Category: Pension

It is one year since the Central Bank of Nigeria (CBN) prohibited pension fund operators from investing in its primary and secondary Open Market Operations (OMO) auctions, OMOBOLA TOLU-KUSIMO writes on the impact.

 

Thirteen months ago, the Central Bank of Nigeria (CBN) prohibited individuals and firms from investing in its primary and secondary Open Market Operations (OMO) auctions.

With the ban, investing in OMO bills became strictly for banks and foreign investors.

Industry analyst said before the ban, Pension Fund Administrators (PFAs) hold significant amount of treasury bills and OMO instrument in their portfolio.

The Nation learnt that PFA’s exposure to equity investment dropped significantly from 9.25 per cent in April 2018, to as low as 4.93 per cent in August 2019.

In the stead, the PFAs invested heavily in Federal Government Securities by over 70 per cent, representing over N7trillion investments monthly.

It was further gathered that as a result, the impact on the PFAs had been minimal, as they deployed the funds more to FGN Securities which include FGN Bonds, Treasury Bills, Sukuk Bonds, Agency Bonds and Green Bonds.

Investment in Foreign Money Market Securities is, however, very low with only 0.15 per cent of the funds in the investment outlet as at last August.

The PFAs have said this is a major area where they could make high yields on investment returns. But they have not been able to invest as much as they would due to the limitations placed by the regulator.

 

Pension fund investment as at June 30, 2020

The total value of pension fund assets based on unaudited valuation reports grew from N10.33 trillion as at First Quarter 2020 to N11.09 trillion as at Second Quarter, 2020, representing a growth of 7.36 per cent.

National Pension Commission (PenCom) Director-General, Mrs. Aisha Dahir-Umar, said the growth was mainly due to market valuation of quoted equities.

She said: “A breakdown of the pension industry portfolio indicated that the pension funds were mainly invested in Federal Government Securities, with an allocation of about 67 per cent of the total pension assets. While FGN Bonds got 57 per cent, Treasury Bills got nine per cent and Sukuk Bonds one per cent. Agency Bonds and Green Bonds, however, got less than one per cent.

“The value of investments in domestic quoted ordinary shares was N524.77 billion, five per cent of total assets under management in the period under review, an increase of N82.82 billion or 18.74 per cent compared to the value of N441.94 billion as at March 31, 2020.

“The increase in the value of investments in domestic quoted equities, was primarily due to the appreciation of some stocks prices during the reporting period, as the Nigerian Stock Exchange All Share Index (NSE-ASI) appreciated by 15.05 per cent from 21,300.47 basis points as at March 31, 2020 to 24,479.22 bps as at June 30, 2020.

“The value of investments in FGN Bonds increased by N706.41 billion or 12.60 per cent, FGN Sukuk by N27.43 billion and Agency Bonds by N0.52 billion, while investments in Treasury Bills decreased by N297.53 billion or 22.58 per cent. The reduction in the value of the Treasury Bills was due to maturities and reallocation to other asset classes, mainly FGN Bonds and other Money Market Securities,” she said.

 

Inflation rate vs yields on FGN securities

The PenCom boss said inflation rate was relatively stable for most of the year but trended up in the last quarter of 2019.

“FGN bonds provided ‘real’ above-inflation returns for most part of the year except in December 2019 when yields on the five-year FGN bond was 11 per cent, while the 264-day Treasury Bills were issued at 6.18 per cent.

“The marginal yields on FGN Bonds Primary Auctions across the five-year and 10-year tenors, averaged 14.50 per cent in Q1 2019; 14.37 per cent in Q2:2019; 14.06 per cent in Q3:2019; and 12.70 per cent in Q4:2019.

“However, in April 2019 the FGN issued a 30-year bond at a marginal yield of 14.80 per cent. The yield on the 30-year bond closed the year at 13 per cent while yield on 364-day Treasury Bills closed at 9.31 per cent as at December 31, 2019,” she noted.

 

Operators view

Meanwhile, to provide better returns on investments for contributors under the Contributory Pension Scheme (CPS), PFAs are seeking the amendment of some sections in the Pension Reform Act 2014 by the National Assembly, in collaboration with PenCom.

They are seeking offshore investments by including securities lending as a permissible investment outlet for the pension industry.

They lament that this area of investment of pension funds outside Nigeria has remained non-operational, with negative long-term implications for contributors.

The operators are, therefore, advocating that in the long term, the mandatory Presidential nod be removed from the Act.

The Managing Director, UBA Pensions Custodian Limited, Bayo Yusuf, in a paper entitled: “Proposed changes for PRA 2014 and Pension industry strategic issues”, stated: “Section 86 and Section 87 (1) give allowance for investment of pension funds outside Nigeria. Section 87(2) of the PRA 2014 notes that the Commission may, subject to subsisting Central Bank of Nigeria (CBN) foreign exchange rules, recommend to the President for approval, portfolio limits for investments of pension funds or assets outside the territory of the Federal Republic of Nigeria.

“We propose inclusion of securities lending as a permissible investment outlet for the industry. This area of investment of pension funds outside Nigeria has remained non- operational, with negative long-term implications for contributors.

“In the long term, we advocate that the mandatory requirement for Presidential assent should be expunged. In the medium term, we believe that it is imperative that PenCom urgently explore this section to benefit Retirement Saving Account (RSA) contributors and for the long-term integrity of the industry by seeking Presidential assent as well as collaborating with the CBN to develop a framework”, he stated.

The Managing Director, Stanbic IBTC Pension Limited, Mr. Eric Fajemisin, said their investment with FGN bonds has not really made them feel much impact with their ban from OMO.

Stating that bond prices and interest rates have an inverse relationship, he noted that it has a guaranteed principal and returns with zero default risk.

He, however, said the high inflation rate, which put at 13 per cent, is not favourable as it makes bond prices to depreciate.

For him, the opportunity for them to invest offshore if allowed, will provide more yields on investment to contributors of the scheme.

The sector witnessed many milestones but activities were also dampened by macroeconomic challenges, Omobola Tolu-Kusimo writes.

 

The year started on a robust note for the pension industry with total assets of the contributory pension scheme (CPS) at N10.43 trillion by January 31, 2020. The fund rose to N11.56 trillion by September 30, gaining N1.13 trillion or 10.83 per cent.

For safety, the funds were invested mainly in Federal Government securities, with an allocation of between 65 per cent and 70 per cent monthly. The investments were favourable to FGN bonds, Treasury Bills, Sukuk bonds, agency bonds and green bonds.

Besides, President Muhammadu Buhari confirmed the Acting Director-General, National Pension Commission (PenCom), Mrs. Aisha Dahir-Umar as substantive helmsman.

The main drawback to the  industry was the disruption from coronavirus pandemic to PenCom and pension operators’ activities.

Although the commission had earlier said payment of monthly pension was not affected by COVID-19, it announced in December 2020 that it is unable to conduct the physical verification/enrolment due to the pandemic.Those affected were employees of Treasury Funded Ministries, Departments and Agencies (MDAs) of the Federal Government due to retire from service between January and December 2021. Plans are however on to ensure seamless conduct of the annual verification and enrolment exercise by the first quarter of next year through an automated process that has just been put in place.

Stakeholders said the COVID-19 lockdown forced pension contributions and remittance down by at least 30 per cent. They stated that the pandemic had serious impact on pension contributions and remittance as most companies could not remit their workers contributions. The full impact according to them, would be determined when businesses fully commenced.

Meanwhile, the Defined Benefits Scheme (DBS) also got a boost with many old pensioners being paid outstanding pensions and gratuities, arrears, pension increase among others, by the Pension Transitional Arrangement Directorate (PTAD).

 

Pension Enhancement

PenCom commenced the year attending to clamour by retirees for pension enhancement given the appreciable growth in their Retirement Savings Account (RSA) on Programme Withdrawal. The Commission then directed Pension Fund Administrators (PFAs) to implement the second edition of the pension enhancement for retirees on Programmed Withdrawal (PW) mode of retirement, having carried out the first edition in 2017. The pension enhancement was for Contributory Pension Scheme (CPS) retirees who have accumulated significant growth in their RSAs and had retired between July 2007 and December 2017.

In the same period, the Commission slammed employers without life insurance for workers and unremitted pension contributions. It directed employees to report any employer that fails to procure the minimum required life insurance policy in their favour not less than three times their annual total emolument and those failing to remit the deducted pension contributions into their RSAs. The Commission directed employees to ensure that all pension contributions deducted from salaries or contributed by employers are remitted to the Pension Fund Custodian (PFC) by the employer not later than seven working days from the date of payment of their salaries.

In May 2020, the commission handed the management of the troubled First Guarantee Pension Limited which it had taken over, to a reconstituted Board of Directors under the Chairmanship of Alhaji Kashim Ibrahim Imam with Hon. Tsegba Terngu, Hon. Ahmed Salik, Dr. Pat Asadu, and Hon. George I. Ozodinobi as members. The Commission had appointed  Interim Management Committee for the troubled PFA in August 2011.

According to PenCom, as at February 26, 2020, only four states and the Federal Capital Territory (FCT) were paying retirees through the CPS. The four states included Lagos, Delta; Kaduna and Osun alongside FCT. These were states funding their workers accrued pension rights and also carrying out actuarial valuations.

 

More reforms

After waiting for 16 years, RSA holders under the pension scheme who are not satisfied with their PFA now have the opportunity of switching their PFA. This came as PenCom  finalised the process that enabled transfer from one PFAs to another. The Commission launch the transfer window entitled: “RSA Transfer System” on November 16, 2020. Since the launch, over 2,100 Retirement Savings Account (RSA) holders have applied to move their pension accounts from their PFAs to new ones.

In 2014, which was 10 years after the implementation of the Contributory Pension Scheme (CPS), the National Assembly repealed the Pension Reform Act of 2004 and enacted the Pension Reform Act (PRA 2014) to address implementation challenges and introduce improvements to the Contributory Pension Scheme. However, some challenges were subsequently encountered in the implementation of certain Sections of the 2014 Act.

In the last three years, there have been persistent clamour for amendment from individuals and interest groups as well as several legislative attempts on the amendment of some Sections of the PRA 2014. PenCom in the light of these developments initiated the process of the review of the PRA 2014 in order to address the identified challenges and public clamour.

In August 2020, the Federal Government released the sum of N14.92 billion for the payment of accrued rights for retirees under the CPS, an amount expected to cover four months arrears.

The accrued pension rights represent an employee’s benefits for the past years of service up to June 2004, when the Pension Reform Act (PRA) that birthed the CPS, came into effect.

In September 2020, PenCom and the National Insurance Commission (NAICOM) signed off the Revised Regulation on Retiree Life Annuity, the Guidelines on Group Life Insurance Policy for Employees and CPS Retiree Pack, after years of internal wrangling among the two agencies of government. The signing ceremony also included the signing of a Memorandum of Understanding between PenCom and NAICOM.

The revised Regulations and Guidelines provided clarity on the provisions of the PRA 2014 in areas relating to Retiree Life Annuity with focus on guiding stakeholders to make informed decision, ensure safety of Retiree Life Annuity funds and assets, address concerns of mis-selling and de-marketing by pension and insurance operators as well as bringing stability into the financial sector of the economy.

Also, in September, micro pension contributors hit 53,827. The 53,827 self-employed persons saving for retirement benefit under the Micro Pension Plan (MPP) since the commencement of the plan in March, last year consequently saved N4. 8 million in their RSAs. This was a major development.

“As this category of workers constitutes the larger percentage of the working population in the country, there is no doubt that to achieve the pension industry’s strategic objective of covering 30 per cent of the working population in Nigeria under the CPS by the end of 2024, efforts should be on deck to extend coverage to this important segment of the economy,” Dahir-Umar said.

In October, the Commission introduced the Data Recapture Exercise (DRE) to obtain complete, accurate and current data of all RSA holders (both active and retired). The Commission was desirous to ensure that RSA holders are able to exercise their rights of transferring their RSAs from one PFA to another. The DRE is a prerequisite for processing any RSA transfer request by RSA holders who registered before July 1, 2019.

Accordingly, PFAs were directed by the Commission to obtain the relevant information required for the DRE from RSA holders and the process is on-going. One of the information required for the exercise is the National Identity Number (NIN).

PTAD, on its part, concluded arrangements to remove 21,227 parastatal pensioners who were on the Directorate’s payroll with effect from October 2020.

Executive Secretary, PTAD, Dr. Chioma Ejikeme said affected parastatal pensioners were those that did not turn up for the Directorate’s 2019 PaPD nationwide and In-House verification exercises.

Also, they neither submitted documentary request for mobile verification nor registered as Diaspora pensioners. The documented Diaspora pensioners and pensioners who requested for mobile verification, but were  not yet verified, have also been added to the documented pensioners pending when it would be convenient for them to be verified.

Meanwhile, pension operators under the umbrella body of Pension Fund Operators Association of Nigeria (PenOp) had not much activity in the year. All the same, it was a mixed year for the pension industry.

 

 

Lagos State has continued to be a trail blazer in pension administration in Nigeria, but Oyo remains the poorest complaint state with a gloomy future for its pensioners. Omobola Tolu-Kusimo writes on the status of implementation of states in the Southwest Zone on the Contributory Pension Scheme (CPS).

The National Pension Commission (PenCom) has released the status of states in the Southwest Zone in the Contributory Pension Scheme (CPS) as at September 2020.

The states, Ekiti, Lagos, Ogun, Ondo, Osun and Oyo, are at various levels of implementation, with Oyo at the lowest level.

Although the Oyo enacted the Law on CPS in 2010, it is yet to establish a Pension Bureau and register public employees under the pension scheme.

The pension status of the state has been low since the administration of the late Governor Ajimobi and it remained so even with the Governor Seyi Makinde Administration.

Makinde is also yet to commence the funding of accrued pension rights, although the state Law provides for the registration with select Pension Fund Administrators (PFAs).

Worse still, the governor is yet to provide the Group Life Insurance Policy for its employees, who yet to commence remittance of pension contributions, conduct actuarial valuation and open Retirement Benefits Bond Redemption Fund Account.

Findings by The Nation further showed that Oyo is owing pensioners N65 billion gratuities and pensions.

On the other hand, in the latest report by PenCom on states’pension status, Lagos has continued to blaze the trail as the most pension compliant state in the country.

The state enacted the law on CPS in 2007 during the Babatunde Fashola Administration.

According to PenCom, the state, however, amended some sections of the Principal Law last year.

It has since established the Pension Bureau and registered employees with PFAs.

Under the Babajide Sanwo-Olu Administration, the state has  been remitting 10 per cent employer and eight per cent employee pension contributions regularly, in compliance with the 18 per cent stipulated by the Pension Reform Act PRA) 2014.

The state, which has conducted the actuarial valuation, is funding accrued pension rights. Recently, it opened Retirement Benefits Bond Redemption Fund Account with two PFAs for state and local governments and has valid Group Life Insurance Policy.

However, according to the report, the only snag is that it has arrears of accrued pension rights.

The Ondo State enacted the law on CPS in 2014, established the Pension Bureau and registered employees with PFAs.

Its Governor Rotimi Akeredolu has been remitting 10 per cent employer and eight per cent employee pension contributions for workers employed from September 2014, in line with amended law (in 2019).

The governor has also provided a valid Group Life Insurance Policy for the public servants.

He has, however, not carried out the actuarial valuation as employees covered under the scheme have no accrued pension rights.

Similarly, Osun State has done well but still needs to do more to ensure good retirement plans for its employees and retirees.

It enacted the law on CPS in 2008 during the administration of former governor Adebisi Akande, established two Pension Bureaus for state and local governments and registered employees with PFAs.

While the state is remitting 7.5 per cent employer and employee pension contributions, the remittances of pension contributions are inconsistent, resulting in arrears.

But the state has conducted actuarial valuation, opened Retirement Benefits Bond Redemption Fund Account with the Central Bank of Nigeria (CBN) and has valid Group Life Insurance Policy.

The state, however, has inadequate funding of Accrued Pension Rights, backlog of unremitted pension contributions and huge arrears of Accrued Pension Rights.

Ekiti State’s status seems fair but it’s not fully compliant with the pension law.

The state under the administration of Dr. Kayode Fayemi amended its pension law in 2017.

Also, the state established Pension Bureau, registered employees with PFAs, is remitting 10 per cent employee, eight per cent employee pension contribution and carried out actuarial valuation.

Meanwhile, Fayemi is yet to open Retirement Benefits Bond Redemption Fund Account with a PFA,  commence funding of Accrued Pension Rights and has failed to provide Group Life Insurance Policy for  civil servants.

Ogun State is not pension compliant and is far from been fair to its employees and retirees.

Although the state enacted Law on CPS in 2008, it amended it in 2013 under the administration of former governor Ibikunle Amosun to extend its transition period.

The state has also established two Pension Bureaus for state and local governments, registered employees with PFAs and is deducting 7.5 per cent employer and 7.5 per cent for employee pension contributions.

Although the amount remitted is below the stipulated 18 per cent stipulated in the Pension Reform Act (PRA) 2014 and remittances have  stopped since 2015, Governor Dapo Abiodun is not doing anything about the situation.

Similarly, Abiodun is yet to conduct actuarial valuation, yet to open Retirement Benefits Bond Redemption Fund Account, commence  Accrued Pension Rights funding and has failed to provide Group Life Insurance Policy.