By Babajide Komolafe
Pension Fund operators have demanded for interest subsidy and Federal Government’s guarantee as conditions for investing the nation’s N2.4 trillion assets in infrastructure.

“The Federal Government will have to use its balance sheet to provide guarantees and interest subsidy to Pension Funds to mitigate some of the attendant risks usually associated with infrastructure investments,” said Dave Uduanu, Managing Director/Chief Executive,  Pension Alliance Limited and Chairman, Pension Operators of Nigeria (PenOp).

Last year, in order to further promote pension fund investments in the real sector of the economy, generate employment, support infrastructure development and enhance real returns on investment, the Pension Commission revised the Regulation on Investment of Pension Fund Assets and expanded the allowable asset  that pension operators can invest in to include: Infrastructure Financing through Bonds and Fund Structure. However, pension operators are yet to  invest in any infrastructure project.

Speaking at the the annual  media workshop of the commission held in Enugu last week, Uduanu said that “ Recent estimates by the Ministry of Finance shows that Nigeria will need to spend approximately $10 billion every year over the next nine years to close its infrastructure gap. In addition, Nigeria’s housing deficit is estimated at 10 million houses or 700,000 new homes every year.

“Pension Fund Managers working with financial advisors and some development finance institutions like the IFC, African Development Bank etc., can develop investment instruments to bridge some of these funding gaps and serve as the catalyst that will unleash the growth potentials of the Nigerian economy.

“However, for this to happen, the Federal Government will have to use its balance sheet to provide guarantees and interest subsidy to Pension Funds to mitigate some of the attendant risks usually associated with infrastructure investments.”

Highlighting  the roles of the three tiers of government for the sustenance of the contributory pension scheme Uduanu  said, “The Federal Government has declared its intention to increase non-oil revenue from 1.5 per cent currently to 5 per cent of total revenue in the medium term. Obviously, the main source of revenue for modern governments is taxes and we expect government to increase the tax bracket in a bid to maximize its revenue.

The more government intensifies its tax drive, the more attractive pension funds will become as they are tax exempt and are veritable tools for tax and estate planning. We therefore appeal to the Joint Tax Board to look into the incidence of withholding taxes on both dividend and interests with a view to removing them completely. This, we believe, will go a long way to encourage savings and capital formation in the country.

“In addition, we encourage the Federal Government through the Debt Management Office (DMO), to issue long tenor inflation index bonds. This will enable the Pension Fund Managers to manage the risk of increased inflation, protect pension assets in real terms and further increase the confidence of the contributing public in the scheme.

“While we appreciate the vision of the Federal Government in creating the laudable scheme in the first instance, much is also expected from them in the area of sustainability. Both regulators and operators have a role to play in achieving this. The compliance level needs to be monitored and enhanced.

At this juncture, I will like to emphasize that it is extremely important to continue to protect the scheme from undue political interference both in the regulation and investment of pension funds.

“The scheme should also be protected from the desire of certain government agencies and functionaries to exit the scheme at any small excuse. Since no scheme is perfect, whatever the challenges may be can always be identified and resolved to make it a better one. Exiting the scheme is not in any way the best option.

I therefore stress that a unified national pension scheme with a strong regulator is a necessary precondition to building a robust savings culture and improving capital formation in the Country.”