PFAs Recapitalisation and The N5bn Question

Following the successful conclusion of recapitalisation exercise in pension sector, which has raised operators’ minimum capital from N1 billion to N5 billion, industry analysts have raised the question on what the pension fund operators would do with the N5 billion new capital, writes Ebere Nwoji

Recently, the National Pension Commission (PenCom) announced that the recapitalisation exercise it initiated in the pension sector in April last year, with a 12 months transition period, which ended last week, was successful.

PenCom stated that out of the existing 22 pension fund administrators (PFAs) in the country, 20 crossed the recapitalisation huddle while two were swallowed in mergers and acquisition.

This brings to rest the tension raised among the PFAs on the exercise as well as fear of job loss on the part of firms that found crossing the recapitalisation huddles a bit difficult at the initial stage.

With the 20 firms in the system having raked together N5 billion shareholders’ fund each, it means the pension sector is now sitting on a whooping N100 billion capital outside the over N13 trillion assets, which however is not in their vault but invested in various portfolios.

But this current N100 billion is obviously in their kitties and directly under their control.

This being the case, industry analysts said raising such huge capital is the best thing that has happened to the industry but in their analytical views, they have raised a question on after crossing the recapitalisation mark, What will each of the existing 20 PFAs do with their N5billion?

According to them, this question has become pertinent because in the past, we have seen in the finance services sector of Nigeria where organisations went to capital market and other financing windows to raise billions and at the end of the day they could not give account of what they used the money to do .The entire fund went down the drain and investors were left in their own fate while other stakeholders were stranded.

Analysts view    

Indeed, the first analyst to raise this question was the CEO Stanbic IBTC Capital, Mr Funso Akerele. Akerele at the recapitalisation summit workshop organised by the Pension Operators Association of Nigeria (PenOp) noted that before the PFAs think about going into the available options left for them to meet the new capital, they should first set their objectives right in terms of usage of the money.

Former South East Regional Manager, Premium Pension Managers, Mr Paddy Ezeala was also of the view that both the regulator and the operators need to define to themselves and to the public the reason for this huge capital raising.

He added that it was only when they were able to define what to do with the money that they would be able to effectively and judiciously deploy the new capital.

“The importance of huge capital for the pension industry can not be over emphasised as it will ensure that all existing PFAs are on sound footing.

“On one hand, I am of the opinion that the new capital regime requirement by the regulator would create the negative impression that the industry was shaky whereas going by the nature and laws guiding management of pension fund under the Contributory Pension Scheme, nothing can endanger the contributed funds because of the nature of security surrounding the fund.

“However, it is good to build an all inclusive industry comprising the small, medium and big scale operators but with the new capital level, the regulator is building a large scale operating industry. You need to explain to the layman how the huge capital would contribute to the security of each company’s asset under management.

“The regulator should have known that if the fear was on the possibility of any PFA going down, it should not have arisen since going down of any PFA has nothing to do with the pension asset because the assets were not with the PFAs but with the Pension Fund Custodians who in turn have invested the funds, ”he stated.

But the Director, Centre for Pension Rights Advocacy and Consultant, National Institute for policy and Strategic Studies, Kuru Jos, Ivor Takor, said the new capital would strengthen the industry better and would afford the industry the economy of scale benefit.

Operators’ View

From the operators Viewpoint, the vice Chairman First Guarantee Pension Limited, Nze Chidi Duru congratulated the regulator for concluding the exercise peacefully.

He said the new capital would position the operating firms to do more business and offer better services.

On the part of his company, he said he was highly elated to see his company emerge as one of the successful companies despite the challenges facing it.

He said for his company First Guarantee Pension, it showed sense of resilience in business and pleaded with the regulator to sort out issues surrounding the company to reposition it for better operators.

Speaking on general usage of the new capital, Duru, said it would enable the operating firms to be liquid enough to acquire working tools to provide services.

He said a major tool the new capital would enable the operators acquire was information technology tools which according to him would drive seamless and efficient services.

He also said the new capital would accelerate operators’ footprint across the country in terms of branch network expansion.

He said currently some PFAs don’t have their presence in many states and that where they have they didn’t have office of their own but were being squatted by their PFCs or related banks.

He said with the new capital, they would in various parts of the country acquire office spaces.

He said operators would inject the new capital to real estate investments as well as hire adequate man power to reach out to every Nigerian in any part of the country by deploying a technology that would make them save more as well as contribute funds to their Retirement Savings Accounts even from the comfort of their homes.

Industry analysts said the pension sector more than any other sub sector of the finance services sector suffers dart of work force and expert.

According to them, this was brought to the fore during the data recapturing exercise as contributors both old and young had to cue up as early as 7am at the customer service department of the various PFAs to do their recapturing.

The analysts observed that some contributors cued for two to three days before they were able to be recaptured attributing this to lack of adequate technology and enough hands.

They said the new capital would enable the operators bring services closer to the contributors to enable them have face to face interaction with contributors who have one problem or the other.

The analysts further said the operators would deploy the new capital in a way that would enable them create mass awareness.

According to them, majority of Nigerians are not aware of pension and it’s benefits.

They said up till date, some think pension is still the exclusive of federal and state government workers.

They said with the new capital, operators would go into awareness campaign for the masses and would be able to follow it up with social responsibility initiatives that would popularise pension among Nigerians and even pave way for the micro pension scheme.

Again, the analysts observed that since the pension transfer window kicked off, there has been random movement of contributors from one pension fund administrator to another.

For instance, PenCon stated that since the commencement of the transfer window scheme barely two years ago, 63,728 unhappy contributors have moved from one pension administrator to another mainly due to unsatisfactory services rendered by their former administrators.

The analysts said with the new capital, each PFA now has enough fund to equip and upgrade its services to the taste of their various customers and this would reduce movement of contributors from one PFA to another.

Again, they said the new huge capital would promote marketing in the industry.

According to the analysts, it is not overstatement to say that pension fund operators have not commenced marketing rather were enjoying free funds which willingly flow on daily basis into their vault due to compulsory savings ordered by the pension regulation.

They observed that unlike banks and insurance firms, pension operators were yet to commence aggressive marketing.

They added that with the new capital, the ball is now on their cut to go out as well as deploy gadgets that would market the sector to the public.

The analysts said the huge capital also had created the opportunity for the operators to develop other savings related products that would attract people to patronise them.

Expediency of New Capital

Despite some misgivings, the industry regulator, PenCom said the new capital has become expedient as the value of pension fund assets under management and custody had grown exponentially by 244 per cent, from N3 trillion in 2012 to over N13 trillion today.

PenCom noted that the sustained growth in assets implied greater fiduciary responsibilities that required more operational capacity by the PFAs. 

It said the urgent need to ramp up PFAs capacity to manage the increasing number of registered contributors and value of pension fund assets under management led to the exercise.

“It is worthwhile to state that 10 PFAS had met the new regulatory capital requirement of N5 billion as at 31 December 2021, while the others intensified efforts to meet the deadline of 27 April 2022. This resulted in some mergers and acquisitions, which led to the reduction of the number of PFAs from 22 to 20, ”it stated

Meanwhile, industry stakeholders have called on the regulator to intensify its supervisory functions on the operators to ensure that the new capital is adequately deployed.

According to them, this has become necessary because unlike the pension funds that are sacrosanct, the capital is very much in the kitties of the operators and could easily be mismanaged if thorough supervision is not applied.