NDIC, PenCom and PPF

The Nigeria Deposit Insurance Corporation (NDIC) was set up principally to give some degree of insurance cover to money kept in all money deposit institutions and other banks. The insurance cover is limited. It is not for 100 per cent of the deposits belonging to individuals or corporate entities.

In other words and for emphasis, the NDIC was established to foster confidence in the banking industry by guaranteeing the safety of deposits in banks and other financial institutions. Thus, in the event of failure of an insured financial institution, the payment of the insured deposits to customers of the concerned bank is guaranteed up to a specified limit.

Now that there is a Contributory Pension Scheme (CPS) in the country with an asset base of N9.03 trillion in the latest count, is the NDIC geared by the Act establishing it to specifically give protection to the monies in Retirement Savings Accounts (RSAs)?  The monies are kept by banks through their Pension Fund Custodianship businesses.

If the protection the NDIC offers to RSAs is exactly similar to the protection it gives to all deposits, then there is a need for a review. This means that the NDIC, the National Pension Commission (PenCom) and the Ninth National Assembly should come together to devise a more favourable or generous protection to deposits in RSAs by increasing the percentage of the savings that is guaranteed and payable to the contributors. This is will ensure that CPS pensioners do not lose all their savings or slip into old age poverty in the event of collapse of Pension Fund Administrators, Pension Fund Custodians or the insolvency of their mother institutions.

To strongly protect the RSAs and strengthen the financial safety net for CPS pensioners, the role of the NDIC may be extended by amending its establishment Act to add a Pension Protection Fund side to it. In the alternative a new institution to serve that purpose may be established. Many countries have such Funds solely established for the protection of pension assets. Nigeria should join that League of Nations.

Another option is to go the way of the United Kingdom’s Financial Services Compensation Scheme (FSCS), which gives an adequate protection or compensation to pensioners whose pension fund managers, custodians or administrators, bust. The FSCS is roughly the equivalent of the NDIC. The increase in the rate of protection and compensation for pensioners’ money came into effect in April 2019, barely two months ago. So, it is just timely for Nigeria to embrace the idea.

“The Pension Protection Fund (PPF) was set up by the Government to protect the benefits of members. If you are a member of a defined benefit or cash balance scheme (not the Contributory Pension Scheme), and your employer goes out of business leaving the scheme without enough money to pay the benefits due, the PPF may pay you compensation,” says UK’s Pensions Advisory Service.

Beside the FCSC, the United Kingdom has established The Pension Regulator (TPR) which is functionally almost similar to the PenCom.

One of its key functions regarding protecting Defined Contributory Pension Scheme or workplace pension is explained: “TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only).”

Under whatever arrangement it may be instituted, a PPF is desirable to ensure that pensioners are not left in the cold if something unpleasant happens to the managers and custodians of their cash pots.