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How we grew pension assets from N6.4trn to N15.2trn in 6yrs – PenCom DG

Mrs Aisha Dahiru-Umar is the Director General of the National Pension Commission (PenCom). In this interview with Daily Trust, she highlights how the commission under…

Mrs Aisha Dahiru-Umar is the Director General of the National Pension Commission (PenCom). In this interview with Daily Trust, she highlights how the commission under her leadership grew pension assets by over 100 per cent in the last six years and other salient issues in Nigeria’s pension sector.

 

Pension Fund Assets have recorded significant growth despite inflation, COVID-19 and other challenges. What has been the driving force?

Indeed, COVID-19 negatively impacted businesses worldwide, and Nigeria was not an exception. Notwithstanding, the value of Pension Fund Assets under the management of Pension Fund Administrators (PFAs) increased by 24.05% from N12.31 trillion as of December 2020 to N15.27 trillion as of January 2023.

The growth drivers are income earned from investments and pension contributions from RSA holders. Pension contributions increased due to improvement in compliance by both public and private sector employers because of measures taken by the National Pension Commission (PenCom) to improve coverage of the Contributory Pension Scheme (CPS).

It is essential to state that apart from the increase in pension assets, the number of registered pension contributors has also grown to 9.89 million as of January 2023. The goal of PenCom is to always sustain the growth in pension fund assets and CPS membership despite economic headwinds.

PFAs recapitalised last year based on PenCom’s directive. What is your assessment of the exercise?

In 2021, PenCom directed Pension Fund Administrators (PFAs) to increase their Minimum Regulatory Capital (Shareholders’ Fund) from N1 billion to N5 billion.

The upward review became necessary due to several factors. First was the increase in pension fund assets and the total number of contributors. Consequently, there was a need to maintain service standards and improve the capacity of PFAs in terms of operational efficiency and effectiveness.

Secondly, the increase in the capital requirement will enable PFAs to employ and retain skilled staff and ensure the adequacy of resources to fund operational requirements and activities.

PenCom is pleased that all PFAs complied fully with the N5 billion capital requirement at the close of the exercise on 27 April 2022.

PenCom recently released a list of mortgage lending banks eligible to participate under the guidelines on accessing Retirement Savings Account (RSA) balance as equity contributions for Residential Mortgage by RSA holders. Has the implementation commenced?

Last year, PenCom issued guidelines on Accessing Retirement Savings Account (RSA) Balance towards Payment of Equity Contribution for Residential Mortgage by RSA Holders.

The development actualised the provisions of Section 89 (2) of the 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”.

After the publication of the names of mortgage lending banks eligible to participate, PenCom has received applications from some RSA holders. As of 24 March 2023, PenCom had approved 13 applications amounting to N130.27 million.

How many states currently operate the CPS, and what are your efforts in making the rest join?

Ten states are currently operating the CPS: Lagos, Osun, Ekiti, Ondo, Edo, Delta, Kaduna, Anambra, Benue and the Federal Capital Territory. To encourage and facilitate the implementation of the CPS in other states, PenCom carries out advocacy meetings and sensitisation programmes for critical stakeholders in the respective states.

PenCom maintains zonal offices in each of the country’s six geopolitical zones to facilitate its engagements with the stakeholders and bring its services close to the public.

Furthermore, to encourage the participation of state governments in the CPS, PenCom issued guidelines allowing states to raise funds from the pension industry for infrastructural developments through the issuance of Bonds.

Accordingly, any state that has fully implemented the CPS can float a bond for infrastructural development, and PFAs are allowed to invest pension funds in such bonds.

Some government agencies want to exit the Contributory Pension Scheme (CPS). What are you doing to keep them, especially in terms of pension enhancement?

PenCom is opposed to any attempt to exclude public servants from the CPS. It is imperative to remember that a vital objective of the pension reform is to implement an affordable and sustainable pension system for Nigeria.

Furthermore, despite the substantial gains made in the country regarding pension and retirement benefits administration because of the CPS, there are still compelling economic, fiscal, social and public policy arguments against the exemption of public servants from the CPS.

Firstly, exemption from the CPS would imply an additional financial burden on the federal government through unsustainable pension obligations. The federal government is already overburdened with the payment of pensions under the Defined Benefits Scheme, as illustrated by the 2023 Appropriation Act.

Another immediate negative impact is that it will disturb the FGN’s fiscal policy and financial system stability. Currently, about 63.17% of the N15.27 trillion pension assets are invested in Federal Government securities.

Exempting the public sector institutions would lead to material divestment from FGN securities before maturity, which would have adverse ripple effects on the finances of the government and the entire financial system.

The arguments for exit have always been hinged on low pensions. But the PRA 2014 has adequate provisions that can resolve this concern without recourse to exemptions from the scheme.

The FGN can review the rate of pension contributions for public servants beyond the statutory minimum of 18% and consider the establishment of additional benefits in the form of a lump-sum payment at the point of exit.

I recommend that Nigeria institutes zero pillar pensions in the form of a social security benefit, which is recognised and provided for under Section 16(2)(d) of the Constitution of the Federal Republic of Nigeria 1999 (as amended).

If implemented, it will go a long way to alleviate the sufferings of all Nigerians, irrespective of whether or not they had formal employment. It will also augment earnings from occupational pensions.

On PenCom’s part, we have been engaging all stakeholders to understand the negative consequences of further exemptions from the CPS while reassuring public servants that the PRA 2014 has provisions that can address their concerns about the CPS.

In December 2017, PenCom instituted a periodic pension enhancement policy, where retirees’ monthly pensions are enhanced based on the performance of their RSAs every three years.

PenCom recently announced the third edition of Pension Enhancement under the CPS. The exercise commenced on 1 February 2023 and is for retirees under programmed withdrawal whose RSAs have grown significantly. Based on the analysis of retirees’ data, PenCom determined that 111,187 retirees qualify for the third edition of pension enhancement.

Regarding accrued rights, how much has PenCom paid to federal government retirees under your leadership of the commission?

The Accrued Pension Rights represent an employee’s benefits for the past years of service up to June 2004; when the PRA that birthed the CPS came into effect. From April 2017 to 23 March 2023, we have paid N455.17 billion accrued rights to 103,301 retired/deceased employees of the federal government.

PenCom appreciates the federal government’s effort to clear the accrued rights arrears. We also thank the affected retirees of the treasury-funded agencies for their patience.

What are your plans for the year 2023?

PenCom is finalising a new Corporate Strategy to drive its mandate. The commission will also continue to strengthen its processes and institutional framework to ensure continuous consolidation of the gains of the pension reforms.

Particular focus will be given to developing eligible instruments for pension fund investments in alternative assets, which would drive economic development in the country.

Finally, PenCom will continue to pursue capacity building in all areas of its operations to ensure the pension industry is effectively regulated and supervised.

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