in the event of the death of an employee in the course of service, whether in the public or private sector, the benefit of group life insurance is paid into his Retirement Savings Account (RSA). The total amount in the RSA is paid to the next of kin or to the beneficiaries of the estate.
So these are some of the things the CPS has done. It might be very silent, but it is quite revolutionary in nature. And I think it is something that is worth applauding.
FN: What is your short- to medium-term outlook for the Pension industry, as well as for Premium Pension, and how is the current economic downturn in the country likely to impact the industry?
WI: Since we are part of the economy, the industry is also affected. But as long as salaries are being paid by both the private and public sectors, pensions for Nigerian
workers are also being paid. For as long as this continues, it means that in the shortterm, the industry would really not be greatly affected by the economic difficulties.
However, due to high inflation, which was at 17.1 per cent in July, you might say the real value of pension assets is also being threatened. But you also know that the rate of returns in the economy is very high. Bank placement now is averaging 16-17 per cent, so there is a bit of cushion on the pension assets. The returns on Treasury bills are also high. The TBs are going for 17 per cent with an effective yield of over 20 per cent. In the nutshell, that is above inflation so I can say pension assets are not losing value.
Nigeria has a population of 170 million Nigerians. However, we currently have seven million plus that have enrolled in the pension scheme. But all the other Nigerians who are struggling in different endeavours will also retire someday, whether retirement from formal work or because of age, and they would need to be maintained. The era in Nigeria where people depended on their children has changed. 20 years ago, if you trained your children, you would rest assured that they would take care of you when they start working. But the reality today is that the children have to grapple with so many things themselves. They are starting life and there is a high demand on their income.
Every one of us, no matter what your income is, when you retire, you would need a form of security to take care of you. In the medium term, we are seeing a situation where the informal sector may become a major player in the industry. We need to encourage them to take part in the CPS because whether they like it or not, someday they will be old and they would need some form of security. The only form of security today is your pension.
I think the industry in the medium and long term should try to bring the informal sector into the pension scheme. This will lead to a huge expansion of assets in the industry. From our survey, the people in the informal sector are about 60 million. So if this people are brought into the scheme, and with a bit of education, they would realise they need to save for the rainy day. We are working with the regulator to see how this group of people can be brought into the scheme. I believe it is something that is achievable, a lot of countries have done it. In the past, people relied on schemes like what is called Susu. But those saving schemes are not formalized. So all we need is provide a little more education about the CPS.
Over the long term, I can see the pension industry playing a major role in this country. If in 10 years we have been able to accumulate total assets under management close to N6 trillion, it means that in the next 10 years and with additional funds coming in, we might be able to play a major role in terms of the contribution to the economic development of the country. Supposing in the next 10 years, we have over N15 trillion in pension assets – which is not impossible, it
For us at Premium Pension, our date for payment of our retirees is the 19th of every month. On the 19th, we have about 18,560 retirees that get their payment. Wherever you are, you can go to an ATM and withdraw your money.
means that government does not need to look elsewhere to seek cheaper funds for development. That is where we will see the industry growing and playing a major role in the economic development of this country. We also think that in the long term, you might see a bridge and under it would be written: “This bridge was built by pension assets.” Or you might see a major road and somewhere it would be written: “This road was constructed with pension assets.” This is what we think would happen.
FN: What are the challenges stakeholders in the pension industry must overcome for the industry to continue to grow its assets and have wider impacts on Nigerian investment.
WI: One of the challenges we are facing now is the level of compliance. Some people don't remit the pensions of their staff. But PenCom is currently carrying out enforcement. If there is an employer that has over three staff and is not complying with the Pension Reform Act, and this comes to the attention of PenCom, the regulator will send enforcement officers to ensure the employer complies with the law. But we also believe that with a bit of education, people would know that if you pay the pensions of your staff, you are also guaranteeing the security of their employment with you. Whether you realise it or not, you are encouraging loyalty to yourself as the employer.
The other challenge we are faced with is the cost of doing business. As an industry, we have to open offices, we have to open branches and the cost is quite enormous. So we have a lot of costs that we have to incur including paying the personnel we employ.
Also we have had to continuously educate people on the difference between CPS and Defined Benefit Scheme. There are people who still believe that pension as an industry can never work, because of what had happened in the past under the old scheme. But under the CPS, which is about 12 years old now, there has not been any known fraud. The way it is structure, there won't be any fraud because you need to have collaboration between a PFA and a PFC for there to be fraud. The two establishments have to agree along with the involvement of PenCom. But then we do what we call daily valuation of portfolio.
Despite these measures put in place to prevent fraud, we have to continue to explain the difference between the CPS and DBS schemes, which by the way is being harmonized under the Pension Transitional Arrangement Directorate. It is still a challenge and I think it will take time before people begin to see that these two schemes are quite distinct and different and the institutions are not the same.
There seems to be lack of knowledge on the operations of the Contributory Pension Scheme. When people hear that you have N6 trillion in the pension industry, they think the money is sitting in somebody's account. If they only knew how transparent the scheme has been designed to run, and it is running smoothly, the level of compliance would have been far better than what it is today. These are some of the challenges we are having.
Also, in a world of advancements in ICT, our IT departments have to be up to speed. As an operator, I need to compete with other players in the industry. I need to have the latest servers, I need to have so many gadgets and these are quite expensive which is why I said the operating cost is a major challenge.