Suleiman: Contributory Pension Scheme is Facing Challenges
The Managing Director, Future Unity Glanvils Pension Limited, Usman Suileman, spoke with Ebere Nwoji on the impact of economic recession, which has resulted in job cuts by pension fund administrators, government’s efforts to address the challenges, and hi
Crystal-balling the pension industry in 2017, what are the expectations?
2017 is a crucial year for various reasons; the economic situation has been very difficult 18 months. The recession has persisted beyond expectation. However, from all indications, we expect that the economy will stabilise and recovery turn around will commence over the next 18 months.
The year, 2017, is therefore, a crucial year for economic managers and business entities. The recession has meant that the rate of growth in employment generation has gone down significantly while the rate of job losses has gone up in the same manner. This has impacted negatively on our industry. However, there are quite a number of initiatives that the industry is working on. These include bringing the informal sector and micro pension into the scheme. In addition to that, there is a very high possibility that the transfer window will be opened towards the end of this year and these are going to make substantial differences.
Actually, the industry expects the commencement of the micro pension to frog-jump participation in the contributory pension scheme. We are looking at moving from six million account holders to a minimum of 20million over the next three years and the key is the micro pension and the integration of informal sector.
Investment of pension funds in infrastructure has been a contentious issue to date, what are the headwinds holding back the implementation?
As far as we are concerned, there are no contentious issues because issues that are there are clear. We are not project managers we are fund managers specifically pension funds managers. We have the funds; we are ready and willing to invest the funds. We are actually looking for assets to invest in and infrastructure is a major and interesting asset class. However, we have to have projects that are well structured and meeting all the regulatory requirements as well as our own individual internal requirements before we can invest. The structure will have to provide us with safety, security, liquidity, competitive returns and acceptable exit route. Both the operators and the regulator have been encouraging project managers, fund sponsors, investment promoters and other stakeholders to come up with vehicles that will qualify for these funds. We are anxiously looking for such vehicles.
I’m glad to say that there are some of the fund managers, private equity funds, project managers, and promoters who, in recent times, have been working very hard both locally and in partnership with other foreign interested parties trying to come up with various infrastructure projects that will qualify for pension funds. These are in the areas of transport, power, and urban regeneration and so on. Projects such as the Oshodi Interchange Centre, trailer park on the Snake Island, east-West railway line, the fourth mainland bridge, and various captive power plants are good candidates if well packaged.
There are various project promoters that are working to come up with specific projects or vehicles that will meet Securities and Exchange Commission, SEC, and the National Pension Commission, PenCom, requirements such that they will be able to access these funds. And for us, once an infrastructure project meets the regulatory requirements as well locally and internationally accepted standards which are common and known, we will be ready to fund it. These funds are supposed to be invested long term and serving the dual purposes of safety and security for the contributors and economic development of the country.
In the same vein, Transfer Window and micro pension are also hanging in the balance, what is responsible for delayed take-off?
Basically, the issues of structuring the process such that you do not have problems down the line. On the Transfer Window, for instance, we want to be sure that technology is right, the process is right and all the parties involved and particularly the central clearing system is correct and right and every party involved on the same page. This is not an easy thing to do; it involves a lot of resources. But I can tell you we are aware that the regulators have been working very hard on that.
In recent times a lot of headways have been made by PenCom in getting the technology and process in place and I strongly believe that in not too distant future we will see the transfer window structure in place. As for the micro pension, it is very peculiar, the guidelines we have at present are all looking at a formal structure but the micro pension requires an informal structure.
The informal pension which consist of grass root traders and occupations such as vulcanisers, the Okada riders, farmers cooperatives and all sorts of artisans who live on what they get on daily bases and cannot see any need for saving. On the other hand, we have the micro segments that are not necessarily micro in terms of value of resources but in terms of personnel and involvement.
For instance, you could have a blogger sitting in his living room his site or blog, he is a single individual operating from his own home but because what he is doing is interesting to the public, he could have a high volume of traffic to the site. That means a huge attraction to advertisers. Advertisement agents and corporate bodies will be interested in what he is doing because of the volume of viewership; hence he will be making huge sums of money. The micro and the informal sectors actually provide between 70 and 75per cent employment in this country. They also need to be secured in old age and as FUG would say, be assured of a brighter future. We are therefore trying to create a net that will capture all of them.
Given the state of our economy, the inflationary trend and high cost of doing business in Nigeria, is the current capital regime of one billion naira adequate for PFAs to provide quality services customers?
First of all, the capital base you mention is the regulatory minimum requirement. However in reality, virtually all the operators in this industry are operating above it. I accept that any new entrant into this business today starting from scratch will likely find one billion to be very inadequate to start up. For existing operators however, there is no problem at all with this. This is because they have already acquired all the regulatory required assets for the business. It only becomes an issue if they want to go beyond the minimum requirement. FUG Pensions, for instance, we want to always be at the cutting edge and that is why we always upgrade our operation. At present, we are in the process of replacing our G7 servers with G9 which is the top of the game presently. This requires resources beyond the minimum. I will expect our competitors to be working in the same line. Of course, the regulator has requirements for provision of certain IT and non IT facilities. If N1billion cannot provide these, then you certainly have to go beyond that.
Given the government’s attitude in paying the pension accruals, is the Contributory Pension Scheme not under threat?
I will not say the contributory pension scheme is under threat but I would say is facing some challenges. However these challenges have actually been recognised by the regulator, the operators and government including the national assembly. For obvious reasons, the government may not be in a position to be funding its pension liabilities as required. We are not talking about current and the ongoing, but the accrued which the government is expected to be funding at about 5per cent of the budgetary provision of the current wage bill.
From the retirement bond redemption fund account, the commission will be funding the accrued right of those who are retiring. That is where the challenge is. But I believe the government recognises that and trying to balance the various competing demands across all sectors of the economy and the public service. And is not as if government is not funding at all but is not funding to the extent will meet the obligations as they arise. The key thing is that the challenge is recognised by government and I’m sure they are working on how to ameliorate the situation. So I will not say the scheme is under any threat.
The private sector is not so challenging as you said, but due to the circumstances of the economy, the private sector is facing a lot of difficulties. But as long as they are paying salaries, they will pay pension. The challenge is the delay in payment of salaries and the down turn in the employment itself. The growth rate of employment has come down. Not too many firms are employing, firms employ only when it’s absolutely necessary except perhaps for the high tech firms where certain types of skills are needed. Firms are also downsizing and as such, growth in pension funds will not be at the same pace as it was in the earlier period.
Also, we now have a higher rate of pay-out because those who are laid off would come along to ask for 25per cent of the balances in their account if they fail to get job after four months as stipulated in the PRA. And they are not likely to get jobs within the period of four months but for those who remain in employment and salaries are being paid, pension will be remitted. There might be no salary increment and promotions in a lot of places but salaries, when paid, remittances are made. The difference with the state government is that they don’t pay salaries regularly and when it accumulates, they find a means of support by way of bail out or some kind of support from the federal government before they pay. So in such a situation, remittance is affected. For the private sector, I will say that those at the first tier of the market, the multinationals and major corporates don’t fail in remittances. They have also come to understand that the Contributory Pension Scheme has lifted a huge burden off them, the burden of providing for or finding money to pay end of service benefits as used to be the case.
The recession has now bottomed out. The negative GDP growth reported in quarter four 2016 is lower than the two earlier quarters and the average for the whole year is just minus 1.2%. We should therefore expect to
start seeing positive GDP growth from quarter one 2017. I will say that with this expectation of stabilisation and recovery of the economy, there should be an improvement of this situation you mentioned. Even as we are talking about recession, foreign investors still have much faith and hope in this economy otherwise the one billion dollar Eurobond issuance by the Debt Management Office would not have been actualised. The bond was not just fully subscribed but in fact eight times oversubscribed. You can’t have an expression of investor confidence in an economy more than this. There is also stability in the political system, control of the militancy in the Niger Delta, stabilisation of the insurgency in the North East, etc. These are giving investors and us hope and confidence in the economy. If local firms see that foreign investors are investing in this economy, they too will be encouraged and the economy will back on the high growth track. For us that will mean employment generation and business growth.
Ten years of uninterrupted operations, how do you feel about it and what have been the challenges?
It has been quite challenging but interesting journey. When we came in June 2007, we had already lost the advantage of being early movers in the market. The market then was basically a public sector market, comprising of federal ministries, departments and agencies. These had already been taken by the earlier licensees. Then you have the organised private sector with few multi nationals and major corporates and these had also been taken. Effectively meaning that we had to come up with strategies and be ready to face challenges of creating business in the middle and the lower segments of the market. So it was quite tough, challenging but from day one, we had determined that we would survive and we would succeed. I am delighted to say that the result is what you are seeing today.
In numeric terms, could you furnish us with growth achievements within the period under review?
Within that period, we had to move from a zero level in 2007 to above N52 billion in Assets under Management and we also moved from reporting annual losses and accumulating those loses to being a profitable company. I am glad to say that in 2016 for example, we had achieved a Profit before Tax of over N240million.
What is the volume of assets under your management, number of RSA holders as well as retiree accounts and the company’s net worth including its capital base?
The number of the Retirement Savings Accounts, RSA, holders is about 115,000 comprising both the active and the retirees’ accounts. We have a paid up share capital of N1.5Billion. This is 50% above the required statutory minimum.
Just done the first 10 years, what are your growth plans for another 10 years?
In the first 10 years, our vision was to be the most trusted pension firm in this industry, and our mission was to achieve competitive returns for our clients. I’m happy to say that over the past 10 years, we have actually been able to achieve that. We are indeed, a highly trusted firm within the industry and among all stakeholders, our clients, our regulators and competitors. We have also, not only been able to achieve competitive returns on investments, we have actually been achieving returns at the upper echelon of the market.
Over the past three years, returns on our RSA fund have not gone below the top three in the industry. Hence we decided that for the next ten years, our mission is to achieve outstanding returns on investment and efficient benefit administration for our clients by employing world class management expertise and technology. This is our current mission, while the vision remains to be the most trusted and also the pension fund administrator of choice.
How do you determine that we are the most trusted and the PFA of choice in the market? The answer is that we definitely survived the first 10 years as an entity in spite of all odds and when we meet in the market, you see FUG, being the choice of the prospective clients, we have now repositioned ourselves for the next 10 years. In that period, we are not only looking at achieving further growth and being the most trusted pension funds administrator, we are also looking at breaking into the top most echelon of this market. By the end of next 10 years, we wouldn’t want to see ourselves anywhere below the top five PFAs in this industry.
All pension fund administrators are selling a mono-product to customers, what would you say is your cutting edge?
The license itself specifically states that we are to do only pension fund administration business. Yes, it is a mono- product business and it is the same product we are all selling but the differentiation is in terms of one; the delivery, two; the customer services and three the returns on investment. And these three are actually our core areas of competence. We are also guided by our core values of Trust; Integrity; Prudence and Partnership which differentiate us from others. In addition, we try to look at the market, segment it, and see where we have comparative advantages, move into those areas and put across the most excellent service available in the industry.
In fact, we are not only trying to ensure that we meet the regulatory requirements in terms of service, but indeed, to assess ourselves with and match the best globally. That was why we voluntarily went for ISO certification and maintaining it to ensure that service delivery is a core element in our focus. We are certified and can stand shoulder to shoulder with the global best as far as quality management system is concerned. So service excellence and outstanding returns on investment are what differentiate us in this competition.
Do you consider merger consummation or an acquisition of smaller PFA to expand your operations and provide better services to customers?
Now, the industry is tending towards that direction by virtue of the fact that clients are becoming more perceptive and therefore more demanding. The competition is becoming tougher. Ultimately, it is only those who understand the market and have strategies of providing the best possible service and returns that will survive. This effectively means, therefore, that in due course, you will see different forms of business combinations being consummated. For us as FUG Pensions, we’ll continue in our determination to survive as an entity. However, because of our growth objectives that I have mentioned earlier, we are not looking at growing vertically or organically only, but also horizontally by acquisitions. We therefore are not precluding what you have said of looking at the opportunities of acquiring competitors into our business. Acquisition can take all sorts of forms but the basic goal is the growth of the business and survival as an entity with a very clear identity, the identity of FUG Pensions.