Last week the National Pension Commission, Pencom held a conference for directors of licensed pension operators with the theme Promoting and Sustaining the pension industry: The role of Directors.
In an interview session with journalists at the conference, Director-General of the Commission, Mr. M.K Ahmad explains efforts of the commission to build on the gains of the pension reforms, challenges to the contributory pension scheme and the vulnerability of the industry to external shocks. Excepts
What the purpose of this conference?
As you are aware in any business directors have the ultimate responsibility concerning that business, and therefore they need to be educated and enlightened about basic pension reform and regulatory and supervisory philosophy and principles and what we expected from them to do as the supervisors. As you are aware, if you visit our website you will see certain regulations that has been issued that governs the way our operators are supposed to be managed, butÂ today was a forum for them to express our selves, to speak their views and discuss challenges in the pension industry.
At the end of todayâ€™s forum, basically a one day conference, we would have heard ourselves, basically we would have identified the challenges they have as managers of the various pension institutions, we would have also tell them the challenges we faceÂ and collectively agree to move the pension industry forward.
How is the Commission addressing the exposure of the industry to the capital market vis-Ã -vis the meltdown in the market ?
In terms of exposure, perhaps is an academic excise now, because the capital market is bouncing back and things are improving but I can tell you that we are still within the limit and to that extent we donâ€™t think there is any challenge.
What is the response of the states and local government in the pension scheme?
The statesâ€™ involvement, state and local government involvement, we will still involve them. It has been quite slow, we have about thirty state government that have shown interest, some have enacted their respective law, very few has started paying their contribution, some that have started have been very irregular, but perhaps the suggestions that has been made, particularly by Chief J.O Sanusi, but perhaps we need a law that will compel state governments to join this scheme,Â in the sense that statesÂ constitute a very large proportion of our workforce in this country and these are people that cannot talk, these are employees thatÂ donâ€™t have the powerÂ to fight for their right, and it is only unnecessary, perhaps, if at the end of the day moral situation would not, we would work with the statesÂ to at least ensure thatÂ there is a law that will make it mandatory.
What are the achievements and challenges of the pension reforms?
In terms of reform efforts perhaps one can say we now have a pension industry. We have now accumulated about N1.73 trillion pension assets. The irony of it is that a substantial part of it is been contributed by private sector. That shows the private sector has confidence in this scheme and we expect the public sector particularly the states and local government would join us.Â In terms of registration, it has been quite challenging, we basically have about four million Nigerians that have registered.
The challenge there is that we donâ€™t have records of employers. We have over 157,000 employers from the private sector that have signed up to this scheme. We expect to have more.
In terms of rules and regulations we are not doing badly. All our rules are on our website and we will continue to build on our modest achievement.
What is the Commission doing about operators that have defaulted?
I suppose you are referring to employers that have not complied with the Pension Reform Act. In terms of operators it is basically a regulatory issue which off course we handle as at when due under CAMA, but in terms of employers particularly in those small size companies, we are still having challenges with them. In the next one month or so we are going to court basically to take on those employers that have defaulted.
As you are aware we have issued warning letters, we have even imposed sanction. We have even advertised their names, we fought them by advertising their through naming and shaming so that people will realize that and then comply, unfortunately they have not done that. We have issued our final license which is to show us why legal action should not be taken against them. But definitely in the next one month we are going to court to take on those institutions that have defaulted.
There are reports of mergers and acquisition in the pension industry. Could you shed more light on this?
We have two PFAs (pension fund administrators) that voluntarily decided to merge. they startedÂ about eighteen months ago, they haveÂ finally concluded, those two institutions will come out in public and address the press and the public, indicating what they have done, what we did as an institution was to encourage them. We have another four that are talking to themselves, that they want to come together, largely for economies of scale, they want to grow big and if they grow big, they can compete.
What are the steps to be taking by an intending retiree to ensure he wonâ€™t have any stress collecting his entitlement?
Largely if you go to our website, we have rules and regulations, and for those of us that work in the public sector, we evenÂ issue regulation or circular on that. But six months before somebody retires, heâ€™s suppose contact his PFAÂ andÂ send the necessary documents on the bases of which the processÂ computing is benefits is worked out.
What is the Commission doing to ensure extend the pension scheme toÂ people working in the informal sector, like the artisans ?
As of today we have people that have started registering that group of people. One PFA have registered over a hundred thousand of such group.
The second issue is that we are also liaising with the various unions through the various association with view to educating and enlightening them, but beyond that what we intend to do is that we intend to come back to the Government with a specific policy, and this is not just onlyÂ Nigerian, in most emerging markets, the informal sector is the toughest sectorÂ â€”â€” there must be incentives for people to payÂ Â because it is like a voluntary savings so very soon we should be able to make appropriate proposal that would appropriate incentives so that those of us that are unable to save and start saving for our retirement.
What is the plan of the Commission to protect the industry from the negative impact of external shocks like the global financial crisis especially in view of what is going on in Europe?
With the benefits of hindsight and without sounding immodest, we have very conservative investment regulations. Right from day one,Â we resisted the temptation of investment in volatile assets and that is the reason why we have the limit of 25 per cent and that has assisted us greatly. In spite of the pressure, in spite of the temptation, in spite of the high jump of that industry, we remained conservative and I think we would remain conservative.
That is the first issue, the second issue is that we also remain in a regulated market, we would not just invest in any instrument. And regularly, I can tell you if any of the public officers make a statement on any of the sectors, the commission will take note of that, if somebody say central bank has done that or NAICOM has do this we take note of it. The various statements that have been made about reforms in the CBN, we took notice of it because that is a signal.
And therefore we monitor market development and ensure that whatever happens in the various sectors of the economy we are on top of it. And regularly we consult with our operators to ensure that we donâ€™t run the risk of investing in a sector that would eventually undermine the safety of those pension assets.
Are you doing anything about the crisis going on in Europe now?
Incidentally virtually all our assets are invested locally so we are protected from the foreign asset risk. There have been clamour for us to invest abroad. We are looking at this issues, our main concern, why we have been reluctant to invest abroad are basically three or four. First we needed to gain confidence, we needed to let Nigerians know that these assets are been accumulated and they are meant for Nigerians. The second issue is that we have infrastructural deficit why donâ€™t we use what we save for the development of our infrastructure, and thirdly, as operators and regulators we even need the skill to understand the foreign markets before we start investing outside Nigeria.
So these are some of the constraints and we would be guided by these issues before we risk going out. There is no doubt it makes sense to invest abroad because you can hedge against a lot of problems that are currently happening particularly given that rates have dropped in this country and we are basically managing it to make sure we have fair returns on investment.