By Ifeanyi Ugwuadu
Bello Maccido is a well known investment banker, a lawyer and administrator. He has over 25 years hands-on experience in the financial services sector. With his rich background in funds management, he moved into pensions industry with the enactment of the Pensions Act 2004.
He is the Managing Director/CEO of Legacy Pension Managers Limited, one of the pioneer pension administrators under the contributory pension scheme. In this interview, he reviews exclusively to Vanguard the first five years experience of the new pension scheme, the challenges, opportunities in the past years and insight into new possibilities in the coming years.
Could you offer an overview of contributory pension scheme, five years down the line?
As somebody who have been involved with the new pensions scheme, right from its inception, I must say looking back over the last five years, that this scheme has advanced very remarkably and very appreciably in the sense that we started this industry, first going through the regular process of setting up a pension fund administrator, pension fund custodians.Â After securing licences, then we moved to the era of going into the market to reach out to workers across the country to obtain enrolment of those workers by getting them open a retirement savings account. We have moved from that stage to the stage of receiving contributions into the retirement savings accounts from contributors across the country. And now we are at the point where a number of workers who joined the scheme are beginning to retire under the scheme.
I would, therefore, say that this scheme has gone full circle; it started from enrolment to the point we are beginning to pay our retirees. Now in terms of aggregate number, just to buttress my point, let me say that this scheme has accumulated over N1trillion in assets. So, definitely you can say that from inception to date, a lot has been accumulated and I must also say that the federal government has shown that a lot of commitment to this scheme by ensuring that it remits its employees contributions totaling about N160billion till date. The National Pensions Commission has credited over N160billion into the retirement savings account of federal workers signaling significant commitment of the federal government to the success of this scheme.
I have also mentioned that this scheme has gone full circle. Based on current figure about 5700 workers have began to enjoy their retirement benefits. This translates to over N18billion has been paid out to those who have already retired under the scheme. You can see that from the conceptual perceptive, from the point of view of getting this scheme off the ground to the point where weâ€™re beginning to administer retirement benefits, this scheme has reached advanced stage.
What has been the challenges in operating this pensions scheme?
Let me say that as it stands today, this scheme is a resounding success. Having achieved the volume I have mentioned, having also been able to register well over 3million workers across the country, I guess you can see that significant and modest accomplishments have been made in the journey to get Nigerian workers fully involved pension administration. But when you look at the aggregate employment figures of this country, put at about 40million workers and based on our arithmetic and based on the requirement of the law that says any organisation that 5 or more employees is required to ensure its employees are registered under the new pension scheme, you can see that there is a huge challenge of how to deepen the penetration from a little over 3million to well over 40million. For me, that is the number one challenge and the reason itâ€™s such a big challenge is that the bulk of employees in Nigeria is in the informal sector.
The artisans, the trade associations; how do you get them to also sign up into this scheme. Of course, the National Pensions Commission is looking into this area to see that we effectively integrate informal sector. The second major challenge I see is compliance by certain segments of the marketplace. For instance, quite a number of states of the federation have actually passed their individual pensions bills into law. Unfortunately, some states have been slow in getting their enrolment take place in terms of making deductions from the accounts of the states and remitting them to individual RSAs of their employees. So, the level of compliance among the States, in my opinion has been rather low. And that is one area of challenge that all of us either as operators, regulators or other stakeholders in the pensions administration have to address.
Likewise the private sector. It is understandable that this law was passed by the federal government and the natural attitude of the private sector is to adopt a wait-and-see posture to see the level of commitment by the federal government towards the success of the scheme before private sector follows. I must say we have some level of favourable responses from a number of employers in the private sector.Â But in aggregate sense, the level of participation in the private sector is still low. On the compliance side, the States of the federation and the private sector need to catch up with the federal government in ensuring that their own employees across the country enrol as you have it with the private sector. Other challenges that I have observed overtime is how to maintain constant touch with the employees that you have registered. Typically, some categories of employees have tremendous mobility such as the police force.
Today, you register them in one State and overtime they are transferred to another State. So, maintaining proper records to ensure that you deliver to them their quarterly statement in their jurisdictions has been a big challenge we are encountering. But all in all, despite all these challenges, I believe that in the areas of penetration, areas of compliance, enhanced communication between the operators and contributors are seriously evaluated by all practitioners to further raise the level of success of this national endeavour.
Could you relate this relative success to Legacyâ€™s own experience in the past five years?
Basically, as a company, operating in a new industry that was heralded by passage of Pension Reform Act in 2004 and obtained our licence in 2005 our experiences as operators is relatively the same. We recognised that enrolment will be faster in the public sector than in the private sector. Virtually all the PFAs concentrated initially on marketing the public sector, that is, the federal government. Subsequently, when the federal market had been divided, PFAs refocused their attention to the private sector in line with the expectation that compliance of the States and the private sector will be a more difficult challenge than what obtained in the federal level.
That is partly the reason why all of us as operators under the leadership of the National Pension Commission believe that when the problem of compliance is addressed, the overall level of the scheme will be enhanced. It is important because it will not be appropriate for just a small section of employees who have enrolled in this scheme taking advantage of this system that will guarantee their comfort in retirement whereas the bulk of the society are left outside the umbrella that pension provides.
As a business, would you say that the investment has been worth it for investors?
Yes, the financials portend promise for this industry and would actually provide good returns for shareholders. Of course, bearing in mind that itâ€™s a long time business. I recall that in the first year of our operation, our total fee is only N20million.Â By the second year, it has grown to N167million; in the third year, we closed at an income level of N329million.
Presently, in this year 2009, we expect to surpass the income of last year and what has been driving the growth of our fee business has been the growth of our assets. Presently, we have a little over N28billion in assets under management with more than 165, 000 contributors across the country.
It is this statistics that is driving revenue growth. But as you may have perceived, setting up a PFA is a huge financial commercial and costly endeavour. It is huge cost because it is a large retail operation that requiring you to be in all locations across the country and set up structures with adequate field force to be in all the places. So, the large number of employees needed to comb the length and breath of this country is tremendous.
Likewise, the number of structures that you have in the various branches where youâ€™re located to support these marketing personnel.Â So, from this you can see without being told that one of the major cost components in addition to staffing is heavy investment in information technology. Because of this, as obtains across, a typical PFA will require 5 years to breakeven and beyond there you get into comfortable territory. This is a long term investment and you have to balance shareholder interest with the overall interest of the contributor under the scheme.
What are the unique qualities that different Legacy Pension Managers from any other PFA ?
When the Pension Reform Act was passed into law and we the promoters of Legacy Pension believed the provision of the law.Â We told ourselves itâ€™s a major revolution about to happen and that if we are going to be involved in the new pension scheme at all.