Today, we will be talking about the challenges and future of Nigeria’s pension industry. Nigeria does not rate very highly when compared to other developing nations due to our size as the most populous nation in Africa, or the length of time Nigeria has had a well-structured pensions
industry, which is about 11 years. When certain parameters are used to measure comparison such as size of pension funds as a proportion of the Gross Domestic Product, Nigerian does not rank very high. In terms of
pension fund assets as proportion of GDP South Africa stands at 87.96 per cent; Namibia, 77.03 per cent; Botswana, 40.05 per cent; Kenya, 13.25 per cent; Ghana, 5.35 per cent; and Nigeria, 5.06 per cent.

PenOp is very mindful of the fact that a lot of Nigerians focus on
today and do not pay much attention to how they will fare in old age or how they will cater for their loved ones when they retire. This way of thinking coupled with the bad perception of pensions due the mismanagement that plagued the old system means we have our work cut out for us as an association in raising the awareness of the safety of the
CPS and importance of pensions to all Nigerian workers and this we are tackling head on through forums, social media, the print media.

Voluntary contributions are not driven just by hammering on the
importance of savings and an ability to put extra part from what is demanded by law, but with the current awareness levels being what it is and also taking into consideration the challenges of getting employers/employees to comply with the mandatory contribution, the voluntary contributions are not very high. Figures received from PenCom
indicate that they currently stand at approximately 0.24 per cent of the total pension assets under management. This figure will change once the informal sector is fully engaged in the CPS.

We know that many companies have failed to comply with the Pension
Reform Act even after deducting from employee salaries, and this has been a major drawback. The failure of the defaulting companies as one of the many problems hampering the progress of the organization. The PRA
2014 states that it is mandatory for any employer with three or more employees we are trying to keep track, and the regulatory body responsible for enforcing compliance is PenCom, who are dedicated to this task. The PRA 2014 has also clearly spelt out penalties for defaulting employers which PenCom enforces. It is important to point out
however, that employees of such employers, who either deduct and do not remit to their employees RSA or do not deduct at all, have recourse.

They must be proactive by sending details of their employers contact
address (anonymously if they so wish) to PenCom’s compliance
department and also to their PFAs to follow up and ensure their
employers are forced to comply with the law.

Another area where there have been concerns is the investment of the pension funds. Capital market operators have lamented that pension fund administrators have refused to seriously invest in equities. Though PFAs take their role as fiduciaries of other people’s savings extremely
seriously which is why they are guided by what we call the “Trifecta” – safety, liquidity, then returns. PE offers higher returns but higher risks too. Note that we are not averse to investing in equities; however, we will only do such investments through safe instruments or
vehicles. We must see that there is a very clear path of getting
invested capital back, plus a fair return. Our mantra has always been safety first, followed by liquidity and return. Remember that retirees will be paid with cash, not brick or mortar. There is need for some kind of credit enhancement to make the investments more attractive. This could come by way of partial or full guarantee of say, the Federal Government of Nigeria. The current PenCom guidelines have widened the
playing field by allowing for investment in many alternative asset classes, including Private Equity, infrastructure bonds/funds, mortgage backed securities etc, so there is a diversified range of assets we can
invest in. The challenge is the quality of the available proposals. We emphasise safety and liquidity over return. The way the pension system is set up under the new Scheme – Contributory Pension Scheme, there
are many checks and balances put in place as measures to ensure the
safety of the funds. For instance, the PFAs never have direct access to the funds contributed. These are held with the pension fund custodians
who have the guaranteed backing of four of the biggest and well
established banks in the country namely First PFC, Zenith PFC, Diamond PFC and UBA PFC.
The Custodians transact based on the instructions of the PFAs and in line with regulations/guidelines set by PenCom. PenCom on the other hand
monitors very closely the transactions made on pension funds and have set out strict guidelines on investment that further ensure the safety and relative liquidity of the funds.

In recent times the savings culture of Nigerians has improved. There is still a long way to go as we can be quite myopic sometimes and choose not to focus too far in future hoping that it will take care of itself.
Savings can greatly be encouraged through education in pensions and
retirement planning as well as a boost in salary because it is when you have excess left that you truly say something meaningful. This highlights the
importance of the CPS even more because it makes saving for the future mandatory so whether you like it or not, you can expect a pension when you retire. You may not appreciate the mandatory nature of the scheme now but having a steady source of income from savings is usually a great
feeling as attested to by most of our retirees.

PenOp is naturally focusing on how to improve Nigeria’s pensions
industry through efforts that enhance service excellence and capacity building as well educating the general populace. To achieve this, PenOp has played a very active role in driving legislation that has made Pensions more inclusive for Nigerians ie from employers of five or more employees to now employers of three or more employees. PenOp is also active on social media driving the conversation with Nigerian workers, answering their questions and educating them on how the CPS works, processes involved and importance of Pensions. There is a lot of
misinformation and mistrust still existing and we are tirelessly
addressing peoples’ concerns. As the CPS will include the informal
sector shortly, it is essential that the Operators front office staff and operations staff are well trained and PenOp has organised trainings in Abuja, Lagos and Port Harcourt to improve and ensure the standard of
service being provided by all Operators is in line with International Best Practices. PenOp has also organised extensive trainings in investment of pension funds and risk management all aimed at service
excellence. We have also held fora in conjunction with key stakeholders like NECA and PenCom to educate them on the implications of the PRA 2014
on employers and employees alike. Information is Power thus we seek to empower Nigerian workers by keeping them informed enough to make wise decisions regarding the financial security of themselves and their loved ones.

There are a few main concerns for the industry: one, compliance with
the law has been waning; rate of enrolment into the CPS has slowed down.

Current enrolment stands at 6.5 million out of a population of 170
million. How can we get traction in compliance and thereby raise the number of contributors to say 20 million in the next three-five years?

Two, funding of registered RSAs is becoming a challenge for many
employers. Three, while our investments have been safe and returned reasonably above inflation in the past, inflation is rising and with currency devaluation, real return on investments is threatened, and four, general awareness on the importance of pensions among Nigerian workers.

We would definitely consider the young vibrant population of workers that have their whole careers and lives ahead of them a definite strength for the pensions industry as they represent a pool of funds that can be invested for economic growth. Also, the highly regulated and supervised Contributory Pension Scheme which ensures Nigerian workers can trust the system and more importantly can retire in peace and financial stability whilst maintaining a decent standard of living.

Finally, the drive of the operators to ensure people’s savings are managed and administered at international best standards so there will be no repeat of the old scheme is a definite strength for the Nigerian pension industry.


http://www.naijanewsrave.com/the-challenges-and-future-of-nigerias-pension-industry/

Lalasticlala,ishilove can we push this to fp?

Life after service used to be one of the biggest fears of most Nigerian workers in years past especially those working in the formal sector with bitter tales from their retired colleagues over delayed and sometimes non-payment of both gratuity and pensions.

Mr. Williams Ochidi, a retiree from federal civil service living in Abuja, while comparing his pension experience now with that of his senior colleagues before the pension scheme reforms said, life is far better now under the reformed scheme than what it used to be.

“It got to a time during the Abacha’s time to Obasanjo’s first regime when I was virtually taking care of my retired brothers’ families because of many months of non-payment of their pensions which was a reoccurring decimal then. My eldest brother was a retired military man while his immediate junior retired from federal civil service just like me. Each time I help them or when they cry to me for financial help, I will almost have heart attack, not because of their problem then, but because of fear that I might be in their shoes when I retire,” he said.

Mr. Ochidi who said he lost his eldest brother to accident while on his way for pension verification exercise which was a yearly drill in the past for retirees’ especially ex-service men said, “I still remember when these retirees are left under the weather for long hours and sometimes for days on queue before collecting their pensions. During those days, some pensioners died while standing in queue under the inclement weather just to collect their pension.”

One of the issues around pension scheme in the past was that civil servants bore no direct responsibility by way of payroll tax for the provision of pension, instead pension benefits were paid through budgetary allocations which are kept in consolidated revenue fund. More often than none, the actual appropriation for pension payment are not released to serve its purpose.