The introduction of government-backed securities, policy consistency and sanctity of contracts, have been identified as the basis for investment of the nation’s pension funds in the embattled infrastructure sub-sector.

Also, proper project design and the involvement of relevant government agencies, such as the Infrastructure Concession Commission, Debt Management Office, and Ministry of Justice, among others, would be involved from the conception stage to ensure transparency.

Analysts at the just concluded World Pension Summit – African Special believe it is important to ensure safety of the funds so that the wellbeing of workers after retirement would not be unduly put at risk.

Fiona Stewart, senior financial sector specialist, CGAP/World Bank Group, New York, said the safety of the pension fund was critical and that it must not be used as venture capital.

“You do not take risk with pension funds, so investing the money in any instrument, including infrastructure, must be such that it is designed to enable recoupment,” Stewart said.

Misbahu Yola, chairman, Pension Fund Operators Association of Nigeria, told BusinessDay in an interview that it was government’s responsibility to provide infrastructure and as such government should play a critical role in providing assurance on how the money would be recovered, either through infrastructure bond or a structured programme that guarantees recovery.

“If we cannot see how the money is going to be recovered, we are not going to put in pension money,” he said.

According to him, issues of policy consistency, corporate governance and sanctity of contract must be looked at seriously, while experience could be drawn from the Canadian system, where pension has been judiciously utilised for infrastructure development.

“It can be done in Nigeria. Canadians have done it very well, so we can borrow from them. We have the benefit of the fact that somebody has done it, so we only need to understudy how they did it and replicate same in Nigeria,” Yola said.

Adekunle Hussain, director-general, Lagos State Pension Commission (LASPEC), who was specific on issue of safety, said the huge pension fund must be invested in a manner that it guarantees returns on investment.

“Yes, it is a long-term fund and good for infrastructure development, but we must put an eye on safety, so that we would be in a position to pay pensions as they crystallise,” he said.

The nation’s pension industry underwent transformation through the enactment of the Pension Reform Act 2004, which was recently revised as Pension Bill 2014. The pension assets currently stands at about N4.3 trillion, equal to $27.2 billion, as at March 2014 and grows at over 30 percent annually. It is expected to hit $100 billion by 2024.

From a deficit of about N2 trillion ($12.9 billion) in 2004, Nigeria has in 10 years accumulated pension assets to a record N4.216 trillion, showing some 9 percent of the nation’ old GDP and 5 percent of the rebased figure.

The continuous growth is premised on abundant opportunity in the informal sector which remains untapped, new enrollees, returns on investment, and expansion in the pension net brought about by the Reform Bill 2014 which has increased contribution from 15 percent to 18 percent.

Today, the pension industry has the largest pool of long-term investible funds in Nigeria. It is the largest investor in the capital market combined industry strength, and on the average contributes between 10 and 20 percent of free floating issued shares in the capital market.

“We also have investments in Federal Government bonds, which means government is borrowing money from the pension industry, and in the least we have N3 trillion as an industry,” said Sadiq Mohammed, managing director, ARM Pension Managers Limited.

Mohammed further said the revised pension law would spur increased growth in the pension industry, pointing out that it was a healthy development and one that would address critical issues.

Key amongst them, he noted, was widening of the scope of the pension net, whereby establishments that have up to three employees are now part of the scheme, unlike before when it only covered those with five employees and above.

Another key issue was the increase in contributions from 15 percent to 18 percent, meaning greater benefit for the employee because they would now be getting wider contributions. And if this was done for many years, there would be larger accumulation and sustainability at the point of retirement, he said.

Mohammed said the additional voluntary contributions (AVS) were an underutilised channel for growth in the pension scheme which, if developed, was capable of boosting saving and pension growth.

Source: Businessday
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