Striking Balance between Opportunities, Challenges in Nigeria’s Pension Industry



As the pension administration inches towards a new phase of development in the country, James Emejo reviews the deliberations by stakeholders at the recently-concluded third edition of World Pension Africa Special and how these could further shape the growth of the industry

The success so far recorded in the Nigerian pension industry, especially, the Contributory Pension Scheme (CPS), cannot be overemphasised. If anything, the elimination of corruption and separation of funds between the custodian and managers are some of the greatest advantages of the scheme.

With almost N6 trillion in assets, the CPS, no doubt, holds huge potentials for infrastructure financing, which have not really happened in the country.

This has been a major source of worry for stakeholders because pension funds have effectively been deployed elsewhere to bridge infrastructure gaps, especially housing for the masses.

After over a decade of operating the CPS in the country, operators are constrained from investing the huge asset portfolio in infrastructure, especially long-term projects, partly because of the inherent risks and the need to effect timely returns to pensioners, the owners of the assets, and the much-taunted “lack of investible vehicles”.

Pension assets elsewhere provide huge opportunities for cheaper domestic borrowing by government to finance long-term but as of today, over 80 per cent of pension investments are still in government treasury bills as this offers quick returns and the critical guarantee for safety.

However, It remains a concern that despite all the amendments to the pension reforms act, this has not changed assets managers’ disposition to investing in long term infrastructure as they further believe that additional framework was desired to make the funds safer and recoverable within agreed period.

Nevertheless, the pension industry, particularly the CPS segment now believes it has to build on the stability and success so far recorded by deepening penetration through innovation to further accommodate those who are not currently in the CPS scheme.

Specifically, the focus going forward is to attempt to lure individuals and players in the informal sector, which remains largely untapped into the net.

In doing that, several revolutionary ideas are being envisaged: micro pension or the use of mobile technology-especially the ubiquity of mobile phones to administer pension to business owners, especially the self-employed artisans.

Also, the possibility of using the internet to sell pension products to the people had been part of the ideas considered by stakeholders at this year’s summit.

But, some influential speakers at the occasion were quick to draw attention to the likely pitfalls in further innovations in the pension sector, amid the opportunities they seek to expand.

Of note, was the admonition from former President Olusegun Obasanjo, who said though he was excited over the successes so far recorded in the Nigerian pension industry, further innovations must be undertaken with caution, reminding Pension Fund Administrators (PFAs) that pension assets are sacrosanct and must be preserved “no matter what we do.”

In his opening remarks at the third edition of the World Pension Summit Africa Special, themed: “Pension Innovations: The Africa Perspective”, Obasanjo, who pioneered the pension reform in 2004 while he was president, further argued that any further innovations must put the security and sustainability of funds into consideration and ensure that the critical issue of trust is not compromised.

The former president said: “I like innovation but innovation must be with caution; we can’t be too adventurous” adding that pensioners should have access to their money whenever they needed it.

While he expressed satisfaction that the pension reforms he helped to initiate during his time in office now had almost N6 trillion in assets with about 7 million registered employees in the system, he said part of future innovations in the industry should centre on how to capture more salary earners into the pension scheme and explore the huge potentials in the informal sector of the economy, particularly those who would be engaging in self-employment at this time of recession.

He also lent his voice to the need for pension funds to be creatively utilised to provide housing for all Nigerians as well as construct roads.

However, Obasanjo’s caution on disruptive innovation in the pension sector was re-echoed by the co-founder of the World Pension Summit (WPS), Mr. Eric Eggink, who said though efforts should be made to utilise the advancement in mobile technology to significantly boost pension participation, inherent constraints must not be ignored.

According to Eggink, products like micro pension as well as providing online access to pension products and any innovation that lowers the threshold to accommodate players in the informal sector will be a great boost to the growth of the sector, but the problems of cybercrime and internet speed may constitute bottlenecks if unchecked.

The cautions are particularly true in view of the array of online frauds witnessed in the banking sector where online financial transactions are currently in place.

Banks continue to lose billions to cyber criminals who clone banks’ websites and send fraudulent messages to customers with the intent to defraud them and they are often successful in their nefarious acts.

If anything, the nasty experience in the banking sector regarding online and mobile financial transactions must guide whatever innovations are being sought to boost pension in the country.

Nonetheless, one other focus of the summit was how pension investment in infrastructure could be enhanced to provide government with affordable financing options amid the current fiscal constraints which had led the economy into a recession.

The Director General, National Pension Commission (PenCom), Mrs. Chinelo Anohu-Amazu, had noted that Africa’s infrastructure deficit stood at $93 billion annually and could be addressed through a coordinated, multifaceted approach to development and the integration of domestic funding sources particularly pension funds and foreign institutional investors.

She said ideas and experiences on innovative practices in pensions and social security to advance the African agenda of addressing economic and social challenges must be considered going forward.

According to her: “Then again, cutting-edge Infrastructure is critical for economic growth and social progress. Extant indices show that Africa’s infrastructure remains by far the most deficient and costly amongst developing countries. In many cities, the challenge of urbanisation and the need for modern infrastructure is already evident. One-third of urban residents in Sub-Saharan Africa are located in 36 cities, each with more than one million inhabitants.”

But she further observed that “No doubt, for African institutional investors to make the desired impact, it is imperative to strengthen the institutions towards ensuring good corporate governance. We must build and maintain investors’ trust and confidence – particularly, conditions and regulations should not change during the life cycle of investments.

“In addition, we must ensure that investment initiatives address environmental, social and governance principles, due to the need to focus on reducing products that are harmful to our lands and people. Similarly, we must not lose focus that pension assets are liability-driven investments, which pay much attention to the promises made to pensioners.

“Thus, there is need to inculcate transparency in the way investment structures will be designed. This requires an increased investment and innovation in Information and Communication Technology infrastructure.”

According to her, “It is imperative for the African pension and social security funds to emulate the investment focus of their sister funds from developed climes in the provision of infrastructure and in making visible economic impact. However, to successfully achieve these fiats, they must develop core competencies and capabilities. I am particularly happy that African institutions are already taking steps toward unlocking the potentials of this great continent towards achieving greatness.”

From the foregoing, it is evident that there are still huge opportunities yet untapped in pension administration in the country but equally, there are still as much challenges which are to be addressed in order to achieve full potentials of the pension industry.