PenCom: Many Rivers Crossed, Many More to Come

In the last three years, since a new Management Team was appointed for the National Pension Commission (PenCom), there has been a number of initiatives that have changed the landscape in the Pension Industry positiveslu. In this report, Gilbert Ekwugbe writes on what has changed and what still had to change in the industry.

Any official compensatory scheme is going to be herculean. Little wonder, the years preceding 2004 when the Pension Reform Act was enacted in Nigeria were replete with all manner of problems. Specifically, the public service had operated a scheme known as Defined Benefits Scheme, which was largely unfunded. In addition, the annual government budget for pensions had suffered major constraints leading to either inadequate or untimely release of the funds, which in turn led to accumulated arrears. Therefore, a sustainable scheme was direly needed, giving birth to the Pension Reform Act that was signed into law in 2004 with the target to regulate and supervise the Nigerian Pension Industry to ensure that retirement benefits are paid as and when due. It was also targeted to be an efficient regulator that serves to promote a resilient and sustainable Pension Industry that would deliver what would be generally accepted as positive measurable impact for contributors and ultimately the economy.

Although an informal pension scheme may have existed in Nigeria before the advent of colonial administration, it was through the efforts of the colonialists that the scheme was formalised on March 24, 1945, taking effect the following year and then literally staggering through the National Provident Fund (NPF), National Provident Reserve Fund (NPRF) and National Provident Fund Investment Committee (NPFIC) till 2004 when the administration of president Olusegun Obasanjo finally gave it a strong teeth, as it were.

When Mrs Aisha Dahir-Umar came on board as the substantive Director General of the National Pension Commission (PenCom) in 2020, she realised the weight of responsibility that she had to carry, although she took everything with a huge sense of duty which has so far motivated her to see more successes than challenges in the three-year reign.

Contributory Pension Scheme Challenge

By far the most challenging aspect of the pension scheme is the Contributory Pension Scheme (CPS). But the director general has ensured the efficiency and transparency that the CPS requires to succeed through the implementation of crucial reforms aimed at optimising procedures and fostering compliance among pension contributors and employers. Not surprisingly, the result has proved remarkable: with pension assets shooting up by N5.94 trillion, from N11.35 trillion in August 2020 to N17.29 trillion in August 2023, in addition to over 1 million new contributors that have imbibed the CPS tenets within the last three years. Today, contributors have passed the 10-million mark. These huge figures happened despite that not all the 36 states of the federation have adopted the CPS and the Micro Pension Plan for the Informal Sector is yet to penetrate the critical mass.

Recapitalisation of the shareholders’ fund of Pension Fund Administrators (PFAs) has also shot up from N1 billion to N5 billion, representing a significant increase in the number of registered contributors and pension assets under the management of PFAs, leading to increased capital injection which targets at meeting minimum service standards and addressing various operational needs in the pension industry. The successful conclusion of the recapitalisation exercise has also led the PFAs to become financially stronger and better equipped to offer quality service to holders of the Retirement Savings Account (RSA) holders.

The Enhanced Contributor Registration System (ECRS), which in June 2019 replaced the obsolete Contributor Registration System (CRS), has been maximised to enable more than 1 million RSA holders up till in September 2023 to get recaptured on the ECRS, consequently improving the integrity of contributors’ data and resulting in the automation of the process of generation of Employer Codes for employers of labour in Nigeria. The ECRS had itself enabled PenCom to launch the RSA Transfer Window on November 16 2020, providing a veritable platform for the RSA holders to transfer their RSAs with the associated balances without hassles from one PFA to another once annually. The competition that this development engenders among the PFAs has helped PenCom to promote quality service delivery and investment returns. In specific terms, 222,141 RSAs have been transferred to new PFAs alongside associated pension assets from the inception of the RSA Transfer Window to 31 August 2023.

Accessing Retirement RSA

The Guidelines issued on Accessing Retirement RSA Balance towards Payment of Equity Contribution for Residential Mortgage by RSA holders remarkably gave effect to the provisions of Section 89 (2) of the Pension Reform Act (PRA) 2014, which provides that “a Pension Fund Administrator may, subject to guidelines issued by PenCom, apply a percentage of the pension assets in the Retirement Savings Account towards payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account”. It is even more remarkable that the commission has so far approved 339 applications for payment of residential mortgage equity contributions, amounting to over N4 billion, since its commencement on August 31 2023.

Along the line, PenCom has introduced the Micro Pension Plan (MPP) to broaden pension coverage, particularly for individuals and small businesses in the informal sector. So far, about 105,455 contributors have been enrolled in the MPP, nevertheless that several factors have led to the amount of registered individuals falling short of initial projections, not helped by the fact that the PFAs are said to be not too keen on it. PenCom has acknowledged the challenge and actively exploring the introduction of health insurance coverage for MPP participants as one of the incentives to address it. Although the commission also acknowledges the MPP as a vital initiative, it says it remains committed to making it more accessible and appealing to a broader spectrum of individuals and small businesses in the informal sector.

The challenge of the exemptions granted some government agencies and personnel from the CPS has proved formidable for PenCom, prompting Mrs Dahir-Umar to express dismay that the Federal Government is already overburdened with the payment of pensions under the Defined Benefits Scheme, as illustrated by the 2023 Appropriation Act which made a provision under the Service Wide Vote for the sum of N854.8 billion as total allocation for Pension and Gratuities; the amounts including allocations to Military Pension (N244.6 billion), National Intelligence Agency (N10.4 billion) and the Department of State Security (N18.5 billion), representing 29 percent, 1.2 percent and 2.2 percent respectively.

Insufficient pension benefits occasioned by low salaries, especially in the public sector, has posed hydra-headed challenge to the commission over the years, although in fairness the challenge extends beyond PenCom. However, Section 4(4)(a) of the Pension Reform Act provides that an  employer may, notwithstanding the pension contributions made by the employer and employee into the employee’s RSA, agree on the payment of additional benefits to the employee upon retirement. Therefore, especially employers in the public sector can take advantage of this provision to enhance their employees’ retirement benefits. An employer may also opt to bear full responsibility for the pension contribution of the employees after upward reviews as may be deemed necessary through agreements between both parties.

Wrong Impression

A general impression is that PenCom has unfettered access to funds as other institutions like the NNPC and the Federal Inland Revenue Service. But interestingly, the differentials between these bodies and PenCom constitute a great challenge for the latter. For the umpteenth time, Mrs Dahir- Umar recently explained in a media interview that the functions of PenCom include the regulation and supervision of the CPS, issuance of guidelines for the investment of pension funds as well as approving, licensing, regulating and supervising Pension Fund Administrators, Custodians and other institutions relating to pension matters as may be determined by PenCom accordingly. In other words, PenCom statutorily neither has custody of pension assets nor can access the funds that are held in custody by PFCs. In essence, the N11.35 trillion pension assets are not PenCom’s coffers.

The “blackmail industrial complex” is another challenge that Mrs Dahir-Umar has described as virtually entrenched. A clear indication of this complex is what she calls “undue influence and intimidation by some media outlets, particularly online media establishments”. But rather than see this particular challenge as daunting, she says she has resolved to tackle it with transparency, accountability and a robust regulatory framework in line with the commission’s commitment to preserve Nigeria’s pension system and uphold the highest ethical standards.

Standing at N17.29 trillion on August 31, 2023 the Nigerian Pension Industry has witnessed significant growth in assets under management, with the funds significantly enhancing savings mobilisation, capital market development and economic growth. Funds have been deployed for investment in infrastructure targeted at financing waste management, independent electricity generation and road construction (Sukuk), in addition to having increased the availability of long- term funds for investment in the real sector of the country’s economy. The Akute power plant, Island power plant, Pipp Genco, Gasco Marine limited and the Construction of 1,200 hostel rooms at the University of Calabar are some of the infrastructure that have been developed across the geo- political zones of Nigeria.

Despite the foregoing, however, PenCom would still lean on the Tinubu Administration’s economic reforms to attain its goals. Aside from the administration creating what Mrs Dahir-Umar calls definitive policy pronouncement to stop further exit from the CPS, there would also be a need for the Federal Government to fund accrued pension rights, pension increases and other outstanding pension obligations.

QUOTE

“A general impression is that PenCom has unfettered access to funds as other institutions like the NNPC and the Federal Inland Revenue Service. But interestingly, the differentials between these bodies and PenCom constitute a great challenge for the latter. For the umpteenth time, Mrs Dahir- Umar recently explained in a media interview that the functions of PenCom include the regulation and supervision of the CPS, issuance of guidelines for the investment of pension funds as well as approving, licensing, regulating and supervising Pension Fund Administrators, Custodians and other institutions relating to pension matters as may be determined by PenCom accordingly.”