Pension under pressure from incessant exit demands

February 6, 2023 Mary

The recent agitation by the Nigeria Police and National Assembly (NASS) staff to exit the Contributory Pension Scheme (CPS) is further pressuring the pension industry where all eyes have been due to its rising asset base which stood at N14.99 trillion as of December 2022.

At a public hearing on Police Pension Board Bill on Friday January 20, 2023, Sanusi Lemu, a Deputy Inspector-General of Police, who represented Alkali Baba, the Inspector-General of Police, said the police required their distinct board for the management and administration of pensions of retired police personnel in the mode of the Military Pension Board.

Elisha Abbo, the lawmaker representing Adamawa North, who sponsored the Police Pension Board Bill, said that officers of the Nigeria Police were being treated unfairly.

Also late last year, a proposed legislation titled: ‘Bill for an Act to Amend the Pension Reform Act, 2014, to Exclude/Exempt the National Assembly Service from the Contributory Pension Scheme and Establish the National Assembly Service Pension Board; and for Related Matters (HB. 2025)’, was sponsored by Olododo Cook, the chairman, house committee on National Planning and Economy Development.

Cook said the aim was to exit the National Assembly Service from the contributory pension scheme under the Pensions Reform Act, 2014, and the board when established, would be charged with administering the pension scheme for the personnel of the National Assembly Service.

While all of these continue to put pressure on the scheme, PenCom, the regulator and managers of the fund and other industry stakeholders say such demand will undermine the achievements of the scheme over the past years.

Pension assets under management (AUM) stood at N14.99 trillion as of December 2022, with 9,862,129 registered contributors.

From inception to September 2022, 315,112 retirees have collected monthly pensions valued at N13.88 billion, and another N887.60 billion as lump sum under programmed withdrawal, while another 102, 696 retirees under life annuity have collected monthly pay-outs of N5.95 billion and lump sum of N193.32 billion.

The fund had these years seen exit of the military from the scheme, continued agitation for exit by the police and para- military agencies, and recently agitation to exit by the National Assembly staff.

It has also seen state governors under the umbrella of the Nigerian Governors Forum agitating to borrow the funds for state use.

Mohammad Ahamad, a former director- general of the National Pension Commission, says there is no trillion naira sitting idle anywhere for somebody to borrow, but are already invested in different asset classes.

According to analysts at FBNQuest, the Federal Government Bonds accounts for 61.5 percent, equal to N9.2 trillion of total AUM at the end of 2022, while total securities by both federal and state governments accounted for 65.44 percent of the total funds managed by the PFAs.

Oluremi Oni, chairman of the board of PenCom, said out of N8.77 trillion or 65.35 percent of the total pension assets invested in Federal Government securities in 2021, N118.31 billion was in Sukuk Bond to finance road projects nationwide, N59.32 billion in Green Bond, while N14.30 billion was invested in Agency Bonds issued by the Nigeria Mortgage Refinance Company.

Oguche Agudah, chief executive officer, Pension Fund Operators Association of Nigeria (NIA), said the challenge with the structure of the Nigerian economic model and history is that there is virtually no other form of social security or quantifiable benefit that the citizens get from the government.

He said, so, they see the pension contributions as the only funds available to them in times of need.

“It is pertinent to note that the law mandates pension contributions from eligible staff at eight percent of their basic salary. However, taxes take up more than three times that amount in monthly deductions. The taxes are difficult to quantify and track. So, in effect the pension industry that operates in a transparent and structured manner unfortunately is a target for people who say the monies should be used for solving social problems.”

Oguche therefore asked what about the taxes? How have those been spent? How can they be accounted for?

“In Nigeria it seems that people are being punished for saving, being prudent and structured in their approach.”

According to Oguche, what many also fail to realise is that the assets of the pension funds belong to millions of contributors in their various retirement savings accounts.

“In addition, the system has an inbuilt safety net, as those who lose their jobs can access a portion of their funds if they don’t get new jobs after four months,” he said.

He added: “What we need to ensure is that the savings of the country whether it’s from taxes or pensions should be used for the common good in providing things like schools, hospitals, transport infrastructure and the likes so that individual Nigerians will not need to use their funds to procure these things at exorbitant costs.

“But we should not fritter the savings and consume it today, ” Oguche said.

Notwithstanding the agitations of the states to borrow the funds, the pension investment guidelines made provision for them to take advantage of the funds through issuance of bonds, Sukuk, and others, but in compliance with conditions.

Section two sub-section eight of the ‘Regulation on Investment of Pension Fund Assets’, provides that: ‘Pension fund assets shall only be invested in bonds, sukuk or other debt instruments issued by eligible state/local governments and corporate entities that are fully implementing the contributory pension scheme. The commission shall publish on its website, from time to time, the lists of compliant state/local governments and corporate entities.”

At the end of the third quarter 2022, PenCom data show that 10 states are remitting their employer and employee contributions to the PFAs. They include Lagos, FCT, Osun, Kaduna, Delta, Ekiti, Ondo, Benue and Anambra.

Another six states are also funding employee’s accrued rights. They are Lagos, FCT, Osun, Kaduna, Delta and Anambra; while another six are paying their monthly pension to their retirees through the PFAs – Lagos, FCT, Osun, Kaduna, Delta and Ekiti.

Aisha Dahir-Umar, on performance of the sector as at the end of the third quarter 2022, said the laudable performance, in the growth of the AUM, points to the fact that the pension industry will continue to deliver value and benefit to its stakeholders and the nation’s economy.

According to her, the commission during the period steadily pursued increased diversification of pension fund portfolios by ramping up efforts aimed at ensuring sustained investment of the fund in alternative asset classes and structured infrastructure projects that meet the stringent requirements as enshrined in the Regulation for the Investment of Pension Fund Assets.

“Although the commission’s efforts at diversifying investments of pension funds and hedging against inflation have gradually begun to yield results, it is, however, worthy to note that efforts are ongoing to ensure that the annualised average rates of return of pension funds across RSA and Legacy Funds are above headline inflation rates.”

Chika Onwunali, managing consultant at Premium Debate said, “For states, it takes courage and the love of citizens for any sitting governor to adopt this scheme and remit adequately. What that means is that, such governors would literally have denied themselves the frivolities and wasteful spending associated with that position to plan better for her citizens”.

For me, I congratulate the governors in the compliant states. They mean well for their citizens, and should be commended for planning the future for their states, Onwunali said.