Repositioning PenCom to Surmount Industry’s Challenges

10 Apr 2013

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PenCom office

Nnamdi Duru writes that the National Pension Commission (PenCom), in the first quarter, continued to restructure its operations to ensure that more states embrace contributory pension without overlooking regulatory activities

Eight years after the commencement of contributory pension in the country, the National Pension Commission (PenCom) has had a lot of hurdles to cross. Within this period, the pension regulator has successfully steered the ship of the industry to a safe point.
The new administration has introduced new initiatives to ensure a smooth running of the system and to ensure that the every aspect of pension regulation goes on hitch free.

The administration, in the last three months, has embarked on restructuring of the organisation, particularly, to raise it to a position where regulatory supervision becomes seamless across the federation, among other things.

Regional Offices
In order to ensure that the pension regulator meets its expectations, the organisation embarked on expansion of its reach across the nation. The commission has commenced moves to open its zonal offices across the nation.

According to the regulator, the zonal offices are meant to oversee its activities in the six geopolitical zones of the country and in the last eight years, most of these offices have not commenced full operations, even where there were structures on ground.
PenCom said the existing zonal offices were being upgraded while new ones were being equipped to enable them relate with the headquarters in Abuja on an online real time basis.

Human Capital Devt
In addition to restructuring its operations, the employees of PenCom were being groomed and retrained to bring their skills up to date with modern day regulatory realities.
The organisation is doing this with a view to changing the mindset of its employees and to make them see hard work and attainment of set goals as the only way forward for them and not who they know or who they are relating with.

Group Life Assurance
The Pension Reform Act, 2004 directed insurance companies to hands off management of pension funds and opened a bigger business opportunity for them, making group life insurance for workers both in private and public sectors compulsory.
Section 9 (3) of the Act states that every employer must “maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee”.

PenCom observed that this important aspect of the law was being overlooked by the stakeholders and expressed its worry at the low level of compliance with the group life assurance as recommended by the pension law.
PenCom jointly organised a stakeholders’ workshop to review relevant directives and regulations in this regard with a view to making them more effective with the National Insurance Commission (NAICOM).

The two regulators intensified their collaboration to ensure that major stakeholders, particularly service providers, move into action and market the cover aggressively. They also sought to ensure that modalities for the administration of benefits involving group life assurance policy were strictly followed to guarantee payments to retirees as and when due.

Life Annuity
PenCom recently moved to increase the level of awareness for life annuity as recommended by the pension law and to spur life insurers into action, encouraging them to rise up to the challenges of the business.

The Acting Director-General of PenCom, Mrs. Chinelo Anohu-Amazu, noted that the major challenge facing annuity business is inadequate sensitisation and public enlightenment on the expectations from all stakeholders, adding that PenCom and NAICOM were collaborating to ensure its success of life annuity business.

Section 4 of Pension Reform Act, 2004 provides that an employee can, on retirement, make withdrawals from his Retirement Savings Account (RSA) in the form of a programmed monthly or quarterly withdrawal based on his life expectancy or life annuity bought from a life insurance company.

The retiring worker could as well withdraw a lump sum from the balance in his RSA provided that the amount left in the account after the withdrawal is enough to fund a life annuity or programmed withdrawals of not less than 50 per cent of his annual remuneration at the date of retirement.

Retirees could also combine programmed withdrawal and annuity or convert to life annuity where they are not happy with the programmed withdrawal they have already chosen.

Programmed Withdrawal
Giving it a push, PenCom said the negative campaign insinuating that programmed withdrawal can only take retirees for 10 to 15 years was not true.
“On the issue of the programmed withdrawal having a limited period of 15 to 20 years, it is not true.  There is a mortality table for over 20 years and beyond that because these funds are being invested, they earn income and also the discount rate is much lower.”

“Obviously what they get from what they invest is higher than what they put in and this largely provides reserves for them. Even if that account is exhausted there is also a minimum pension guarantee, which the Pension Act provides,” the commission explained.
PFAs selling programmed withdrawal to retiring workers are expected to spread the accumulated balance in his Retirement Savings Account (RSA) after making the lump sum payment over a given number of months.

In essence, the retiree agrees the PFA in advance on how much he will get as monthly pension and for how long this will last. What he does not know is how long he lives as to determine whether he will have some balance at the point of death or outlive his pension.
So, the PFA makes such monthly payment to the retiree until the last amount is exhausted.

Following the outcry of stakeholders over the perceived demarketing between life insurers and PFAs, PenCom promised to intervene promptly to ensure that the right paths are trodden by the respective operators.

The pension regulator, which said it was seriously concerned over the implications of such altercations on the overall pension industry, also promised to wade into the crisis.

“PenCom would look into this problem. The Surveillance Department of the regulatory body would soon meet operators on the issue because if any operator is running down life annuity or programmed withdrawal, it affects the whole pension industry negatively,” a reliable source said.

Investment Regulation Upgrade
PenCom continued updating the investment regulation to give teeth to its decision to give Pension Fund Administrators (PFAs) more options for the investment of the pension assets under their management.

This was PenCom’s response to stakeholders’ complaints that contributors were not given opportunity to maximise returns on their accumulated savings because fund managers were not free to invest using their skills and experience to maximise returns on funds under management.

In its “Amendment to the Regulation on Investment of Pension Fund Assets”, PenCom said: “The Regulation on Investment of Pension Fund Assets (Regulation) had been further revised in response to the dynamics of the financial and regulatory environment. The major highlights include the introduction of Exchange Traded Funds (ETFs) as allowable instruments; and incorporation of Guidelines on Global Depository Receipts/Notes (GDRs/GDNs) and Eurobonds, amongst others. The Regulation becomes effective from 17 December, 2012.”

Before now, PenCom promised to introduce four new types of funds, such that pension contributors could determine the instruments in which accumulated retirement savings should be invested.

Increasing Compliance by States
Worried that eight years after the introduction of contributory pension scheme in the country, only five out of the thirty six states of the federation have fully embraced the scheme, PenCom started revising its strategies towards ensuring that states embrace it fully, with a view to identifying the challenges they are facing and finding ways around them to boost acceptance of the scheme among states.
Reporting on the level of compliance at the state level, PenCom said only Lagos, Ogun, Osun, Niger and Jigawa States have fully complied with the scheme and commenced remittances of employees’ contributions into their Retirement Savings Accounts (RSAs) as at December 31, 2012.

While 21 states in all have enacted laws to enable them kick-start contributory pension scheme, 10 states, Delta, Ekiti, Kaduna, Kebbi, Kogi, Imo, Oyo, Rivers, Sokoto and Zamfara are partially complying, having appointed PFAs but yet to commence remittance of employees’ contributions into RSAs.

Six other states, Akwa Ibom, Bayelsa, Edo, Kano, Nasarawa and Taraba were yet to commence contributory pension, they were yet to appoint PFAs and hence have not commenced remittance of employees’ contributions into their RSAs.

Fourteen other states, Abia, Anambra, Bauchi, Benue, Borno, Cross River, Ebonyi, Enugu, Gombe, Katsina, Kwara, Ondo, Plateau and Yobe states were at various stages of making laws to help them transit to contributory pension, as provided by the pension law.
Adamawa State remains the only state in the federation that is yet to take any positive action towards transiting to contributory pension, the commission revealed.

Challenges Facing States
The regulator identified some of the challenges states are facing that may have stood on their way to embracing contributory pension system.  It noted that how to fund the accrued pension rights of both retirees and the working people in many states topped the list of issues making States to look the other way whenever contributory pension is mentioned.

In addition, inadequate understanding of the working and operations of the scheme and shortage of skilled manpower capacity that can cope with the requirements of the scheme as well as absence of the political will to move from the defined benefit scheme to defined contributory pension scheme were the challenges states are facing in this regard. 

Tags: Business, Featured, Nigeria, Repositioning, PENCOM, Surmount Industry’, Challenges

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