Why pension assets’ growth will be moderate this year — Dahir-Umar

Aisha Umar-Dahir is the acting Director General of the National Pension Commission (PenCom).

In this interview with Daily Trust, Umar-Dahir speaks on the impact of the Coronavirus (COVID-19) on the pension industry in Nigeria and expresses optimism that, despite the global systemic shock and negative impact on Nigeria’s equity and fixed income markets, pension assets will record moderate growth in 2020, amongst other issues.

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COVID-19 pandemic has disrupted several sectors of the economy, including the pension industry. How has the pandemic impacted the pension industry?

The COVID-19 crisis presented an unexpected supply and demand shock to the global economy with far reaching and uncertain consequences. Emerging markets and developing economies such as Nigeria were highly exposed to the global systemic shock. The initial impact on the Nigerian markets has been critical, with price adjustments observed across fixed-income and equity markets. You are aware that pension funds are invested in these markets.  The equity and fixed income markets in Nigeria are, however, responding to the initial impact of pandemic and improvements have been noted already in the first quarter of 2020. The pension funds are, therefore, expected to achieve moderate growth in 2020 despite the challenges of COVID-19 on the economy. The COVID-19 pandemic has slowed down the economy, which resulted in decrease in asset prices and an opportunity for pension funds to take advantage of the low prices in the stock market to achieve the long-term objectives of fair returns to contributors. As the COVID-19 pandemic continues to affect the Nigerian economy, the Commission would, on a continuous basis, issue policy directives for the pension industry with a view to placing pension fund investments in a more advantageous position.

Were there specific goals and targets you set to achieve in 2020 that had been adversely affected by COVID-19 pandemic?

The Commission had identified specific objectives as well as targets to be achieved in 2020 within the context of its corporate strategy. Some of the objectives included increasing the CPS coverage in the informal sector and states as well as the organized private sector. The Commission had also set to achieve opening the transfer window, which would enable mobility of contributor’s RSA from one PFA to another. With regards to attaining improved coverage, the Commission planned to work with the PFAs to increase participation by informal sector workers through the Micro Pension Plan. Similarly, the Commission is engaging with some state governments to ensure proper implementation of the CPS and have more states subscribe to the scheme. The current pandemic has, however, slowed down the pace to actualize these goals. In addition, the Commission had a number of measures designed to enhance compliance by the private sector employees, especially the engagement of Recovery Agents (RA) to recover outstanding contributions and interest penalties that had accrued. The COVID-19 and consequent lockdown has affected the activities of the RAs, the level of compliance by private sector organizations and the rate of recovery of outstanding pension contributions and interest penalties in 2020. With respect to the transfer window, the Commission had planned to commence its implementation by May 2020. It is expected to enhance service delivery by the PFAs. Unfortunately, the implementation of the transfer window by May 2020 has been hindered by the pandemic.

As the regulator, what has been your assessment of the stress status of PFAs to withstand shocks of the current pandemic and the attendant looming recession in the economy?

The pension industry has remained sound and resilient even in the face of the COVID-19 pandemic challenges, as Pension Fund Administrators (PFAs) have built up significant capital reserves over the past years. These reserves serve as a buffer in any adverse financial situation including the one caused by COVID-19.

There are concerns that current realities may impact negatively on the projected rise in pension assets? What is your view on this and what measures have you put in place to ensure that the impact is minimal?

There are ongoing efforts by the Commission and industry stakeholders to further diversify the investment portfolio of pension assets and deepen investment channels with particular focus on pension fund investments in alternative assets. Furthermore, wide range stakeholder engagements are ongoing with focus on development of capital market products, including hedging tools, which would serve as buffers to safeguard pension assets especially during volatile periods such as the COVID-19 pandemic.

In March 2020, you revised the policy on management of the Statutory Reserve Fund. What were the key revisions and what informed the new measure?

The revision increased the investment limits for allowable asset classes as they relate to the investment of the statutory reserve fund. Investments in Federal Government Bonds, Money Markets and Treasury bills were increased to 50%, 45% and 100% respectively. The review became necessary due to the recorded growth in the statutory reserve fund.  Consequently, the Commission had to increase the upper limits of the allowable asset classes to mitigate the risk of frequent re-balancing, which sometimes leads to sub-optimal returns.

Recently, you dissolved the Interim Management Committee of First Guarantee Pensions and handed over the PFA to a Board of Directors. Does this mean all issues have been settled and to what extent did your regulatory intervention help in salvaging the PFA?

The Commission’s regulatory intervention in First Guarantee Pension Limited (the PFA) resulted, among other things, in the appointment of an Interim Management Committee (IMC) to superintend over the affairs of the PFA. The intervention was undertaken in August 2011 based on the findings of the routine and special examinations carried out by the Commission. The conclusion of the intervention was as a result of the judgment delivered by the Court of Appeal, Abuja Division on Thursday, 30 April, 2020, in the three appeals filed by the Commission, the Attorney-General of the Federation and the PFA, against the judgment of the Federal High Court that nullified the Commission’s regulatory measures. The Court of Appeal’s decision upheld the Appeals, thereby setting aside the judgment of the Federal High Court in its entirety. Thus, the judgment of the Court of Appeal validates the regulatory actions taken by the Commission in 2011. Accordingly, the Commission has handed the PFA over to its Board. However, this does not mean all issues had been settled. The Commission has mandated the PFA’s Board of Directors to resolve outstanding internal issues within six months from the date of handover. The regulatory intervention in 2011 stabilized the PFA and protected over N42.2 billion pension fund assets for about 163,617 contributors. The assets under the management of the PFA have since grown to about N215 billion as at 31 December, 2019.

Will the RSA Transfer Window be Opened this Year as Projected?

The Commission has fully developed the RSA Transfer System (RTS), a robust electronic platform that would process RSA Transfer Requests.  This notwithstanding, the full deployment of the application, which would primarily be utilized by Pension Fund Administrators (PFAs) for the submission of RSA Transfer Requests, would entail extensive training and simulation of the processes, industry-wide. However, the Commission is unable to carry out the training and simulations due to the nationwide partial lockdown. In view of the anticipated easing of the lockdown by the Federal Government and the lifting of ban on interstate travels, the Commission is optimistic that all necessary preparations will take place to enable opening of the RSA Transfer Window by the end of the year 2020.

How far has the Data Recapture Exercise (DRE) gone?

Data Recapture is an ongoing nationwide exercise embarked upon by PFAs to obtain complete, accurate and current data of all RSA holders (both active and retired) in line with the provisions of Section 23(e) of the PRA 2014.  To achieve that, the Commission designed, developed and deployed an Enhanced Contributor Registration System (ECRS) in June 2019, for the registration of participants. As at May 2020, the PFAs have covered about 5% of the existing RSAs that have to be recaptured. This exercise will continue until every RSA holder on the Commission’s database has updated his/her records with their PFA. Non- provision of National Identification Number (NIN) by contributors and the nation-wide lockdown occasioned by the COVID-19 pandemic has slowed the registration exercise. Consequently, the Commission advises all Retirement Savings Account holders, both active and retired, to provide their respective PFAs their NINs and other mandatory bio-data information required for recapturing.

How is the implementation of CPS going at the state level?

A total number of 25 States of the federation have enacted pension laws of the Contributory Pension Scheme (CPS) while seven states are at the bill stage. Meanwhile, four states have adopted the Contributory Defined Benefits Scheme. It is also important to note that five states, namely Jigawa, Kano, Gombe Yobe and Zamfara, are implementing other Pension Schemes that are not Contributory Pension Scheme (CPS). Yobe State has, however, inaugurated a Committee on the adoption of CPS and engaged the Commission for necessary guidance.