By ROSEMARY ONUOHA

Insurance companies have entered the pension business with some level of aggression;   however, stakeholders are warning that the CPS should be handled with caution if it must survive.

The Contributory Pension Scheme, CPS, introduced  by the Pension Reform Act, PRA, 2004, seeks amongst others to ensure that every worker receives his retirement benefits as and when due. Accordingly, the Act requires a Retirement Savings Account, RSA, holder upon retirement to access the balance of his RSA through programmed withdrawal or through annuity.

The programmed withdrawal pays pension over an expected life span while annuity pays pension for life. An annuity for life can be purchased from a life insurance company licensed by the National Insurance Commission, NAICOM, with monthly or quarterly payments. In other words, annuity is a regular income received from an insurance company in consideration for payment of premium.

Whereas the Pension Fund Operators, PFOs, have commenced programmed withdrawal since 2005, the insurance companies only commenced annuity programme in 2010.

However, with the entrance of insurers into the pension market, there is a stiff competition for who will control a larger chunk of the market with fears that the insurance companies are not playing fair. The insurance sector is known for its stiff and cut throat competitive business environment, with high level unprofessionalism just to get business at all cost. It is with such knowledge in mind that operators in the pension sector have called out to the National Pension Commission, PenCom, and NAICOM to up their regulatory mechanisms so that the CPS does not die.

The competition

A major bone of contention is the de-marketing by marketers of both sectors, even as PFOs are accusing insurers of a higher level of de-marketing.

Managing Director of Leadway Pensure PFA, Mrs. Ronke Adedeji said “The market is so large that I am disturbed at the desperation by our marketers in the field and it actually sends a wrong signal to customers. I have had customers come to me worried of the desperation and aggression that marketers have shown them and I think the desperation is more on the insurance side because the PFAs already started the product and we are at a position of comfort until the insurance companies joined us and the desperation is really a cause for concern.”

Pensioner are caught in between…

While stating that insurance marketers promise outrageous offers to customers, Adedeji said “I have heard of commissions that are so large and some people say that the additional lump sum they are offered is actually the insurance agents sharing their commission.”

Also reacting to the allegation that insurance companies promise to give loans to retirees if they patronise them, Adedeji said “On the issue of loans, my thinking is that it will be illegal to offer loans based on someone’s pension. The Acts actually prohibits using your pension fund as credit for a loan.”

Managing Director of Pension Alliance Limited, Mr. Dave Uduanu also said that it is illegal to grant loans on retirement benefits. “The law says you cannot grant loan on retirement benefits, so whether it is warehoused with pension fund administrators or insurance companies, it is wrong. The regulator should go against this development,” Uduanu stated.

The way forward On the way forward, Adedeji said that some kind of regulation or guidance should go into commissions which insurance companies give to their agents.  According to her, “There is need to have a long term view of the market, we should focus more on sustainability and building credibility. Let’s not forget that there are people out there who still believe that the scheme will not work, so we don’t need to position ourselves in such a way that we let it fail.

Adedeji called on regulators of both sectors to carry out joint inspection when it comes to annuity, adding “So far both regulators are not doing that and I want to encourage them to do joint inspection.”

She also called for the creation of pension custodians to manage annuity saying, “When you have a custodian what you have done is that you have given ownership or tied the assets to an independent body. This body is independent from those who manage the assets and so what you have done is re-assign the assets and separated them from the risks that the managers may be exposed to. This is Nigeria and we have seen financial institutions come and go and so it is important for us to put this additional safeguard into the industry.”

According to her, the regulators should employ the use of sanctions where it becomes necessary.

For Uduanu, annuity funds should be held by custodians. “All pension funds, whether it is programmed withdrawal or annuity, should be held with custodians.  “If we want to sanitise the industry, it is something that we have to do. It means that you cannot invest the funds in something that does not make sense because the regulator will not allow you to that. The custodian will only allow you to invest the assets in accordance with the guideline,” Uduanu said. Uduanu also said that the guideline on 25 per cent additional capital by owners of pension fund custodians should be applied to insurers.

He said “The banks that own pension fund custodians are now required to bring 25 per cent additional capital for the pension funds that are in their custody, I don’t think that there is such guideline for insurance companies. That is what solvency margin is supposed to address. That is something that restrains small insurance companies from going to sell annuity. So between PenCom and NAICOM, they should look at it and review the guidelines accordingly.”

However on the insurance side, Managing Director, Capital Express Assurance, Mrs. Bola Odukale, said “I would desire a situation where at some point in time, we are able to come to a point where the issue of pricing is looked into so much so that we can have an environment where pricing is safe and not a situation where one man is killing the other.”