By Victor Ahiuma-Young
NATIONAL Pension Commission, PENCOM, has said it would set up a database of working population to ensure that employers covered by the Contributory Pension Scheme, CPS, are implementing the scheme for their employees.

This came as the commission announced both a 39 and 15.7 percent increase in pension fund and number of employees that have embraced the Contributory Pension Scheme, CPS.

The Director-General of PENCOM, Mr. Muhammad K. Ahmad, in the commission’s 2009 Annual Report, among others, disclosed that PENCOM would pay special attention to the development of corporate bond market and introduction of multi-funds to ensure successful implementation of these programmes, research capabilities would be enhanced in investment and risk management.

According to him: “The pension industry has continued to witness a steady growth in number of areas. There was an increase of 15.7 percent in the number of registered RSAs compared to 3,467,857 Retirement Saving Accounts, RSAs,  registered in 2008. The memberships of Closed Pension Fund Administrator, CPFA,  and Approved Existing Scheme, AES,  increased slightly by 2.5 percent and 0.9 percent respectively.

Comrade Ivor Takor, Representative of Labour on PENCOM Board; Dr. Musa Ibrahim, Commissioner, Inspectorate Division, PENCOM and Mr. Muhammad Ahmad, Director-General, PENCOM at a PENCOM forum in Calabar.

The public sector maintained the highest number of registered employees. However, the rate of compliance and hence RSA registration by the private sector employees continued to increase during the year. The number of private sector employees that opened RSAs increased by 30.2 percent from the 1,266,519 registered in 2008.

Similarly, the number of private sector employers that complied with the provisions of PRA had increased by 5.1 percent. This could be attributed to the efforts by Pen Com during the year under review in ensuring that all eligible employers   implement the CPS. During the period under review, the total pension fund assets grew from N1,098.99 billion by the end of 2008 to N1,529.63 billion as at 31 December, 2009, which represented an increase of 39 percent.”

“The unaudited valuation of the RSA funds showed an increase of 59 percent from N471.77 billion as at 31 December 2008. Monthly contributions by RSA holders averaged N 11.43 billion for public sector contributors while the average monthly contributions by the private sector contributors averaged N7.60 billion, which represented increases of 38.17 percent and 12.94 percent respectively.

CPFA assets had grown by 48 percent from N294.61 billion in 2008. Similarly, the value of the AES  assets grew by about 5 percent from N332.61 billion in 2008. Growth by these two schemes was mainly due to capital injection by the scheme sponsors and returns on investments.

In February 2009, RSA Retiree Fund was introduced, which marked an effective separation of the pension assets of the active RSA members from the assets of retirees. The main reason was to keep the Retiree Fund in fixed income securities in order to preserve their capital and insulate the assets from volatilities of the market.”

The DG noted the Nigeria capital market continued to react to the global financial crises as witnessed in heightened volatility and sharp fluctuations in share price index and stock values of quoted companies on the stock exchange.

He said: “The fluctuations demonstrated weak performance of the capital market as the values of the All Share Index (ASI) continued on the downward trend. This caused pension funds to continue to invest in asset classes other than quoted equities in their portfolios.

The bond market provided the safe alternative vehicle for investing pension funds because of the negligible impact of any long-term effect of financial or economic crisis on this investment vehicle. However, the double digit rate of inflation may have negative consequential effect on its real rate of return. An important lesson for pension funds in this respect would be to start soliciting for inflation-indexed bonds.

The banking sector witnessed another round of reform in 2009. A performance improvement in money market was noticed in the downward movement of the daily interbank call rates. However, the average yields on Treasury Bills were actually negative in real terms when compared with the inflation rate of 1204 percent in the fourth quarte
r of 2009.

This was a big challenge to pension fund investment due to the high likelihood of recording negative real rate of return. The promotion of strong corporate governance and better risk management culture in banks and the provision of intervention funds would contribute to the stability of the banking system and the pension industry.”

Regulatory, supervisory framework

Speaking on the regulatory and supervisory activities of the commission, Mr. Ahmad, explained that  the risk-based supervisory approach enabled tremendous successes to be recorded by PenCom particularly in its surveillance activities.

According to him, “both on-site examination and off-site inspection of licensed operators were conducted in line with the risk-based supervision principles. The examination included an assessment of the organizational structure, financial viability and governance/management of the company. Operators were appraised of identified risks and were supported in the measures adopted to mitigate the risks.

The Commission had continued to collaborate with other agencies towards the development of corporate bond market and new investment vehicles that would improve investment returns. Similarly, plans were underway to introduce multi-funds and allow foreign investments by pension funds. In order to ensure successful implementation of these programmes, research capabilities would be enhanced in investment and risk management of pension assets.

Similarly, various strategies were implemented to ensure compliance with the PRA 2004 by both private and self-funded public sector organizations. The strategies included public enlightenment, mailing of compliance letters to identified eligible organisations, on-site inspection of employers, collaboration with regulatory and professional bodies and application of regime of sanctions.”

Plans for the future

Disclosing the commission’s plans for the future, Mr. Ahmad, explained that “the future  of the pension industry depends on the collective efforts of Government and stakeholders in terms of consistent policies that would create an enabling environment  for pension fund assets to create value for the contributors and the Nigeria  economy. PenCom would enhance the risk-based supervisory framework to ensure safety of not only the pension assets but the industry at large.

Dynamic “It monitoring procedures would be introduced to focus on risk issues as they investment portfolios of the pension funds.  A Database of working population would be established to ensure that employers covered by the CPS are implementing the scheme for their employees.

Efforts would be made to promote informal sector participation in the Scheme. In this regard, incentives would be worked out for the employees in the sector and relevant agencies of Government would be contacted to provide all the necessary support needed to ensure compliance by the sector. Compliance levels are therefore expected to improve due to renewed efforts by the Commission and the support of the various tiers of government.”

“The number of contributors and hence the size of contributions would increase. Thus, more funds would be available for payment of retirement benefits as well as investment and national development. PenCom continue would  to work with other regulatory agencies to ensure the development of alternative investment securities for pension funds.

Particular attention would be the development of corporate bond market and introduction of multi-funds to ensure successful implementation of these programmes, research capabilities would be enhanced in investment and risk management.

The capacity of the industry to achieve maximum efficiency would be developed and intensive  enlightenment campaigns to further improve the level of understanding of the reform and achieve full compliance would be undertaken.”