By Rosemary Onuoha
Managing director of Stanbic IBTC pensions Limited, Mr. Obinnia Abajue said the pension industry has adopted a process called unitisation which is similar to mutual funds managed in such a way that a large number of people can invest through a common vehicle which is distributed.
Abajue who stated this in an interview with Vanguard in Lagos explained that contributors will have units that their contributions will buy and those units have prices. He said the prices reflect the continued value of the fund adding that the contributor’s value at any point in time is the number of units the person has multiplied by the fund price. This he said gives the contributor the value of his contributions.
Abajue said the assets are invested in a number of different asset such as equities, money market, government bonds, explaining that under the Act there are a number of different asset types that managers can invest in subject to PENCOM’s guidelines.
“It’s the sum of the returns coming from all the investments that goes into the funds that returns to the person. Contributors can look for income, where income is an expression that captures the return from different types of investments, not necessarily interest or capital gains or dividends. Everything comes together and all of that is income that is then distributed among the contributors in the fund, he explained.
The Stanbic IBTC Managing Director noted that pension fund managers do not hold pension fund assets but only pension fund custodians hold the assets, adding “The law says you cannot hold pension fund asset if you are not a pension fund custodian. You cannot manage or administer pension assets if you are not a pension fund administrator. What that means is that only a pension fund administrator such as Stanbic IBTC Pension Managers can manage or administer assets. We cannot outsource the investments or the administration of pension funds to anybody. It’s all done internally.”
He said contrary to this, many Nigerians don’t understand the workings of the new pension scheme and this according to him, clearly shows the gap in the system and demands for actions to enlighten people about how the Act works.
Explaining the way the system works, Abajue stated “It’s a lot of work that needs to be done. The way it works is the contributor puts in his contribution and the contribution is invested in a number of different assets types which have different attributes. Sometimes people think the only thing you are investing in is bank deposits or you are trading with the money. They then ask for the interest from the deposit and the profit from the trade, “he stated.
According to the Stanbic IBTC boss, the way it works is that all the returns go to the individual, the contributor pays the PFA a fee for it. It’s not like a bank that says give me money at 10%, I would go and lend the money at 13% and take 3%. No, that’s absolutely not allowed. If you go and invest money and what you make from it is 10% then the contributor gets 10%. But it’s the mechanism by which this is transmitted that people need to understand”, he stated.
He also explained that in the mutual fund which is what is used for managing pension assets, prices do change adding” They go up and down because a part of these assets are invested in equities. According to the IBTC boss, the reason the funds are invested in equities is because some people are not retiring today.
There is a maximum limit of 25% that is allocated to equities that you can invest in and not many PFA’s are anywhere near that 25%, although some were near that in the past. He said For the people living today, nobody worries too much about them because there is enough assets to pay them.He however said there are people in the fund who are working for the next 15, 20, 30 years and the investment in equities is proven statistically by research globally as one of the few asset classes that can keep pace with inflation over time.
“The mechanism through which equity values are determined is that companies do business in a country like Nigeria are earning above inflation returns as profits because when inflation changes they transmit those things into their prices and get those returns into the companies. Those returns are then in a fixed form where they pay dividends to shareholders.