As Pension Sector Trudges On

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Ebere Nwoji
The pension sector despite challenges such as getting all Nigerian workers under pension coverage, stood out as one of the fastest growing sectors in Nigeria.

From billions of naira deficit before the implementation of the 2004 Pension Reform Act that gave birth to the ongoing contributory pension scheme (CPS), the sector ‘s total assets is currently about N9 trillion.

The sector, though in 2018 still grappled with some growth inhibiting challenges some of which have been there from inception recorded two major achievements targeted at growing its assets and bringing more Nigerians under pension coverage.

In July 2018, the sector effected a major change in assets investment aimed at giving contributors freedom to choose where their funds are to be invested.
This was the transition from double fund structure to multi-fund structure.

The National Pension Commission (PenCom) during the year issued a directive mandating all pension managers to commence the implementation of the multi-fund structure, which is expected to increase the returns on investment of pension funds as well as protect the funds of retirees from investment risks.

The multi-fund structure requires RSA holders to select the investment portfolio that they will like their pension funds invested in based on their age and risk appetite.
It offers contributors more options on how their pension contributions are invested.

According to PenCom, “the new multi-fund structure seeks to align a contributor’s risk tolerance or appetite with his/her investment return expectations, based on work life cycle.”
The new fund structure has four funds unlike what the two-fund structure had.
Before now, due to the nature of retirement funds, PenCom mandated PFAs to operate the Retiree Fund, which are not invested in risky instruments and active Retirement Savings Account Fund, which PFAs are a bit venturesome when it comes to investments.

Having perceived low returns on investment under the two funds, the commission created more funds, bringing the total to four.
According to PenCom, a major benefit of the introduction of the multi-fund structure is that the contributors’ pension contributions are invested in an optimal manner to achieve enhanced retirement benefits.

For example, younger contributors may prefer a pension fund with a higher level of risk and expected return, so as to increase the expected value of their pension at retirement, while older contributors or already retired, may prefer a low risk fund, so as to minimise the likelihood of a reduction in the value of their pension.

The new funds structures are categorised into fund one fund two , fund three and fund four.
Fund one, which is for young contributors is based on choice; fund two for young and middle-aged contributors (ages 49 years and below); fund three for pre-retirees (ages 50 years and above) and fund four is for retirees.

Another major achievement recorded by the sector in 2018 was the release of guidelines micro pension.
Having released the guideline said the micro pension scheme would kick off first quarter 2019.

Many operators said they have already strategised to tap into the micro pension scheme opportunities.
There is high hope among the sector operators that the scheme, when fully operational, would not only shoot up the pension assets, but would give hope of safe and enjoyable retirement to self-employed Nigerians.

The commission during the year through its directorate in charge of pensioners under defined benefit scheme.
In addition, the Pension Transition Arrangement Directorate (PTAD) conducted verification of retirees of some government parastatals who were abandoned over the years and included their names in its payroll. Such parastatals like NITEL, the New Nigerian Newspapers, NICON Insurance Corporation, among others have been included in the pay rolls and they are currently receiving their monthly benefits.

The sector also during the year continued to sensitise deviant employers on the need to key into the scheme.
But one major thing the sector regulator failed to address during the year was the commencement of window transfer which contributors have been yearning for.

Indeed, given the assurances given by PenCom on the transfer window. Nigerian workers had expected that it will be one if the achievement to be recorded by the commission during the year but this did not happen.

Also some state governments, who are yet to complete their journey towards keying into the scheme are still in their various stages of compliance while some employers of labour are yet to key into the scheme.
With the new fund structure and commencement of micro pension scheme, operators are optimistic that achievement of N20 trillion in the next three years as projected by some operators is achievable.