The National Pension Commission, PenCom, says it will adhere to investment guidelines as stipulated by the Pension Reform Act, irrespective of calls to do otherwise. Rosemary Onuoha reports

SINCE the introduction of the contributory pension scheme in 2004, pension assets have been growing on yearly basis.  Due to this growth, there has been increasing pressure on the National Pension Commission, PenCom, to inject some portion of the pension fund into the economy for investment purposes.

However, Pencom has been skeptical in endorsing the pension fund just for any investment purpose as the Pension Act does not permit it to do so.

However, PenCom is of the view that whatever money that goes out from the pension fund must return to the fund with profits and should not just fizzle out because these are people’s contributions which they kept in the custody of PenCom to fall back on after retirement.

It is in this regard that PenCom gathered business journalists in Enugu recently to brief them on efforts that the Commission is making to safeguard workers contributions to the contributory pension scheme.

Official statistics from PenCom’s 2010 Annual report, showed pension funds that invested in FGN securities grew significantly by 66 per cent from N498.88 billion in 2009 to N829 billion in 2010. This represents an increase of N330.32 billion and accounts for 30 per cent of the federal government’s N1.093 trillion total bonds issued in 2010.

However, PenCom said it revised the regulation on investment of Pension Fund Assets in December 2010 to allow pension fund investments in the real sector of the economy, generate employment, support infrastructure development and enhance real returns on investment.

The Commission also expanded the allowable asset classes to include; infrastructure financing, (through bonds and fund structure), private equity fund; supranational bonds; global depository receipts/notes and Euro bonds issued by Nigerian companies for their operations in Nigeria.

While delivering a paper on ‘Dynamics of Pension Fund Investment’ at a workshop for journalists in Enugu, Ehimeme Ohioma, Head, Investment Supervision Department of PenCom reiterated that the Commission increased portfolio limits for corporate bonds from 30 per cent to 35 per cent of PFAs total portfolio to ensure increased investments in the real sector of the economy.

Speaking on ‘Sustaining the contributory pension scheme: the role of stakeholders” Mr. Dave Uduanu, Chairman, Pension Operators Association of Nigeria (PENOP) and managing director, Pensions Alliance Ltd, called on the three tiers of government to  support the Pension Scheme stating that they are key stakeholders whose action or inaction will always affect 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 on 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.

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 government needs to increase the compliance level in the industry by working closely with the regulators to encourage enforcement of the Act.”

While stressing that states are major beneficiaries of the pension scheme as pension fund investments in State bonds grew significantly by 106 per cent from N34 billion in 2009 to N70 billion in 2010 and currently stands at over N100 billion, Uduanu lamented that it is alarming that the acceptance and participation level in the scheme by the respective States and Local Governments is not satisfactory.

In his words “Of the 36 States in the country, not more than 10 States can effectively be considered as near full-compliant. A greater percentage of the States that have passed the enabling Pension Bill are not funding their employees’ accounts while some that commenced funding stopped several months ago.

With the pension bill for some States serving as a platform to source for pension fund investments in proposed State Bonds, there is the need for these States to buy into the scheme fully by funding the accounts of their employees in order to sustain the scheme.”

Uduanu called for the scheme to be made compulsory at both states and Local Government levels, adding “Given the nature of the federal system of Government that we run, perhaps the National Council of States and the Governors Forum could be used to actualize this objective.

I believe that every worker in Nigeria should have a funded retirement savings account. Pensions and retirement benefit is arguably one of the most fundamental right of every worker irrespective of the type and nature of employer.

To ensure that contributions to the Pension Scheme are safe, Ohioma said that PenCom investment of pension funds are only on allowable Securities which are mostly regulated instruments approved by the Securities and Exchange Commission (SEC) as well as authorised markets where all transactions involving pension funds are to be conducted on trading platforms registered by SEC e.g. the floors of the Nigerian Stock Exchange (NSE).

In addressing the challenges, Ohioma called for periodic review of investment regulation in the light of changing macro-economic factors; introduction of Multiple Funds to meet the demographic distribution and varying risk appetites of contributors i.e. there will be separate funds for the different categories of contributors e.g. young, middle age, those close to retirement and pensioners; encourage the development of more eligible asset classes/securities and inflation-indexed/floating rate bonds for pension fund investments, in liaison with SEC, DMO and Asset Management Companies; development of a Risk Management and Analysis System (RMAS) to enhance efficiency in pension supervision.

Meanwhile Pencom pledged that it will continue to ensure the safety and maintenance of fair returns on pension fund investments even as it aims to commence the recovery of outstanding contributions together with interest from defaulting organisations in line with Section 11(7) of the PRA 2004 soon.

The Commission stressed that selection of firms interested in providing services of Recovery Agents would be concluded in December while recovery exercise would commence January, 2012.