Imperatives of an effective pension system





Consolidation is the watchword as the National Pension Commission (PenCom) had already registered over 4.3 million Nigerians. But there is still much to be done, in the sense that one of the major challenges facing the Commission is to ensure prompt payment of retirement benefits and this is where the media comes in.


This is because public enlightenment activities are needed to achieve the regulation and supervision of the pension industry because awareness is still very low. At Calabar, where PenCom held a workshop, BUKKY OLAJIDE reports that the Commission will achieve its objectives only with prompt payment of retirement benefits.


Pension system is not new in the country but the way it was operated posed a threat to the people concerned and did not render to the economy the long term funding benefit that pension fund could bring.There existed huge unfunded pension obligations and absence of social safety nets among other factors.


The country’s pension system now went through a reform which led to the setting up of the National Pension Commission but ideally, the PenCom exists only to regulate and supervise the pension industry, the management of the real funds lies in the hands of private sector otherwise known as Pension Funds Administrators (PFA) or Pension Funds Custodians (PFC).However, the Contributory Pension Scheme is mandatory in nature while funds are privately owned by contributors.


The industry has continued to consolidate as 4.3 million Nigerians had registered on the scheme as at end of July this year, the Director-General of PenCom, Mohammad Ahmad told participants.“There are currently about 23,000 retirees from the public and private sectors under the contributory pension scheme that have collected over N65 billion as lump sum and are collecting over N800 million as monthly pension,” he said.Additionally, assets worth N1.77 trillion have been accumulated as at the end of July, he said at the workshop with the theme: “Challenges of the Contributory Pension Scheme: 2010 and Beyond.”


Ahmad emphasised that the commission has been making efforts with a view to ensuring prompt payment of retirement benefits as well as promoting a vibrant and sustainable pension industry that will positively impact on the economic development of the nation.His words: “Our regulatory and supervisory philosophy is risk-based and consultative, covering all activities of the commission with particular emphasis on issuance of guidelines and regulations, surveillance of licensed operators, compliance and enforcement, supervision of investment of pension funds and maintenance of a databank on pension matters.”


Meanwhile, the commission had continued to issue additional and regulations to further guide operations within the pension industry so as to entrench sound corporate governance in the activities of pension operators.Some of the guidelines issued include; Risk Management Framework for Licensed Pension Operators, Guidelines for the Operation of Pension Transitional Arrangement Department, Regulations for Auditing of Pension Funds, Framework for Supervision of State and Local Government Regulations for Compliance Officers.


Also, in an effort to ensure the compliance with the provisions of Pension Reform Act (PRA) 2004, various strategies were embarked upon that included on-site inspection of employers, collaboration with regulatory and professional bodies, public enlightenment campaigns and application of regimes of sanctions.The commission also continued to collaborate with other government agencies in achieving full compliance by the private sector.


The Director-General explained that, in that regard, the support of the Bureau of Public Procurement (BPP) was obtained to ensure that any supplier, contractor or consultant bidding or soliciting contract or business from any Federal Government Ministries, Departments Agencies (MDAs) must fulfil its obligations with respect to pensions and must comply with the provisions of the PRA 2004 as required under section 16(b)(d) of the Public Office.Ahmad however needed to say that the Commission had been making concerted efforts towards the mitigation of the adverse consequences of the 2007 to 2008 economic meltdown that adversely affected the investment climate in the capital and money markets.


His words: That the pension industry in Nigeria was able to successfully weather the storm is a reflection to the robust regulatory and supervisory philosophy of the commission. PenCom ensured the safety, sound management and growth of pension assets in spite of the prevailing harsh global financial climate.With the benefit of hindsight, the conservative and restrictive investment regulations shielded the industry from the financial and capital market crisis of the last three years.


The commission continued to keep tab on the macro-economic fundamentals such as the Nigerian capital, money and annuity markets and the reforms in the banking sector. With the challenges of public confidence in other sectors of the financial services industry, PenCom had to contend with reassuring the public of its capacity to protect the pension industry.In order to implement the provisions of Section (4(1)(b) of the PRA 2004, the commission in collaboration with the National Insurance Commission (NAICOM) jointly issued the Regulation on Annuity as one of the means of expanding the number of retirement products available to retirees. While it is the mandate of NAICOM to regulate the annuity market, it is the responsibility of the Commission to ensure that the modalities for the administration of retirement benefits as and when due.


In this respect, NAICOM in collaboration with PenCom, has endorsed 26 life insurance companies to carry out annuity business in Nigeria. I would like to commend sister Regulatory and Government Agencies such as the CBN, SEC, NAICOM, NDIC, FIRS and BPP for their consistent support and cooperation to the Commission in actualising the ideals of pension reform in the country.The Commission developed a Comprehensive Corporate Strategic Plan that involves building pro activity and transparency into the Commission’s regulatory activities, developing skilled manpower and strengthening the internal operations of PenCom to enable it effectively and efficiently discharge its duties and obligations.


To accomplish these objectives, Departments have been realigned and new ones created, with their functions and manning levels clearly spelt out and implemented. In the same vein, the Commission in collaboration with other stakeholders is working assiduously to improve capacity in the industry.Generally speaking, the commission has face several challenges, the major of which is compliance challenge and this lies with the public as well as the private sector.Dr. Musa Ibrahim, speaking on this explained that the ]Commission faces the challenges of data integrity of personnel profile from MDAs, absence of centralised personnel data base as well as incorrect or incomplete documentation by employees.


While the above factors have to do with employees of the Federal Government in the states, the Commission faces the challenges of delay in enacting relevant laws and irregular funding of RSAs by some state government.In the private sector, Ibrahim stated that employees have low level of awareness coupled with low financial literacy level. But for operators, they present their own challenges in form of inadequate marketing drive, customer/service delivery and inadequate coverage.


For employers especially in the private sector, there are factors such as weak business environment, reluctance of some employers due to perceived increased personnel cost, non or irregular funding of contributions, remittance without correct schedules as well as the semi-formal nature of the services industry.For future plans, Ibrahim said that the Commission will develop a comprehensive employer data base as well as application of penalty for non-remittance of monthly contributions and engagement of consultant for recovery of outstanding monthly contributions.Other plans of the Commission for the future are; on-site inspection, legal proceedings, framework for informal sector employers and continuous sensitisation of stakeholders.


Despite the determination of the Commission, the challenges are still legion. Funsho Doherty, the chairman of the PenCom operations traced some of the challenges to the National Identification Scheme, stating lack of unique, nationally applicable means of individual identification such as social security or others used in other jurisdictions.Doherty also mentioned statistics as a major challenge explaining it as lack of readily available, definitive, reliable, comprehensive roll of employees in the public sector, labour and industry statistics and so on.


Compliance level in private sector particularly smaller employers, clarity on coverage and  exemptions, dealing with the large undocumented informal sector and building awareness were also mentioned as challenges.Concerning the customer service Doherty stated that documentation required to support remittance and benefit payment process is a major challenges and this includes communicating requirements clearly and managing expectation.On investment, challenges include an on-going need for review of investment regulating as well as achieving stability in a volatile financial market environment.


According to the chairman of operations challenges on investments also lie in broadening the pool of appropriate eligible investments and enhancing the efficiencies of other operators like Brokers and Registrars.For the near-term priorities of PenCom, Doherty called for support to enhance compliance and enforcement and to work with National Assembly on post-implementation review of the PRA 2004.


Speaking on Pension Funds Investment Regulatory Framework under PRA 2004, the commissioner, Technical, PenCom Ms Eyamba Henshaw explained that the major objectives of this framework is safety of funds based on the mandatory nature of the contributor pension scheme.According to her, the Regulation on Investment of Pension Fund Assets was first issued in May 2005, revised in November 2006 and October 2008.She explained that Pension Fund Assets are valued based on a Mark-to-Market Valuation Basis.


Authorised Markets for trading of Pension funds are; Floor of securities Exchange, registered or recognised by SEC (Security and Exchange Commission), Money Market Electronic Platform approved by CBN and exceptions initial issue of FGN and CBN Bonds  before listing and open-end Investment Funds.Allowable instruments are; Federal and State  Governments’ Securities, Quoted shares, corporate Debt Instruments, Bankers Acceptances and Certificates of Deposit and; Close-end Hybrid, Open-end and specialist Open-end funds.Henshaw also listed general investment criteria: Listing/Marketability requirement, risk rating requirement, track record of profitability and bonus/dividend payout.






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