By ROSEMARY ONUOHA

Stakeholders in the pension industry, particularly the regulators and operators have been exploring various strategies towards enhancing public awareness about the enormous benefits derivable from the country’s nascent pension regime enunciated in the Pension Reform Act of 2004. In this interview, Chief Executive Officer of Stanbic IBTC Pension Managers, Dr. Demola Sogunle, addresses some of the recurrent issues in pension and retirement planning in Nigeria. Excerpts:

Is there any end in sight to problems bedeviling the old pension scheme prior to launch of the contributory pension scheme and what can be done by stakeholders to ensure that the inadequacies and inefficiencies associated with the old pension scheme do not discredit the nascent contributory pension scheme?

Yes, there are solutions, the most simple and effective solution being to migrate all participants on the old pension platform to the new Contributory Pension Scheme. The process will also include verification of existing pensioners as it is clear that there are a lot of ghost pensioners as well as active pensioners (i.e. still in service).

In addition, the operators of the new contributory pension scheme must continue to create awareness about the numerous benefits of the new scheme and enlighten the general public about the sharp contrasts between the two schemes.

How true is the assertion by PenCom that it is impossible to commit fraud or embezzle pension funds under the new pension scheme unlike the old pension scheme where billions of Naira of pension funds was repeatedly diverted by government officials?

It is true and the facts speak for themselves. In seven years, with over two trillion Naira and 22 PFAs the industry is yet to report any single proven case of fraud with regards to contributors’ money. The separation of duties between the pension custodians and administrators mitigates most of the risks. Also, industry value chain is designed to ensure that leakages and withdrawals from the system leave clear trails and trigger questions.

How feasible is the call for a merger of the old pension system with the new pension scheme?

It is very doable. It will take some hard work and commitment at all levels, but we have succeeded in more complex endeavours. Subscribers to the new pension scheme are questioning the seemingly closed nature of the system, especially as it concerns publication of rate of returns by pension fund administrators and their inability to access the unit prices of their retirement savings funds online.

Are problems associated with the old pension scheme such as the existence of large-scale unfunded entitlements not subtly rearing their heads in the new contributory pension scheme with employers failing to make monthly remittances into employees’ retirement savings accounts?

Yes, to some extent.  The challenge of compliance and participation is real. However the pension commission has gone after such companies by publicly displaying their details.

Also as a government at the federal level, certain contracts and engagements are not consummated with companies that are not compliant with the pension laws. Also organised labour unions are holding their employers accountable for their pension payments. So, while the challenge exists, a series of mitigants are on ground to curb it.

What are the existing mechanisms put in place under the new pension scheme to prevent the occurrence of large-scale arrears by employers that do not make regular remittances on behalf of their employees?

Section 11.7 of the Pension Reform Act of 2004, provides that “Any employer who fails to remit the contributions within the time prescribed in subsection (5) (b) of this section shall in addition to making the remittance already due be liable to a penalty to be stipulated by the Commission provided that the penalty shall not be less than 2 per cent of the total contribution that remains unpaid for each month or part of each month the default continues and the amount of the penalty shall be recoverable as a debt owing to the employees retirement savings account as the case may be.”

Consequently, the Commission has licensed a number of recovery agents who will be responsible for recovering outstanding pension contributions from defaulting employers together with interest penalty in favour of the employees.

There is a mismatch between the accumulated pension savings and investment outlets that could produce real returns, especially as the capital market lacks sufficient depth to effectively absorb the funds without causing a glut and overvaluation of existing capital market securities? What are the long-term implications of this for pension savers in the country?

This portrays a challenge in the long term, but that is one challenge that the entire world now faces. For Nigeria, as a developing nation the expectation is that in the not too distant future new investment vehicles will come on stream. Commodity markets, more developmental projects from governments which translate to a vibrant infrastructure bond market and a restructured and organised real estate industry. These asset classes will be created as part of normal market evolution; it is only a matter of time.