N2.9trn pension assets: Investment guideline for review
By VICTOR AHIUMA-YOUNG & ROSEMARY ONUOHA
National Pension Commission,PenCom has indicated intention to come up with proposals to amend the enabling Act of the new Contributory Pension Scheme (CPS) in response to growing calls for the investment of some part of the N2.9 trillion pension assets in infrastructure development.
investi9gation by Financial Vanguard reveal that Commission is alreadying reviewing the investment guideline of the Pension Reform Act, 2004.
Meanwhile, employers in Nigeria, under the umbrella of the Nigeria Employers Consultative Association, NECA has called on the PenCom, to set up a performance benchmark for Pension Fund Administrators, PFAs, in managing contributors’ funds. At an interactive meeting between members and officials of the Commission over the planned review of the Pension Reform Act, PRA, 2004, in Lagos, members of NECA also demanded for the review of the provisions of the benefits due from the Group Life Insurance Policy to include a beneficiaries and indemnity clause; separation of death in service benefits from Pension benefits.
On the transfer of unclaimed funds especially under the Nigeria Social Insurance Trust Fund, NSITF, scheme to the Central Bank of Nigeria (CBN) for management, NECA members advised that, since the money involved is a private sector fund, Trustfund Pensions Plc should create a dedicated account, which PenCom can exercise authority on, or manage in respect of unclaimed contributions from NSITF fund.
NECA members insisted that PFAs should handle all Pension functions in Nigeria (be it public or private); there should be provision of sanctions for officials of the Commission found wanting in the discharge of their duries; And the Commission should define the roles and scope of assignment of its Agents and Consultants.
NECA, on behalf of its members,sought guarantee from the Commission that the inputs of employers and other stakeholders would translate to reality and not a wasted effort. It also requested the Commission to document all inputs from Stakeholders at the end of all consultations. This, they said, would be for the purpose of harmonization of opinion by a Committee that is representative of all relevant stakeholders. The Committee would be saddled with the responsibility of looking at the draft bill that would be produced by the Commission.
The plan review notwithstanding, PenCom has declared that pension fund will not be invested in wasteful ventures, stressing that every investment will be in accordance with the investment guideline indicating that pension fund will only be invested in authorised ventures with portfolio limits and performance benchmarks. The pension funds asset which has grown into a pool of long term investible funds for economic development stood at N2.94 trillion as at September 2012. The fund is reported to be growing by at least 30 percent annually.
Already, part of the fund had been invested into some sectors of the economy. Investigation showed that about 12 per cent of the funds has been invested in shares, 61 per cent in Federal Government securities, four per cent in state government bonds, two percent in corporate debt securities while money market securities has 13 percent.
Available data showed that Real estate has six per cent, unquoted securities has one per cent while open/close end fund as well as others have zero percent investment.
According to PenCom, the regulation on investment of Pension fund assets was revised to expand the allowable investment outlets to include alternative asset classes such as Private Equity (PE) funds, infrastructure financing (Debt Instruments and Funds) as well as supranational bonds, amongst others.
However, the regulation is currently undergoing review for establishment of multiple funds; ethical fund even as guidelines on offshore investment is being worked out.
Analysis of sectoral contribution to the pension fund showed that public sector contribution was N811.77 billion from July 2004 to August 2012. The private sector on the other hand contributed N1.57 trillion, which represented about 55 per cent of assets of the total contributions.
There are currently about 54,558 retirees from the public and private sectors under the CPS that have collected over N151.52 billion as lump sum and are collecting about N1.77 billion as monthly pension. The pension industry currently has established legal and institutional structures of 21 Pension Fund Administrators, PFAs, seven Closed Pension Fund Administrators, CPFAs, as well as four Pension Fund Custodians, PFCs.
According to PenCom, Pension Transitional Arrangement Department (PTAD) consisting of the six FGN Pension offices has been established by law and is regulated and supervised by PenCom. About 21 state governments have adopted the CPS while 14 others are at various levels of enacting their CPS laws.
According to Director General of PenCom, Mohammed Ahmad, acceptability and confidence in the CPS by the private sector and state governments is on the increase even as many employees in organisations that hitherto did not have pension schemes are now registered under the CPS.
As a condition for investment in infrastructural projects, Pension Fund Operators, PenOp, are demanding for an irrevocable guarantee from the Federal Government that such projects cannot be changed.
Pension operators have said that if the Federal Government is serious about using some part of the pension fund to revamp the infrastructural deficit in the country, there is need for a tripartite partnership involving PenCom, Pension Fund Operators, PenOp, as well as the federal government.
Chairman of PenOp, Mr. Dave Uduanu, who made this assertion, said that infrastructural projects must be guaranteed by government if PenOp will be involved. Uduanu said “Specifically, on infrastructural development, what we asked for is that it must be public private partnership projects and those projects must have a guarantee from the federal government.
Those are pre-conditions that must be met, before pension funds can be used for infrastructure. If those pre-conditions are not in place, the fund cannot be used for infrastructure. It is also in the PenCom guideline that the projects must be guaranteed by the federal government because we know that in this country, one government can give you a concession and another government could come and revoke it. We want an irrevocable guarantee from the federal government that these projects cannot be changed.”
Uduanu said that “pension funds can go into infrastructure either through a bond – a dedicated infrastructure bond that is tied to a specific project. Take for example, Lagos/ Ibadan Expressway is a project that is adjudged to be viable because of the traffic on it.
If the federal government says it wants to do the road and would give it to a project manager who is reputable, who would employ a contractor, and the government says it wants to issue infrastructure bond of say N100 billion to finance the project, and we know that when the project is finished, there would be toll which would enable them collect the money, of course, pension funds can be deplored to such a project.
Like what they did in Chile, they used pension fund to finance the national housing deficit, but it was through mortgage bonds that were issued and guaranteed by their government. Those bonds meant that pension funds put money in a pool and people borrowed this money to build houses, particularly those that were contributors to the scheme, but there was a guarantee that the money would not be lost. Pension fund can invest in those kinds of projects.”
According to Uduanu, the number one objective of PFAs is to ensure that when a contributor retires, there is money to finance his pension. PenCom has at various times, came up with guidelines on how the pension fund should be invested. The first guideline that was issued was very conservative. It was only money market and bonds with some equities that benefitted from it. The guideline has been revised three times and isgoing through the fourth revision.
The last revision included all sorts of instruments. There was inclusion of infrastructure, private equity, mortgage backed securities, real estate investment trust. The challenge we have is that in Nigeria, people do not care to read those guidelines before they make pronouncements. People say we want pension fund to be used for housing, the law has said we can invest in mortgage backed securities and real estate investment trust. However, there are clear guidelines that must be met before we can do that so that the pension assets are protected.”
“There can be a tripartite meeting between government, PenCom and PENOP, and we would work out a framework for some of these projects on case-by-case bases with government guarantees and these things will begin to happen. Obviously, if we set out five or 10 percent of pension funds and do demonstration projects that people can say ‘this road was financed by pension funds’ that will be good.
We need to stand back and remember that pension fund is not national savings. It belongs to individuals who need it most when they cannot afford to lose the money, when they are 60 years and above. So the first job of every PFA is the security of the pension funds.”
For Managing Director of Stanbic IBTC Pensions Managers Limited, Mr. Demola Sogunle, a common challenge in Nigeria has been matching long term developmental goals with short term capital funding. The pension funds provide an opportunity to match long-term projects with long-term funds, he said. Sogunle, however, said that the fiduciary responsibility of all stakeholders must be met to ensure that everyone is better off in the long term.
“The work to be done now is setting up the institutional framework that ensures people’s pensions, 10 -30 – 40 years from now don’t get swallowed in projects. It is also important that fixed income securities, floated to finance long term projects such as infrastructure, are structured in such a way as to protect the contributors against inflation, which can erode the real returns on such instruments in the long term.”