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Recapitalisation, other major events that shaped pension sector in 2022

The Nigerian pension sector has been described as one of the most critical sectors in the country’s economy. In this report, Daily Trust analyses major…

The Nigerian pension sector has been described as one of the most critical sectors in the country’s economy. In this report, Daily Trust analyses major events that shaped the sector in 2022 and expectations in the coming year.

The Pension Reform Act (PRA 2004) introduced the Contributory Pension Scheme (CPS) which replaced the Defined Benefit Scheme (DBS). It was described as one of the major reforms of the sector by then-president Olusegun Obasanjo.

Eight years later, Nigeria is reaping the fruits as the sector has grown exponentially in terms of assets.

The pension assets under management by Pension Fund Administrators (PFAs) increased to N14.59 trillion as of the end of October 2022.

According to the National Pension Commission, the total pension assets increased by N164.44 billion from N14.424 trillion in September.

The pension regulator also added that 9,850,094 Retirement Savings Account (RSA) holders have enrolled on the Contributory Pension Scheme as of October, while 84,000 have enrolled on the Micro Pension Plan (MPP) as of the end of September.

 “In terms of asset distribution on investment, federal government securities continue to maintain a leadership position with 63.23 per cent of the total assets amounting to N9.225 trillion, dominated by FGN bonds worth N8.840 trillion.

“Money market instruments followed with 14.91 per cent of the total assets under management, equal to N2.175 trillion, with fixed deposit/bank acceptance dominating with N2.036 trillion.

“State government securities are third with 10.46 per cent equal to N1.527 trillion, while domestic ordinary shares total N828.167 billion, equal to 5.68 per cent of the total assets,” the report by PenCom said.

Daily Trust notes that the N14.59 trillion represents over 100 per cent increase in just five years as the assets were just N6.42 trillion when the current director general, Mrs Aisha Dahir-Umar, took over the leadership of PenCom in an acting capacity in 2017.

Aside from the increase in pension fund assets, the Daily Trust analysis showed some major events that took place in 2022 and shaped the performance and operations of the sector.


Recapitalisation of PFAs from N1bn to N5bn

Just like the recapitalisation of the banking sector in 2005 that raised bank’s capital base from N2 billion to N25 billion, the pension sector also witnessed a similar exercise as the National Pension Commission raised the capital base of Pension Fund Administrators from N1bn to N5 billion.

Daily Trust recalls that PenCom had approved the recapitalisation exercise for the PFAs with a 12-month transition period from April 27, 2021, to April 27, 2022.

The recapitalisation process led to the reduction of the number of PFAs from 22 to 20 with some mergers and acquisitions within the period.

“It is worthwhile to state that 10 PFAs 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.

“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 recapitalisation exercise,” PenCom said in a statement.

Subsequently, the regulatory body approved the acquisition of AIICO Pension Managers Limited by FCMB Pensions Limited; the merger between Tangerine Pensions Limited and APT Pension Funds Managers Limited, and the subsequent change of name of the merged entity to Tangerine APT Pensions Limited.

Also, the commission approved Norrenberger’s acquisition of IEI-Anchor Pension Managers Limited, after its acquisition of the majority shareholder, IEI Plc.”


25% RSA savings balance for mortgage

Also in the year under review, PenCom issued Guidelines on Accessing Retirement Savings Accounts (RSA) of 25 per cent savings to pay equity contributions for residential mortgages by RSA holders.

It directed interested RSA holders to contact their Pension Fund Administrators (PFAs) for guidance, and that the guidelines cover pension contributors in active employment, either as a salaried employee or self-employed person.

According to the commission, interested RSA holders (applicants) must, among other things, have an offer letter for the property duly signed by the property owner and verified by the mortgage lender.

The RSA of the applicant shall have both employer and employee’s mandatory contributions for a cumulative minimum period of 60 months (five years).

It added that married couples, who are RSA holders, are eligible to make a joint application, subject to individually satisfying the eligibility requirements.

According to PenCom, “RSA holders, if registered before July 1, 2019, must have their records updated through the RSA data recapture exercise while the application for equity contribution for residential mortgage shall be in person and not by proxy.”


Surge in RSA Switch

In the same vein, Daily Trust found that a total of 30,973 Retirement Savings Account holders switched their pension fund administrators in the third quarter of 2022.

This figure represents an increase of 109% compared to the 14,821 holders that switched in the previous quarter, according to the quarterly summary of retirement savings accounts transferred by PFAs for the third quarter.

The number of RSA transfers processed in Q3 2022 is the highest quarterly number recorded since the opening of the transfer window in November 2020.

Meanwhile, Daily Trust checks showed that total transfers have hit 109,522 since inception.

A further breakdown also showed that in the fourth quarter of 2020, when the RSA transfer window was opened, 2,799 RSA holders transferred their accounts to a preferred administrator.

The number rose in the next quarter to 12,681 accounts and the number has so far been on the surge hitting a record number in the third quarter of 2022.

Section 13 of the Pension Reform Act (PRA) 2014, states that a Retirement Savings Account (RSA) holder may transfer his RSA from one Pension Fund Administrator (PFA) to another. The Act added that such transfer should not be more than once a year.


Increased monthly pension withdrawals

Also, PenCom recently approved the increase of monthly pensions for retirees on “programmed withdrawal” under the contributory pension scheme (CPS).

According to PenCom, this is the third edition of pension enhancement under the CPS.

The commission said the new increase will take effect in February 2023


More states to key into CPS in 2023 – Expert

Speaking to Daily Trust on the expected outlook for the pension sector in 2023, a pension expert, Mr Sani Mustapha, said with the numerous reforms by the National Pension Commission, he expects more states to key into the Contributory Pension Scheme (CPS).

“For 2023, I expect that more states would key into the CPS because of its transparency and the ease it brings to the relationship and operations between the government and its employees

“Also, I want to note that the opening of the window of acquisition of homes by RSA owners through structured mortgage arrangements will provide a huge opportunity in the CPS,” he said.

He however called for more sensitisation against fake information about the CPS by those who lost out on the reform in the pension sector. 


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