The Nation Newspaper

Category: Pension

  • U.S. public pension funds slowly wake up to risk

    THE United State public pension funds are cutting investment return assumptions because of years of zero interest rate policies. They also changing how they manage risk to avoid a repeat of the damage caused by the financial crisis.

    The growing recognition that short-term volatility can have a devastating impact on mature pension plans in the $4 trillion sector could herald a sea of change in the way public funds are invested in the future.

    Since the 2008 financial crisis about two-thirds of the 126 funds tracked by the National Association of State Retirement Administrators have lowered their expected return targets. The average expected return stands at 7.68 per cent versus 8 percent in 2008.

    The financial crisis has left a hole in public pension funds. The average state pension fund has around 80 per cent of the assets it needs to meet its liabilities, according to a 2015 survey by Wilshire Consulting, down from 95 per cent in 2007.

    Perhaps the biggest confirmation of the move to cut back on risk within the U.S. public pension sector may come from the California Public Employees’ Retirement System, the largest public pension fund with $300 billion in assets under management.

    Calpers is considering cutting its expected rate of returns in years following strong investment gains and adjusting its portfolio to reflect those lower return assumptions. The move would essentially cut back on exposure to higher-yielding, but riskier assets as the plan improves its funding levels. It is similar to the liability-driven investing glide path models used by corporate plans. Its use is all but unheard of in the U.S. public pension sector. Such a move, which is yet to be adopted by the Calpers board, would follow recent announcements that the pension fund is cutting back its public equity exposure and raising its fixed-income holdings in addition to eliminating investments in hedge funds.

    “There is this shift to recognizing that risk is a relevant piece of the discussion, it’s not just about how you get the highest returns over a long period of time, but that short-term fluctuations in asset levels can be incredibly detrimental,” said Tamara Burden, an actuary at consulting firm Milliman. On aggregate about 70 per cent of the sector’s assets are invested in equities and other so-called risk assets, according to CEM Benchmarking.

    Others funds, such as California’s San Bernardino County Employees’ Retirement Association and the Teacher Retirement System of Texas, are using options and more active fund management to insulate portfolios from the kind of damaging volatility experienced in August. Burden is seeking to persuade public pension managers to use Milliman’s risk management strategy to reduce equity exposure in portfolios by shorting stock index futures. This means they don’t have to sell their fund’s equity holdings.

    The strategy is being applied to about $70 billion in portfolios with variable annuities, retail mutual funds and collective investment trusts used by 401(k) plans, but so far not in the public pension sector.

    Interest, Burden said, has increased this year with about 15 public pension administrators considering a shift versus five during the same period last year. That could also be due to Milliman’s more active marketing campaign.

     

     

     

  • Employees, retirees advised to engage PFAs

    Employees, retirees advised to engage PFAs

    Employees and retirees under the Contributory Pension Scheme (CPS) have been advised to always engage their pension fund operators on returns on  their contribution.

    The Managing Director, Premium Pension Ltd, Wilson Ideva, who gave the advice in Abuja, said this is important so that they could keep a tab on what is happening to their savings.

    Pension Fund Operators (PFAs) have been duly licensed to open Retirement Savings Account (RSA) for employees, invest and manage their pension funds.

    Ideva also urged employees and retirees to check and verify their monthly RSA statement sent to them by their PFAs.

    He noted that a lot of people don’t check their statements neither do they engage their PFAs on the returns earned from the pension investment.

    He said the CPS has gained public confidence in the past 10 years.

    He said: “There is no doubt that CPS has gained public confidence and acceptability. As at June 30 this year, 6.63 million employees from both the Public and Private Sectors have opened RSAs.

    “The Scheme has accumulated over five trillion naira worth of pension assets over the same period with a monthly inflow of about N30 billion and an average of 30 per cent annual growth rate.

    “The CPS has grown tremendously to the point that what we are looking at now are measures of the next level for the industry, which is harmonising best practices across African continent. The kind of measure that you are sure of, what you are going to meet when you retire.”

    He pointed out that the growth achieved by operators in the past 10 years has posed new challenges to pension operators.

    According to him, the challenges include profitable investment, service delivery and harmonisation of service delivery.

    He said operators are going to address these challenges as they learn from other countries in other to build a pension industry that will be an envy of other countries.

  •  Obamacare not spurring early retirements yet despite predictions

    The Affordable Care Act is doing plenty of good for older Americans, but one thing it is not doing is convincing them to retire early.

    One prediction of the impact of the healthcare law, commonly known as Obamacare, was that the ACA would end “job lock” – the phenomenon of workers hanging onto jobs just for the health insurance while waiting to become eligible for Medicare at age 65.

    Instead, the ACA’s guaranteed issue of insurance would let them leave the world of full-time work for more flexible self-employment, start businesses or launch encore careers – or just retire.

    A 2013 study by the Urban Institute’s Health Policy Center and Georgetown University’s Health Policy Institute, for instance, forecast that health reform would boost the number of self-employed people by 1.5 million.

    But new research shows the ACA has not turned the job-lock key – at least not yet. A team of University of Michigan researchers studied Census Bureau employment data for 2014 – the first full year of the law’s implementation – and found no evidence of a higher rate of retirement, or a shift to part-time work, for Americans age 55 to 64.

    “We looked for it. In fact we really looked hard for it,” said Helen Levy, a research associate professor at the University of Michigan’s Institute for Social Research. “This just hasn’t been the labor supply Armageddon some were predicting.”

    Still, the ACA has had an enormous, positive impact on older Americans.

     

    • Culled from Reuters
  • Rule of law, others key to pension reform in Africa

    Rule of law, others key to pension reform in Africa

    A favourable business and investment climate that include effective enforcement of rule of law, creation of predictable, stable, transparent, fair and reliable business regulation and supervision by African governments will boost reform and development in the continent’s pension systems, a report on West Africa Pension System has shown.

    The report was unveiled during the pension summit in Abuja by Director of Regulations, National Pensions Regulatory Authority (NPRA) Ghana, Ernest Amartey-Vondee during a presentation on ‘Reform and Developments in African Pension Systems (Regional Report for West Africa)’. It analysed features of West African region Pension Scheme of Nigeria, Ghana, Sierra Leone, Liberia and Gambia.

    The report, which highlighted features of West African National Pension Schemes, analysed other ways to develop pension system in the continent. African government, it said, must promote an effective framework for fair competition and sound corporate governance while investment opportunities should enable the pension fund to earn returns commensurate to the risks they take.

    On the way forward for Africa pensions, the report said there is need for operational autonomy and financial independence for pension regulators.

    There must also be provision of resources, including adequate financial, human and other resources for pension regulators, while vigorous efforts should be put in place to extend coverage for pensions to the large informal sector of the economy.

    According to the report, there is need for consistent training for private sector pension service providers; for instance, custody services, effective pension fund management, to enhance skills for Trusteeship and the formation of an Association of Pension Regulators in West Africa to share experiences and ideas on effective pension’s regulation.

    It was, however, envisaged that the various pension reforms would enhance pension benefits and increase retirement income security for both formal and informal sector workers.

    The report further read: “The reform is expected to potentially make available a large pool of long-term funds for investment in the economy, and consequently lead to national economic development.

    “Effective supervision of pension funds is becoming ever more important and even more complex, and the Pension Regulators must be appropriately and adequately resourced to carry out its mandate effectively. A congenial investment environment must be also created by policymakers to make long-term investments by pension funds attractive, and also thrive.”

    Based on general observation of the report, pension funds, due to the long-term nature of their liabilities, represent a potentially major source of long-term financing, even for illiquid assets such as infrastructure, SME financing, among others, leading to sustainable growth.

    As a result of their immense size, pension funds investment decisions have a major influence on the financial markets. The funds in their investment efforts, look for long-term, inflation-protected returns.

    Pension fund asset management is based on the fundamental objective of ensuring that investment is undertaken in accordance with the principles of security, profitability; liquidity; diversification and asset-liability matching.

    Broad policy framework and conditions that are favourable to long-term investment financing by pension funds include that any operating policy must be consistent with the best interest of the pension scheme members and beneficiaries; such policies must help achieve certain important goals such as job creation, higher living standards, and sustainable economic development while the policies must be consistent with the usual financial regulation.

    The objectives must ensure security of assets, quality of investment assets, liquidity; profitability of the investments and diversification of the portfolio as a whole

    Policy makers at the governmental level should ensure stable macroeconomic conditions, maintenance of credible monetary policies; maintenance of healthy fiscal policies and sound financial sector regulatory environment.

  • Public pension funding ratios still well below pre-recession levels

    The median funded status for U.S. public pension funds was 71.5 per cent at the end of fiscal year 2014, relatively unchanged from 2013, and only slightly above its 2012 post-recession low of 68.9 per cent, said a new report from Fitch Ratings.

    “Several years of strong market gains through 2014 offset remaining market declines and steadily rising liabilities, thus lifting reported funded ratios slightly, but they remain well below pre-recession highs,” Fitch said in the report. The median funded status in 2007 was 84.7 per cent.

    Strengthened mortality assumptions, the falling ratio of active employees to retirees and their beneficiaries, and changing discount rate calculations are helping drive states’ liabilities upward, Fitch added.

    Looking at individual state’s pension burdens, Illinois ranked the worst. Illinois’ roughly $119 billion in unfunded pension liabilities amounts to 19.4 per cent of personal income compared to a median 3.7 per cent for all states. Kentucky, with $27 billion in unfunded liabilities, followed at 16.2 per cent and Connecticut, with $33 billion in unfunded liabilities, came in third at 14.2 per cent.

    At the other end, Wisconsin’s $605 million in unfunded liabilities amounted to only 0.2 per cent of personal income.

    However, states’ contribution practices are improving, the report noted.

    In fiscal year 2014, 53 per cent of major state-wide retirement systems received at least 100 per cent of their actuarially calculated contribution, up from 42 per cent from post-recessionary fiscal year 2011 when budget struggles reduced pension funding.

    • Culled from Pensions & Investments

     

  • Pension funds safe, says PenCom chief

    Pension funds safe, says PenCom chief

    There has been no record of pension fraud or embezzlement under the new pension scheme, the Contributory Pension Scheme (CPS), the Director-General, National Pension Commission (PeCom), Chinelo Anohu-Amazu has said.

    Speaking to reporters in Abuja, he said the over N5trillion pension funds under the CPS arrangement is safe.

    According to her, the fact that there has been no record of fraud, stealing or unlawful diversion by both regulator and operators since the establishment of the CPS shows that the scheme is safe. She said unlike in the past where Nigeria operated the Defined Benefit Scheme (DBs), which left a total deficit of over N2trillion, the CPS has in 10 years accumulated over N5trillion.

    The PenCom chief debunked claims that N3.5 trillion of the pension assets had been drawn down by the previous administration to finance recurrent expenditure. She said this is not correct noting that the amount being referred to, is the current total value of pension fund investments in Federal Government of Nigeria bonds and treasury bills.

    She assured that the pension fund assets are intact, stating that treasury bills and government bonds are adjudged to be the safest instruments for pension fund investments.

    She explained that the administration and workings of the CPS makes it difficult for anyone to steal or divert the funds.

    She said: “The scheme requires pension funds to be privately managed by licensed Pension Fund Administrators (PFAs). They have been duly licensed to open Retirement Savings Accounts (RSAs)for employees, invest and manage the pension funds in a manner as the Commission may from time to time prescribe; maintain books of accounts on all transactions relating to the pension funds managed by it; provide regular information to the employees or beneficiaries and pay retirement benefits to employees in accordance with the provisions of the Pension Reform Act 2004.

    “Pension Fund Custodians (PFCs) will be responsible for the warehousing of the pension fund assets. The PFAs shall not be allowed to hold the pension funds’ assets. The employer sends the contributions directly to the custodian, who notifies the PFA of the receipt of the contribution and the PFA subsequently credits the retirement savings account of the employee.

    “The custodian will execute transactions and undertake activities relating to the administration of pension fund investments upon instructions by the PFA. The custodian shall hold pension fund assets on trust for its clients.”

    She further explained that the key objective of the pension reform is to introduce a pension system that is sustainable and has the capacity to achieve the ultimate goal of providing a stable, predictable and adequate source of retirement income for each worker in Nigeria.

    “The reform also seeks to establish a uniform set of rules and regulations for the administration and payment of retirement benefits in both the public and private sectors; stem the growth of outstanding pension liabilities; reduce fiscal cost of pension to government; stimulate domestic savings; and generate pool of long-term funds for financing developmental projects and increase private investments,” she said.

    She pointed out that the  CPS  has gradually  gained  public  confidence   and  acceptability   within the  short  period  of  its implementation, adding that the  private  sector,  which  hitherto was  apprehensive   of the CPS,  has come  to accept  it and  is implementing the reform.

  • Global views on pensions

    Britain may be entering uncharted territory with the biggest shake-up in pensions for decades, but there are lessons to be learnt from around the world.

    Under the pension reforms, which began three years ago, all employees will be automatically enrolled in a pension scheme. In April this year, retirees were given unprecedented freedom to spend their pension savings as they choose rather than having to buy an annuity.

    The Melbourne Mercer Global Pensions Index, which reviews pensions around the world, ranked Denmark top, because its schemes are well-funded, provide good benefits and its private pension regulations protect consumers effectively.

    Australia was second, followed by the Netherlands, Switzerland, Sweden, Canada, Chile and then the UK in eighth place out of 25. India was ranked the lowest because of funding weaknesses that throw its future sustainability into doubt.

    The report notes that all over the world pension systems are under pressure from rising life expectancies, government debt and a turbulent global economy. Japan is now experiencing a negative savings rate for the first time since it began gathering data in 1955

    The retirement landscape is also shaped by attitudes to saving and how we regard older people. In Japan, there is a strong savings habit and a cultural imperative to care for parents in old age. State benefits, relative to average earnings, are comparable to the UK.

    Whereas this country has seen the demise of final salary schemes in the private sector and an increasing number of workers moved into pensions that do not guarantee a set income for life, Japan maintained these better quality employer schemes for longer.

    Adrian Walker, retirement planning manager at Old Mutual Wealth, says: “A key worry for the UK is the fact that Japan, which has historically boasted the highest savings rates in the developed world, is now experiencing a negative savings rate for the first time since it began gathering data in 1955.

    Keeping mum: Japanese pensioners can lean on their children for help. “In some respects this is a positive, as Japan’s ageing population draws income and boosts consumer spending in a long-stagnant economy. But there are risks associated with Japan drawing its savings at a faster rate than the younger generation is putting aside for the future.”

    Australia’s retirement savings system brought in its equivalent of automatic enrolment in 1992, starting with a low minimum contribution, which will reach to 12per cent by 2025. This is much higher than in the UK, where total contributions from employees, employers and the Government began at 4per cent and will reach eight per cent by October 2018.

    Relative to average wages, state pension benefits are much more generous than in the UK. Retirees are not required to buy an annuity and the products are barely used.

    “Stories about Perth having more taxi drivers aged 75 and over than anywhere else need to be put into context, however,” says Mr. Walker. “The current compulsory savings system was in its infancy when those taxi drivers retired and may be a reflection on the previous regime rather than a need for compulsory annuitisation.”

    Surprisingly, state pension provision in the US is more generous than the UK relative to average salaries. The US is an interesting comparison because there is no NHS and those approaching retirement must therefore consider how they will replace workplace medical insurance.

    Yet, surprisingly, state pension provision is more generous than the UK relative to average salaries.

     

  • Akwa Ibom pays over N2b gratuity debt

    Akwa Ibom pays over N2b gratuity debt

    Akwa Ibom State government has paid pensioners, including teachers and local government workers over  N2billion gratuity debt, the state Commissioner for Finance,  Akan Okon has said.

    Okon who to reporters said the money paid covers debt owed between 2002 and 2011. He said the local government pensioners were paid over N900 million while others were paid over N1.2 billion.

    He stated that the state has set machineries in place to join the Contributory Pension Scheme (CPS).

    He said: “The state has since the ascendance as of Governor Udom Emmanuel, began the process of joining the CPS. Machinery has been set and the House of Assembly is working on the new law to enable us start the CPS. This government is just two months old and I can tell you that we are really working to make sure that we join them and do what other people are doing.

    “This, notwithstanding, we have been able to clear debts owed pensioners in the state. Teachers and other workers gratuity were not paid for years but we have made it our priority.”

    He said the state is seeking ways to improve its infrastructure by accessing the pension fund under the CPS.

    He stressed that pension fund provides long term funds for infrastructural development, which is why they were at the World Pension Summit recently held in Abuja to showcase the state. He added that oofficials of the state were also at the summit with a view to allowing the pension world see what the state has  done in terms of infrastructure. This, according to him, is with a view to accessing the funding from pension fund to continue with ongoing development programmes of the state government.

    Okon noted that part of the challenges  encountered with the pension system the government inherited was the problem of ghost workers. “We have a peculiar problem. People who were not pensioners were found in the system and we had to undergo a biometric programme to make sure that the right people are in the system while the wrong people are removed,” he said.

  • ‘Why service delivery in pension plan is crucial in Africa’

    Service delivery in pension plan will drive growth in the African pension industry, strategy development and implementation expert, Muibat Ijaiya has said.

    Ijaiya who is a partner with Strategy Management Partners, spoke on service delivery in pension plans at a pension forum in Abuja.

    She said customer experience has  direct impact on growth, noting that in a connected digital world, it pays to get the customer experience right.

    According to her, there is need to design a service delivery model and in doing this, it is essential to consider a desired customer experience for  pension participants at each point of interaction.

    She stressed that this include a true combination of a blue-print and best practice, where the administrative and operational essentials linked to the needs of the participants is showcased.

    She said: “Ideas on communications tools and concepts, can be adopted to realise the participants’ best understanding of pensions and control of their financial wellbeing. This would be key components, essential information blocks and new ways of participant’s involvement.

    “On service delivery, a set of integrated activities, processes, procedure, teams and systems among others should be combined to provide services to customers. It is much broader than customer service; which is a component of it. It is also not a one-size fit all.”

    She noted that in designing a service delivery model with customer experience at its heart, the experience must reflect the brand promise consistently.

    “We must develop strong understanding of the different segments of current and potential participants; their needs, limitations, challenges and desired outcomes. Define a service delivery model and structure the interactions. Be clear about the customer experience to be delivered at each stage of pathway, how and by whom.

    “Delivery location should be defined by participants’ needs and not that of the provider. Their role should not be passive. Use appropriate tools & forums to continuously engage, gather feedback and co-create experience solutions that delight.

    “Identify and address the root causes of problems that have high potential to undermine customer experience. Service boundaries will evolve. Periodically review and align the structure, operations, systems, teams and processes that are critical for delivering on the customer experience,” she added.

  • PenCom emerges best performing establishment in Africa

    PenCom emerges best performing establishment in Africa

    The National Pension Commission (PenCom) has emerged the best performing pension institution on governance in Africa.

    The Commission was also awarded the best performed in coverage and social economic impact.

    The award is the maiden edition of the Africa Pensions Awards (APA) presented at the closing ceremony of the World Pension Summit Africa Special in Abuja.

    Present at the event were governors Nasir el-Rufai of Kaduna State, Atiku Bagudu of Kebbi and Udom Emmanuel of Akwa-Ibom. Also in attendance were senators, members of the diplomatic corps, local and international economic experts, stakeholders across the world in the pension industry.

    In the category of pension coverage, the Kenyan Retirement Benefit Authority was declared winner of the best performed pension institution based on its wide coverage of its informal sector while in the category of Economic Social Impact, the Namibia Financial Institution Supervisory Authority (NAMFISA) was adjudged the best based on its innovations in pension regulation, and security markets regulation.

    The Chairman of the African Pension Award Committee, John Ashcroft who announced the winners of the awards said the 2015 African Pension Award was structured into three categories namely governance, pension coverage and social economic impact.

    He explained that the governance category awards was to honour countries which introduced innovations in the legal and institutional frameworks, adopted efficiency in their pension processes, corporate governance structures and service delivery.

    He added that the pension coverage award category was designed to celebrate countries that provided channels for sustainable livelihood like basic needs such as food and shelter for its citizenry, especially during old age.

    He said: “It is also intended to honour countries which have incorporated both the formal and informal sectors of the economy in their pension scheme.

    “The social economic impacts category was designed to evaluate how countries that utilised pension funds under the contributory system, to provide financial intermediation for the real sector and infrastructure development. It is also designed to honour nations whose pension funds impacted their local capital markets and insurance.”