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. If you look at the transmission mechanism for equity investments, it would keep pace with inflation for as long as the company survives, he explained.

He spoke on the benefit of investing in equities saying that It makes sense to invest in equities because the investor does not worry   about the rise and fall of equities in the last one year. According to him, the investor only needs to  ensure that he is holding  stocks that are sound and that the  companies will be around over the long term and you will find that over time, as it happens always, the prices will trend above what you have bought and you will make returns out of that. According to him,  In addition, the companies will pay dividends and you will get additional returns.

You raised a very interesting point. You said all returns go to the contributor. Where do you make your money before returns go to the contributor?

Speaking on how the managers make their own money Mr Abajue explained that every PFA is allowed to charge a maximum of now 1.6% of the assets that he manages. and charge a maximum of N100 per month per contributor. In his words: To run our operations we have to charge you as an individual every month N100.

When you bring your contributions you pay us N100 and then put your contribution inside the fund and then we invest that and every year even though we take it on a monthly basis, you pay us 1.6% of total assets that we hold.

He said this could look like a small amount of money but over a large number of people it becomes a reasonable amount of money. He said often, people say the PFA is trading on their money but explained that PFA cannot trade on anybody’s money. He also said in like manner some people say my PFA, ‘they charge me lower, adding, but if they charge you lower how will they run their operations? It is a balancing act trying to get a large number of clients that it then makes sense to be able to charge slightly lower fees.

But ultimately like any other business, the PFA is in the business to make money. Afterall, they have to send their statements, send marketing people out to win new customers, open new offices to service the clients, and all of these things are paid from only these two sources,” he explained.