By ROSEMARY ONUOHA

The Pension Fund Operators, PenOp, is an association of Pension Fund Administrators, PFAs, and Pension Fund Custodians, PFCs in the pension industry. The Chairman of PenOp, Mr. Dave Uduanu and some members of the association recently briefed the press on recent developments in the sector.

NEW guideline for state governments issuing bond
Uduanu: The National Pension Commission, PenCom, released some guideline for state governments that want to access pension funds by way of issuance of bonds. Such state governments will not only participate in the scheme but PenCom has introduced more stringent requirements to ensure that state governments  don’t just come in, access the funds of the PFAs  and stop contributing.

What PenCom tried to do is to equate pension payment with payment of salaries. PenCom put in place a mechanism to ensure that at the end of the every month it is no longer discretionary to remit money into contributors account just as salaries are not discretionary. You must pay contributors just as you pay salaries at the end of the month.

It is the whole idea to make pension at par with salary. The mechanisms they want to use to do that are being fine-tuned.

One area that we are very conscious of are that a lot of investments of pension funds are located in the bond market particularly the federal government bonds. So we have taken it upon ourselves, working with the regulators to find out ways we can, through working with other partners to  expose the funds to the real sector.

From left: First Custodian MD, Mr. Akin Faniokun; Musibau Yola, MD, Legacy Pension; Dave Uduanu, MD Pal Pension and Chairman of PenOp, at a briefing in Lagos.

Now we have to be careful how we do this. The real sector elicits both positive and negative feedbacks. The negative feedback is people being afraid of the pension fund being invested in infrastructure. That is not what we are talking about.

We are talking about, how do you invest pension funds in the real sector through such mechanisms as private equities, or through the housing or mortgage market and through infrastructure bonds? So as part of that process, we are speaking to the regulators and the governments and institutions like the International Finance Corporation, IFC, the African Development Bank, AFDB, who are interested in growing the real sector of the economy. Just as everybody is conscious of the fact that funds cannot only stay in government bonds, we are much more conscious of that fact because the more we grow the real sector, the more employment is created, the more jobs are created and the more our businesses grow.

The focus of our strategic plan is to bring in the informal sector, make sure all the state governments key in and invest in the real sector so that the informal sector can become much more formalised so that our economy can grow and create jobs and that way, grow the Contributory Pension Scheme, CPS, subscriber base from 5.2 million to 20 million which is our target for five year period.

Putting pension payment at par with salaries
Musibau Yola: Under the law, pension payments are supposed to be made at least one week after salaries are paid. Ideally, if you pay salaries, you should be able to simultaneously pay pension at the same time, because you are deducting from the salary payment.  A grace of one week was given just for organisations to tidy whatever they have not tidied up.

For the state governments, there was a circular or guideline issued by PenCom about state governments accessing pension assets by way of issuing bonds. The initial position was that they will do Irrevocable Standing Payment Order, ISPO, for the repayment of the bond which is a normal thing. What was added was that states will also require ISPOs for the pension payment. Therefore, they are not only having standing payment order for funds to pay to the bonds but to ensure that pension deductions are also taken at source.

The whole idea is that they don’t have access to pension assets and while their bond is successful, remittance of pensions is at their own conveniences. The idea is to force them, simultaneously as they are making accruals for paying the bond they are also putting down money to make sure that the monies get into the pension RSAs of their employees, so that they don’t just abandon it midway by opening RSAs, take the monies to finance their bonds and then they don’t pay back.

So PenCom added an ISPO for pension deductions also. So if you want to access the monies in the pension fund, you must have both ISPOs. Ordinarily you must open RSAs, but now you have to have ISPO for pension payments. It is just to ensure that the states do not renege on that particular issue. States usually give ISPOs to the Central Bank so that the money is deducted at source before it even gets to them to spend.

So it means that once a state has raised money from the bond market, for pension funds to invest in the bond, the payment of pensions will no longer be at the instance of the state, it will be deducted at source and remitted to the PFAs. That is such a strong requirement and the push back initially could be wide but it requires financial discipline on the part of the state. That is what we need as a country.

Importance of the guideline
Yola: The guideline is important because state governments collectively are a huge employer of labour and they have a lot of employees that would ordinarily go for RSAs but because they have to make their own laws first it is at their own convenience to do that. So the idea is really to get them on board, but make sure that they come on board safely and not just half way.

A number of states have already issued bonds prior to this regulation because this regulation came out in December. Prior to that Lagos, Niger, Delta, Ekiti as well as Imo states have issued bonds under the old guideline which simply required them to open RSAs and then have an ISPO for repayment of the bond.

If the question is will it encourage or deter state governments from accessing the pension fund, it is a question of explaining to the state government what the objectives are.  Well initially some states might think it is stringent, but at the end of the day, if you really want to implement the scheme for your citizens, that is probably the way to go.

It also means that the governor after you doesn’t cancel the initiative. Once an ISPO is with the Accountant-General of the federation, you cannot go and stop it, it is a direct deduction. It is such a strong statement from PenCom. So we will dialogue with the states on a need basis and we will see how the guideline affects the growth of the industry.