FEW days ago, the Director-General of the National Pension Commission, PenCom, Mrs. Chinelo Anohu-Amazu, led other top management staff of the commission to an interactive session with a cross section of journalists in Lagos.

During the interaction, Mrs Anohu-Amazu, spoke on the safety of the pension fund, raging controversy on investing on infrastructure among others. Excerpts

From left— The Head, Investment Department, Mr. Ohioma Ehimeme; Director General, Mrs. Chinelo Anohu-Amazu, and Head, Surveillance Department, Mr. Muhammad Bello Umar, all of National Pension Commission, PenCom, at an interactive session.

SAFETY of pension fund: The operation of the Pension Fund Administrators, PFAs is not part of the pension fund. The PFAs are totally separated and the reason for the separation is for safety of the fund. The other safety valve is that the PFAs who are the ones managing the funds do not hold the funds.

It is the Pension Fund Custodians, PFCs that keep the funds. What we see, not very regularly I must say, maybe sometimes, some PFAs have some pressures and they invest in something that is outside the investment guidelines, the next day they get a letter from the National Pension Commission, PenCom.

The PFC first of all would be queried, because it is outside the guidelines. And not only is the transaction rescinded, they pay a penalty and if there is any loss in interest in the Retirement Savings Account, RSA, they pay it.

Provision of  guidelines

That is why it is a highly regulated business. It is either you are able to operate or not. So the issue of, ‘are the funds going somewhere’ or ‘where does the money go’ is no issue at all.

What we don’t do is get into the details of day to day investment. We provide guidelines. For federal government bonds you can invest up to 80 per cent of asset under management.

If you had 100 million, if you wanted to put 80 million of that into government bonds, it is alright because it is considered the safest investment vehicle. You can only do XY amount of corporate equities and it is all listed out and what we list is the maximum.

In the guideline, for every investment you are making there are some that require some level of rating and you can’t just wake up and say, ‘this is my brothers business, let me put it in them,’ it must meet the criteria we are talking about.

Investment in infrastructure:

Infrastructure is already an asset class within the guidelines. So this whole noise of ‘they want to take pension fund into infrastructure is funny because it is already there. Now the uptake is minimal and why is it minimal? It is so because you have not met the requirement for the pension funds to go into infrastructure.

Now you have an investment vehicle for infrastructure and it does not meet the laid down requirements or guidelines, no PFA will put a dime into it. The requirement go down to even the transparency of the bidding process. These guidelines have been there from inception.

What you are hearing now is clamour for there to be more pension fund activities in infrastructure and what we are saying is that the reason why there is not that activity is because you have not met the laid down guidelines. So, until they meet it, the funds cannot go and in the event that they meet it, it is an investment.

For infrastructure, I have always been a proponent of investment in infrastructure for a simple reason that this is one investment if handled properly would benefit both the contributors and retirees alike. The federal government bonds are safe but it is not something you can see. When we were doing this reform in 2001/02, we were in Mexico and then we had gone to other South American countries where they have implemented the contributory system. We were going down a road, maybe a five lane road, what we saw on the signboard on the road was ‘contributory pension fund.’

This is the kind of thing we want to see in Nigeria. 10 years down the line there is no such signboard in Nigeria and the funds are growing. Who will use the roads?

Engaging  labour leaders

We also need to engage people to think positively. The reason for the pension reform was the mismanagement of the old pension scheme. That is why the reform is very clear on the ring-fencing of the pension funds. Some of the people are agitating everyday that they are over regulated and I say to them that there is no such thing as over regulation.

You force people by law to save for their old age, the least you could do is to safeguard these funds. If they cannot touch it, it had better be working for them. That is the key thing. Those that this law is for need to benefit from it.

That is by making sure that all the decisions taken are done with the employees, the contributors and the retirees alike. You have to put their interest first, which the law coincidentally has done.

I cannot tell you the kind of pressure that the pension Commission is getting at the moment because people believe erroneously that the entire N5.3 trillion is with PenCom. So every day, it is one request, ‘I need to travel, pension fund; I need to do this, pension fund.

They believe that everything can be funded by the pension fund because you hear it in the news and it is growing because it is ring-fenced. So, anything coming against that ring-fencing and following the law, we will ultimately not follow. This is not just because it is wrong but because the law does not allow it.

Sticking to the guidelines: While there may be concerted efforts to raise infrastructure bonds, as laudable as some investments ideas are, we cannot go against the guidelines. All investments must follow the laid down guidelines.

We have finalised work on even the new guidelines and what we have in the new guidelines are multi-tiers and not one single fund. So that the gentleman who has less than five years to go cannot invest in what the gentleman who is 30 years old is investing.

Part of the drive we are doing now, we have young people who have come out to work in their 20s, they start saving. That is, for the next 25 years at the very least, they will still be saving. There is a reason for the criteria in the guidelines. It is to make sure that the funds are safeguarded, shrouded from the vagaries of human discrepancies and all.

Competitive Bidding  process

So, an investor will swallow the law, and will have a competitive bidding process. You will make sure that those that are coming to bid are qualified to do it, you will have a time limit, you will have a monitoring team, we will have those who are looking at it to make sure that the quality of products you purport to give out is of a high quality. Is not for example, after the road has been commissioned that will develop pothole after two years.

Even before you lay it in there, somebody checks and verifies. In so doing, we will raise the bar in this country. We will raise the bar that people are stopping from thinking of a 300/400 per cent profit to thinking of a decent profit. These are the kind of things that pension funds should go into. There is room for optimising these investments. Countries like Singapore and Canada have utilised their pension funds effectively for their citizens. It is not something that is outlandish. The key thing is how did that utilisation happen?

If you provide food here for everybody it is a good idea. But by the time one person or two go and pack all the food, that good idea now becomes a bad idea because you will see from others clear undiluted anger that they had not eaten. So, if you had put someone there, even at an extra cost to see that the food went round, you would have done what you wanted to do but done  effectively. So, it is not whether the funds should go into infrastructure or not because from inception of the pension reform, infrastructure was there as one of the asset classes allowable for pension fund investment.

Pension fund  investment

What we should be asking is ‘why are they not meeting the guidelines? What is preventing those who are looking to build things for the community from meeting the guidelines? What is preventing you from having access to the pension fund?

If you have to phone the DG for an investment, it means that you are not meeting the guidelines and it will not be waved. If you say ‘Oh, there is this thing the PFAs said they cannot wave and can you intervene’?  The answer is no. The guidelines are there on the website.

We also have people who come with so-called good investment but they have not met the guidelines half way into the game. So, what we say to them is, as good as this thing looks, these are the criteria which you have not met. The clamour we are pushing back from PenCom is that even before you float a bond, study the guidelines. If you are desirous of the pension fund going into it, study the guidelines. So that at the time you are creating that bond you are ready.

The PFAs are the investors while PenCom is the regulator.  We set out the regulation; the PFAs must invest within the regulation setup by PenCom.

To be continued