As the National Pension Commission prepares to give the green light for the commencement of the long awaited pension transfer window, Ebere Nwoji, in this report, examines the marketing intrigues employed by PFAs for a larger share of the pension market
As contributors earnestly wait for the commencement of the pension transfer window that will enable them migrate from their present Pension Fund Administrators ( PFAs) to another, the PFAs are strategising on how to grab the largest share of both the existing and emerging markets and remain on top in the areas of asset size and number of contributors.
Indeed, with the prevailing signs of both offensive and defensive marketing tactics currently unfolding in the industry via various communication channels that include outdoor advertising, promotions, radio and television commercials, social media, sales activities, and other visibility campaign strategies employed by the operators, there are palpable fears that when the transfer window takes off, the industry will be left with few giant operators while many will fall by the way side.
Although Section 11(2) of the Pension Reform Act 2004 amended in2014, provides that the employee may not more than once in a year; transfer his retirement savings account(RSA) from one PFA to another ,without adducing any reason, the commencement of the transfer window according to some contributors has suffered unnecessary delay.
THISDAY recalls that PenCom, under its former management, led by Muhammad Ahmad, had in 2012, informed contributors that the commission was at the verge of introducing a software application window that would enable seamless transfer of RSAs from one PFA to another by savers who may wish to explore the window.
The then PenCom management had said that the estimated date for the opening of the transfer window was December 2012.
“Employees who are dissatisfied with the services being rendered to them by their PFAs will have the opportunity to transfer their RSAs from one PFA to another, beginning from December 2012. This is in accordance with Section 11(2) of the Pension Act which provides that the employee may, not more than once in a year; transfer his RSA from one PFA to another PFA without adducing any reason for such transfer”, Ahmad stated.
As at the time Ahmad gave this assurance, some contributors were already expressing dissatisfaction with their PFAS agitating for opportunity to migrate to other PFAs although the then Chairman of Pension Fund Operators (PenOp) Mr. Dave Uduanu had cautioned that contributors should be patient and restrain from much pressure on the transfer explaining that the problem they were experiencing with one PFA that made them want to migrate to another may be worse in the new administrator they were agitating to migrate to.
On the reason for the delay, PenCom had always explained that one of the reasons the transfer window had not taken off was that it was yet to conclude works on the supporting Information and Technology (IT) applications of the transfer window which will enable pension contributors change their administrators.
The commission, recently said it is working on the transfer window issues, noting that the framework had been issued to operators for implementation, and that work is still ongoing on the supporting information and technology application that would drive the initiative.
To ensure seamless operation of the initiative, PenCom said it had mandated PFAs and Pension Fund Custodians (PFCs) to deploy IT infrastructure for the transfer process.
It noted that such IT infrastructure must have adequate storage and retrieval capability for a period of 10 years.
As the regulator is fine-tuning its operations for a smooth take off, operators are gearing up for higher positions in the market.
Among the 21 Licenced PFAs, five big operators currently control the lion share of the market.
According to PenCom records, these five accounted for over half of the total N5.83 trillion RSA assets at 66.58 percent as at the end of the first half of this year.
While among the 21 licenced operators, top ten ranking PFAs managed 88.20 percent of the total RSA assets and the remaining bottom ten PFAs accounted for 8.74 percent of the RSA assets under management at the end of the reporting period.
Among the leading five, at the top of the pyramid by size of assets under management and number of registered contributors is Stanbic IBTC Pension Managers Limited, which has over 1.4 million retirement savings account holders nationwide and assets under management in excess of N1trillion, paying approximately N2.1 billion to over 41,000 retirees monthly. Over N248billion has been paid to retirees since the PFA commenced operations in 2006.
This is followed by ARM Pensions, which clocked 10 years in December 2015, and has total assets of over N640 billion under management (as of November 2015) and reportedly paid out over N60 billion in pension funds to over 60,000 customers. Premium Pension Limited, is the next with over N420 billion in pension assets under management and well over 600,000 RSAs. It has paid out over N87 billion to more than 33,000 retirees as pension entitlements since 2007. Sigma Pensions Limited, incorporated in August 2004, is following with over 650,000 registered customers.
Among these and others, there is a glaring race on how to corner each other’s market with the four PFAs filing behind IBTC polishing their services and mounting publicity campaigns in a way that will enable them corner some of the leading PFA’s customers.
As the industry looks forward to reap bountifully from the emerging micro pension market which the regulator is currently fine tuning the operational guidelines, PFAs are positioning themselves to enhance their visibility in the emerging market.
The usual elements, such as brand identity, customer perception, financial resources as well as array of products and services are being reinforced to influence customer acquisition or defection. Referring to competition in the industry, PricewaterhouseCoopers noted that “PFAs are developing clear client value propositions and targeting specific contributor market segments as the race for leading market share intensifies,” and added that technological advancement is “bringing in several non-traditional players who will provide platforms for pension products and services.
In the days ahead, the strengths and weaknesses of each player will be further scrutinised as the battle for the minds of the consumers continues.
The foregoing scenario undoubtedly provides insight to an intense battle for market share. For most PFAs, the pension transfer window will provide the ideal opportunity for both turf defence and customer acquisition.
When the window will eventually be thrown open, having been delayed for these years, remains a matter of conjecture. Nonetheless, Eguarekhide Longe, President of the Pension Fund Operators Association of Nigeria (PenOp), had at a recent parley with the media appealed for patience and understanding of account holders as PenCom finalises the transfer guidelines as well as installs the infrastructure to support it. The regulator itself had admitted a few gaps that needed to be filled before the window opens.
“A major challenge hindering the opening of the transfer window is the issue of RSA holders registering more than once through their PFAs on the Commission’s database,” PenCom stated. Also, “for effective take-off of the transfer window, the Commission is putting in place infrastructure and modalities that would enable the cleaning up of the existing registration database to eliminate multiple registrations thereby facilitating the opening of the transfer window,” said the commission.
While the commission concludes its work for a smooth take off, the negative effect of job loss that will emanate from the exercise is imminent as available signs are there that out of the existing 21 PFAs, more than half will lose their clients to the big fish in the industry.
From findings, it was discovered that when the contributory pension scheme started in 2004 and PFAs went into marketing of their firms, some organisations chose some PFAs on sympathy ground just for the sake of patronage. Also some organisations before choosing PFAs for their employees have not tested the performance of PFAs before as a result, they chose randomly among a number of PFAs that submitted their proposal forms to them.
Having experimented with such PFAs these years that the contributory Pension scheme lasted, some of these organisations have seen pitfalls of the PFAs they have chosen and have made up their minds for a change.
For such organisations, there are fears that as soon as the transfer window takes off, such organisations may open door of change for their employees and their PFA of first choice will have serious problem.
A major stake holder in the contributory pension scheme has predicted that when the transfer window commences, the system may witness the existence of few big PFAs as contributors may prefer to deal with such big administrators there by starving others which may eventually lead to their demise.
This calls for serious brainstorming by both PenCom and the PFAs to ensure that not only effective transfer is achieved, also continuity of the existing firms is maintained. The demise of more PFAs in addition to few that died during the recapitalisation exercise will not be to the best interest of the economy as such PFAs will throw back their employees to the labour field.
PenCom should not only quicken steps in making the transfer window work, should handle the transfer window in such a way that will not spell doom for small and medium scale PFAs and ensure that such PFAs whose clients are complaining perfect their operations to be in position to satisfy their clients and compel them to remain with them.
Undoubtedly, the enactment of the Pension Reform Act of 2004, which was repealed by the Pension Reform Act of 2014, has strengthened the Contributory Pension Scheme and allowed for healthy competition in the industry, resulting in more transparency and accountability, which in turn, has enhanced efficiency, innovation and value for money.
With revision of the pension law in 2014, PFAs have adopted fresh approaches to engage both the underserved formal sector market and the informal sector. Having their peculiar needs in mind, targeted products and services have been developed and deployed, a reason partly responsible for the significant growth in private sector enrollment. Also, the adoption of digital technologies has been instrumental in triggering wider market coverage, buoyed by regulatory reforms that have accelerated market coverage and growth.
There is a growing consensus among stakeholders that Nigeria’s pension industry now stands on a stronger foundation. Awareness about wealth creation through saving and investment is on the upswing on the back of aggressive marketing efforts by the regulator and operators. Though retirement and investing may seem far away in the future and does not require immediate attention, Nigerians are beginning to appreciate the need for long-term plans and commitments, which are essential to create the wealth for future use, including retirement.
“The Pension Reform Act of 2014, among its very many laudable provisions, has been instrumental in expanding coverage of the Nigerian pension system and strengthening compliance, while building a vibrant pension industry capable of supporting economic growth and development,” said an operator.
Amongst its provisions, which expand the coverage net, private sector organisations with just three employees or more are now free to register under the scheme; while the law also compels an employer to open a Temporary Retirement Savings Account (TRSA) on behalf of an employee that fails to open a Retirement Savings Account within three months of being employed.
In essence, whatever gaps that existed in the old pension regime had been effectively plugged in the new law, making the incidence of ghost pensioners and widespread mismanagement of pension funds almost impossible. It is also gratifying to note that the stiff penalties to be levied on pension funds fraudsters and employers who persistently fail to deduct and/or remit pension contributions of their employees within the stipulated time are helping to curtail abuse and other unscrupulous practices.
Also regulator’s efforts in clarifying the impression that pension funds are left to PFAs, employers, individuals or operators to handle as they wished has in no small measure built public confidence in the contributory Pension scheme.
As at today, PenCom had through such explanations and awareness creation convinced the general public that the accrued N5.83 trillion pension asset is held by Pension Fund Custodians (PFCs) who are duly licensed by PenCom to execute investment instructions from the PFAs and that there are also sufficient legal and institutional framework to protect pension funds and the funds are directly credited to the RSA of beneficiaries who enjoy unhindered access to any information relating to their pension contributions.
All these, have to a reasonable extent convinced Nigerians that the contributory pension and payment of retirement benefit is real and there is hope that when PenCom rolls out guidelines for participation of the informal sector operators into the scheme, the PFAs who will remain in business will more than triple their current number of contributors and assets.