Last year, regulators and operators had their tough and soft moments in ensuring that adequacy, credibility, service delivery, among others, thrive in the sector, writes Omobola Tolu-Kusimo.
Growth is being expected in the pension industry this year as it has been for about 20 years.
Aside priding itself as the fastest growing industry not only in the financial services sector but also in the other sectors, the sector has been a catalyst for growth.
From ensuring that pensions are remitted and paid promptly after retirement in the private and public sectors, to investing the accumulated funds in various investment windows for adequate returns to workers and retirees, the industry has been blazing the trail for success.
Without challenges, the National Pension Commission (PenCom) and pension operators strived during the year under review to eliminate obstacles that stood in the way of growth.
These included adequacy and credibility.
The industry also had the challenge of service delivery as well as availability of alternative assets like private equities and infrastructure funds that pension funds can be invested in.
PenCom’s Head of Surveillance, Ehimeme Ohioma, in Lagos, said: “There are two things about pension and they are adequacy and credibility issues. People when they retire must get adequate pension to take care of their basic needs and it must be sustainable. So, these two things are critical to the subset of the industry. For adequacy, contributions are received and invested.
“Challenges are that returns on investment must be above inflation. If not, there will be problems. So, how do we make the pension funds to earn real returns on investment?
“We also had the issue of service delivery. There will always be complaints but the issue is: how well and fast do we address the complaints? It is critical to the success of the industry.There shouldn’t be complaints but it behoves on us as regulator and operators to ensure that when the complaints come, they are strongly responded to and are cautiously treated.
“To ensure this, the commission in 2022 increased the minimum regulatory capital from the Pension Fund Administrators (PFAs) to ensure they have enough capital to run their businesses well, have the critical infrastructure as well as be able to run their businesses efficiently and well to serve the public, have good staff and condusive environment.
“There must be adequate capacity and skills.The world is very dynamic so the skill for industry practitioners both the operators as well as the commission needs to be constantly upgraded to meet acceptable standards.”
There’re success stories
“There have been success stories from zero; we have N17.65 trillion pension assets under management as at October 31, 2023 and 64 per cent of those assets were invested in Federal Government Securities.
“Also, 11 per cent was invested in corporate debt securities, eight in quoted equities on the Stock Exchange, less than one per cent in private equity and infrastructure funds.
“What we have, however, been doing is finding and ensuring the pension funds earn real returns from investments. The question is: Where can we get the assets or returns? They are from the alternative assets like the private equities and infrastructure funds but do we have them available.
“So, one of the challenges has also is got to do with the availability of investment of where pension funds will be invested in. The pension funds cannot create those products; the market has to create products for pension funds to invest in.
“It’s a challenge but we have been engaging with the various stakeholders in the financial market like money market and capital market to ensure that we have products for the pension funds to invest in,” he added.
Chief Executive Officer (CEO), Pension Fund Operators of Nigeria (PenOp), Oguche Agudah, in document entitled: ‘At the dawn of 20 years of pension reform, what are the gains?’ stated that workers’ contributions accounted for 54 per cent, while the return on investment accounted for 46 per cent of the pension fund assets as at the end of June 2023 from the beginning of the CPS in 2004.
Oguche submitted that workers’ contributions were judiciously invested and the returns were added to the workers’ pension savings, to reduce the effect of inflation on the funds.
Further figures from him showed that as at the end of the third quarter of last year, the PFAs had recovered N24.8 billion from defaulting employers,
The PenOp CEO noted that in second quarter of 2023, N665.13 billion had been paid as a lump sum to annuity retirees; and N964.24 billion to programmed withdrawal retirees, making a total of N1.64 trillion to 442,000 retirees.
He said N208.86 billion was paid to 475,235 workers who lost their jobs before getting to the official retirement age and were unable to get another job after four months.
Total death benefits paid to 91,214 beneficiaries, he added, amounted to N356.32 billion in the second quarter of last year.
The report showed that 649 contributors got approval to access N7.89 billion from their RSAs for residential mortgages.
The CEO, while highlighting the expectations of the operators in the year and beyond, said, it was expecting to celebrate 20 years of the Pension Reform Act, show greater focus on micro pensions, and revise investment guidelines.
He added that the operators looked forward to more applicants and approvals for RSA mortgage, possible kick-off of offshore investment, and infrastructure consortium.
Oguche maintained that between 2007 and July, last year, contributors under the CPS rose from 2,543,178 to 10,023,314.
President of PenOp, Olumide Oyetan, said the CPS remains one of the greatest national policy from democracy, stating that before commencement of the CPS, retirees were subjected to old age poverty as they were unable to get their pension at retirement.
Oyetan, who is the Chief Executive of Stanbic IBTC Pension Managers Limited, said the CPS is unique due to the safe valves, checks and balances ensured by the tripod structure which are the regulator, PFAs and Pension Fund Custodians (PFCs).
He called on the government and public to sustain their faith on the CPS, which for the past 19 years has continued to thrive without any incident of fraud.
He said pension operators would continue to innovate and comply with stipulated rules in offering quality services to contributors and retirees.
