By ROSEMARY ONUOHA
The Central Bank of Nigeria, CBN, has kicked against the move to increase the percentage of pension funds investment in the capital market.
Governor of the CBN, Mallam Sanusi Lamido while addressing stakeholders in the capital market, last week, said that the capital market is too volatile to invest a substantial percentage of pensioners’ money therein.
According to the CBN Governor, equities are too risky as such, the CBN is not in support of the move to review the investment guideline of the Pension Reform Act, 2004 in favour of equities investment.
Sanusi said, “Do we really need to place the money of pensioners at risk by putting them in the capital market? The equities sector is too risky for such investment because there is basically no fundamental that supports the growth or otherwise of the capital market. I believe that pension funds should be channeled into infrastructure development and revamping of the power sector.”
It would be recalled that as call for the investment of some part of the assets of new Contributory Pension Scheme, CPS, into the capital market intensifies, the National Pension Commission, PenCom, will soon come up with proposals for the amendment of the act. At the moment it is reviewing the investment guideline of the Pension Reform Act, 2004.
The review notwithstanding, PenCom has declared that pension funds will not be invested in wasteful ventures, stressing that every investment will be in accordance with the investment guideline indicating that pension funds 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 into Federal Government securities, four per cent into state government bonds, two percent into corporate debt securities while money market securities has 13 per cent. Also, real estate has six per cent, unquoted securities has one per cent while open/close end fund as well as others have zero per cent investment.
Analysis of sectoral contribution to the pension fund showed that public sector contribution was N811.77 billion from July 2004 to August 2012. About 55 per cent of assets (equivalent to N1.57 trillion) were accumulated by the private sector. 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.
Meanwhile, in the area of infrastructural development, 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 “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.
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 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 reversed three times and we are doing 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, adding “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.