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Pencom’s risk-averse guideline saved pension funds in stock market crash — Ideva

Ifeanyi Ugwuadu
Who are the people behind First Guarantee Pensions Limited. Any association with companies with the likes of First Bank, etc.

First Guarantee Pension is a pension fund administrator set up by reputable Nigerians who had seen far beyond the gains in the pensions market. At the enactment of the Pension Reform Act of 2004, most of the people involved in the enactment of that Act were able to see the gains that would accrue to Nigerians and the country and they then set out to establish this company. The company’s shareholding structure comprises of 30 shareholders and they are not related to any of the Firsts in corporate Nigeria. It’s independent but with diverse interests. In addition to that we have two institutional investors; one from South Africa holding 30% equity since last two years and SpringLife Assurance.

Has the choice of ‘First’ any relationship with your vision or ambition in the market
Yes, our vision is to become the first PFA in Nigeria and the only way to get there is to ensure your company is process-driven, your service delivery should be best and also make sure your contributors can depend on you to grow their investment. In the long term we aim to be the best PFA in the pensions industry and also we are going to guarantee returns on investment of contributors’ funds.

Last year, for instance, when people were mourning the loss of investment due to meltdown, we didn’t suffer any significant loss because we’re able to see the future. While people were reporting huge losses on their 2008 account, our provisional loss was far less than 5% which in relation to the industry is quite commendable.

What position is First Guarantee in the first five years of operations
well, in any industry, especially a new one, the first four/five years was kickoff time for all PFAs; it was a learning period for everybody. I believe the next five years, we are going to start differentiating between PFAs. We are going to see which PFA is the best managed, the most reliable PFA will also emerge. What we have started doing is to take a stock of the industry and identify two most points in the pension scheme. We see at one point the customer who is the holder of retirement savings account and the other point, the retiree who is the beneficiary of RSA.

The kind of skill we bring on board in the management of funds and returns on investment for RSA holders are the things that will differentiate PFAs in the next five years. And for First Guarantee Pension Limited we have seen that we will be among the best-managed PFAs in the market, though we may not be the biggest.

What have been the challenges in the past five years
The industry is new one entirely. We were confronted with skills problems. We also had to deal with stringent regulatory requirement. The issue of compliance is another key challenge. The law is there but enforcement is another issue. For every PFA you are also required to have and maintain visibility in all the States. Apart from the 38 branches we have now, we also use the platform of our pension fund custodian, owned by First Bank to also create access for our customers. We have a strength of 192 and a huge monthly salary bill to contend with and these are the challenges we faced these past five years. The pension industry is IT-driven and that means we have to maintain as a robust IT platform. We have an indigenous software specifically designed for the pensions industry and it has been very useful. With it we are able to maintain realtime-online contact with our customers. In the last five years we have maintained a steady growth. We have well over 100,000 RSA accounts and managing RSA portfolio in excess of N20billion.

How have your company been delivering services to contributors across the country
The purpose of this industry is to ensure that people have their retirement benefit as at when due and the PFAs are to ensure that this overriding objective is fulfilled. We have a robust IT platform that helps our contributors access their accounts. Anywhere you are located in this country, you have a location nearest to you where you can access us. And we also send statements to customers. There is also a customer desk at our head office where contributors can call and get clarifications on issues that bother them on their accounts. The difference in the PFAs is the form of service delivery. And that where we have tried more than any competitor to be customer-centric. And with the help of our South African partners we are upgrading our process delivery. This is what we been doing in the past two years and we intend to maintain the upscaling.

Are you in support of opening up more investment windows for pension assets
When Pencom set the limits for investment of pension a lot of people faulted them but we have seen the wisdom in that, to the extent that because of the investment ceiling of 25% for placements in the capital market, the pension funds was saved from huge losses. Assuming that the entire capital market went under, the pension fund would have lost only 25% and with returns on other asset class, you can actually balance off. I commend the regulator for their wisdom on this aspect.

Whether there should be new horizons for investments, I would say yes; we should have more opportunities for investment outlay in infrastructure development. In other climes, pensions funds have been used to jumpstart the economy in terms of roads, real estate and even adjusting macroeconomic variables like inflation rate. I think a lot of discussion is going on at the regulatory level on how these could be fashioned out so that people’s money are not put at risk. I also hear about corporate bonds that will be guaranteed by insurers before we could be allowed to invest so that the funds are freed and could be channelled to infrastructure development. The pension funds is risk averse because; you cannot gamble with people’s money. Anything investment opportunity being considered must first satisfy the regulator’s safety standards. The overriding principle is safety of the funds and not necessarily returns.

Would you say that insurance is seriously being considered as risk solution for these new investments being considered
Like I said, we can’t gamble with people’s money. Knowing Pencom the way they operate, they will certainly not allow PFAs to gamble with funds. For pension funds to be channelled to infrastructure development, there must be a federal government-backed insurance policy so that if the policy goes under all we need do is go to insurance companies and get a recourse.

What is your experience with first set of retirees under the scheme
As I speak to you, we have about 990 retirees we are managing and we have paid out N1.375billion as lump sum payment to retirees. We have also paid out N215million as programmed withdrawal for retirees we’re paying.

This is for 546 retirees who are on our payroll on monthly basis. The 990 is composed of retirees whose accrued rights have been paid to us by Pencom for the work done pre-2004 Pensions Reform Act. Between the time the Act was enacted and the period before it, when a federal government employee is due for retirement, the government converts it into a bond and liquidate by paying the amount to us. We have received bonds of about 990 retirees but on our monthly bill we have 546 we are servicing on monthly basis. The total payment so far we have paid out so far is N1.590billion. We are also processing documents for the remaining retirees so that in the next few months, we have the 990 retirees on our retiree payroll. Prompt payment of our retirees as early as 24th of every month is key to our processes.

Do you buy into suggestions that employers should raise salaries to raise the standard of retirees
Like any where in the world, retirees are supposed to be having good time because it means that you have done so well for your country or organisation that entitles you to a comfortable retirement. But I must say here that when there are reports that pensioners die on queue while waiting to be paid, it is definitely not under this new scheme which produced its first set of retirees this year. Under the new Pension Reform Act, I feel that anybody who is retiring, depending on the level you are retiring, has a different set of needs as when you are young. Because your needs are different, what you need is sustenance to maintain your lifestyle. Ideally, a retiree is not expected to be training children and paying school fees. You are not expected to be building houses. If actually the money paid to retirees go into sustaining them, then what is paid is okay. We must also be aware that there is a global economic meltdown and the country is not shielded from it. I think people should be more concerned now with job security than increase in salaries.


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