Yola: Enlightenment Key for Micro Pension Success

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The Managing Director/Chief Executive Officer, FCMB Pensions Limited (formerly Legacy Pension), Mr. Misbahu Yola, in this interview speaks about the benefits of the micro pension scheme that was officially launched last week. He stresses the need for the regulator and operators to step up enlightenment on the initiative, saying for individuals to voluntarily participate, they must be enlightened. Obinna Chima provides the excerpts:

With the official launch of the micro pension scheme, what are your expectation for the sector?

What we envisage for the sector is that it will elicit a significant number of savers and consequently boost the Assets Under Management (AUM). What has been realised is that after 12 years of this scheme, the industry has registered about eight million workers and most of them are obviously from the structured formal sector, the federal government and some state governments. But in a country of 180 million, what is expected as the number of workers is much more than eight million. So, the industry and the regulator believe that the majority of people are in the informal, semi-formal or self-employed. That is why it is called the micro pension. The micro pension includes self-employed people, small savers and artisans. The idea is to increase the pool of pension funds from the current N8 trillion and multiply that amount in the next three to four years, and also to increase the number of people who save for their retirement because even if you are an artisan or self-employed, somewhere along the line, retirement would come. It is good for the social system that individual would have had some savings fall back on.

But awareness will be required to drive this initiative. Are there plan by operators and PenCom to drive awareness of this scheme?

Yes, the regulator has always consulted with operators all the time and the issue of micro pension has been on the table for probable two years now, for fine-tuning, for discussion, for operational guidelines, etc. Now, after the launch, I believe it is now officially open to enlighten people on it. I believe that PenCom and the operators would now be going region by region to enlighten individuals and small savers about the benefits of the scheme and how they can join. So, I expect that from April, there would be a lot of publicity and roadshows across the different geo-graphical regions. This is because enlightenment is key and very essential because this scheme is voluntary participation and for individuals to voluntarily participate, they must be enlightened. So, a lot of efforts and energy would be put into that in the next couple of weeks.

We have come to the end of the first quarter of 2019. Generally, what will be your assessment of the pension industry in the last 15 months?

The pension, like in most countries, has continued to grow. So, the assets keep growing, both from contributions and from returns on investments. However, one of the most important things that happened in the last 15 months is the introduction of the multi-fund structure. So, now instead of two funds, we have four funds. We have fund one, two, three and four and they depend on the age of the contributor. That is a new development which started in July 2018 and all the operators have keyed in and everything has gone smoothly. PenCom has also written us that with the micro-pension coming on board, there would also be another fund for micro-pension contributors that is separate from these four funds and they envisage that in the nearest future, a fund six, which would be an interest-free or sharia compliant fund. On the side, of course, the commission has reduced the fees accruable to all operators, inclusion the Commission itself, since the assets have grown significantly over the last couple of years. We would see how that impacts at the end of 2019. But I believe that so far so good there are no fundamental issues. The next thing probably would be the transfer window. But I believe that would come after the data recapture exercise that all of us are now carrying on.

And for the rest of 2019, what are your expectations and what is FCMB Pensions Limited doing to take advantage of the opportunities in the sector, what strategy have you develop to increase your market share?

What I see in the next couple of months is that the micro pension scheme would be on and on the data recapture exercise, we have gotten a lot of traction and registration with the Bank Verification Number (BVN) and the National Identity Number (NIN) would have kicked-off by that time. On the macro side, for interest rate, the Monetary Policy Committee (MPC) recently reduced interest rate to 13.5 per cent, from 14 per cent after about 33 months. So, interest rates are likely to trend down and that might have some effects on the returns on invested assets. Be that as it may, at the end of the year, I expected that the AUM would have boosted, returns on investment should be around inflation. For FCMB Pensions, I wouldn’t put my strategy out there in the public. But what I can say is that we are going to leverage the network of the bank. We have over 200 branches, if we can, we would also find a way to leverage the technology that is available and most significantly, the brand is now out there. We are now FCMB Pensions because we changed from Legacy Pensions. We hope to maximise the brand recognition which we believe should be positive for us in the market. We are well prepared for the micro-pension and all the activities that PenCom is involved in, because we engage with them in a consultative manner. So, it is about leveraging the network and the brand name of FCMB that has been around for more than 35 years. We are already seeing that in the market and there is more recognition presently of FCMB Pensions.

So what are those unique selling points that would naturally attract a contributor or an organisation to your firm?

Like I said, behind us, there is a lot of experience in investment. So, we tap into that knowledge and experience, whether it is from the equities side or fixed income side and that would have a positive impact on the returns that we make for our contributors. As for reach, Legacy Pensions had about 40 outlets, but now with the network of FCMB Bank, which has over 200 branches, that means wherever you are, whether it is Sokoto, Yenagoa, you can get into a FCMB branch and carry out your transaction. We are trying to deploy technology and communication channels so that wherever you are, if you enter and FCMB branch, you can get in touch with us. So, knowing that we have a solid financial institution behind us can be a reason for any organisation or contributor to want to subscribe to our offerings.

Since the National Pension Commission (PenCom) granted licence to the Nigerian University Pension Management Company(NUPENCO), we have seen some others agitating for their own PFA. Don’t you think this will have negative effect on the industry?

Firstly, NUPENCO is still within the Contributory Pension Scheme (CPS), it will operate under PenCom and would be regulated like any other PFA. All they have is the licence. They would be under same rules and regulation as every other PFA. They are not outside the scheme like the military. The military exited the scheme completely and that required an amendment of the law. But NUPENCO is just like the police pension. The police force also has a PFA of their own which is under the CPS and under PenCom’s regulation. What does this do to us, not just FCMB Pensions, but other PFAs as well? What it does is that it takes away businesses that we have marketed, nurtured and developed over the 10 years. Naturally, there would be some loss, we are going to lose AUM and income. However, despite the NUPENCO licence, it is not mandatory for every university lecturer to register to register with NUPENCO. They have a choice. So, as a lecturer, you have choice to either remain with your PFA or go to NUPENCO. So, we would do our best to keep those we have with us, showing them the strength of the financial institution behind us, our experience over the last 12 years and we believe we can convince them to remain with us. But I think the regulator needs to look at this because what would happen is that if everybody agitates and gets a licence, it could make a mockery of the entire scheme. Individuals build business, entrepreneurs risk their capital, develop businesses and income and suddenly it is taken away from them. So, it has a negative impact on us, but I believe the regulator is also cautious in granting licences. They would do it with due diligence and they would have a reason for doing it. For NUPENCO, I believe it is part of the negotiation between the Academic Staff Union of Universities and the federal government.

There are concerns that if the transfer window is opened, some of the smaller firms might lose their contributors to the bigger firms as individuals or organisations naturally would want to take flight to safety?

The transfer window is an opportunity as well as a threat for every operator. I don’t think that the smaller firms would be under threat. I do think it will be left for the operator to get their acts right. There could be opportunities and also the threat of people moving their Retirement Savings Account (RSA) from a particular operator. But it is also an opportunity to market everybody. So, if you are a small operator, you can go after go after anybody and anybody can also decide to join your firm. So, your success would depend on your strength and ability to convince people that they are better off with you. But it is necessary that people should be able to choose where they want to go, within certain parameter. There would be rules and guidelines as to how you can move from one PFA to another. So, we see it as an opportunity because you can attract a lot of people through this initiative.

Can you shed more light on the multi-fund structure and its benefits?

Like I said earlier, initially there were two funds –the RSA Fund and the Retiree Fund, so that when an individual retires, he or she moves goes from the RSA Fund to the Retirees’ fund. The difference in the two is actually the structure of the investment allowed. So, there is a lot more variable income in the RSA than in the retiree fund. The whole idea is because variable income fluctuates and while you are working you could live with fluctuations, but upon retirement you want more certainty. So, initially the RSA fund had maximum 25 per cent investment in variable income, while the Retiree Fund started at five per cent and later it was increased to 10 per cent; but now there is no minimum, only maximum. What was realised over time is that there are people who are in their twenties and some in their fifties and they have different risk appetite. Now, if you get a job at the age of 23 or 25 years, you have a long way to go and so you can take a little more risk. So, as you get older, you want to take less risks or fluctuations.  So, out of the RSA Fund, two new funds were created to make them three. So, you have fund one, two and three. Fund three is for those who are 50 years and above and are nearing retirement. From Fund three you go to the retirement fund. Fund two is for all those who are below 50 years and Fund one is not a default fund, you can only get into that by choice. So, you have to ask as a contributor to get into Fund one. But even it is only the person in Fund Two that can get into Fund One. If you are 50 years, you are not allowed to go to Fund One. But if you are in Fund Two, which means you are less than 50 years, you can choose to go to Fund One. The difference really is in the risk profile in the asset allocation. There is a lot more variable income fund in Fund One, up to 75 per cent. So, as you go towards Fund Three, it reduces. The whole idea is to protect you as you go older. So far, there hasn’t been any issue, a few people have chosen to go to Fund One and they understand the risk in that portfolio.

But for these Funds to operate effectively, job stability is key. Today, we have seen that more Nigerians lose their jobs, don’t you think this is going to also affect the operation of these multi-fund structure?

It certainly does because when somebody is out of job it means the contribution stops coming and then the individual can approach his or her PFA to demand, if they want to, 25 per cent of the balance in the account if they haven’t got a new job for four months. Now, the entire scheme is based on employment and that tells you the importance of getting the economy going. If the economy is doing well, that is what generates employment. Nobody want to lose jobs, not the operators, not individuals or even government. Everybody wish to have full employment. But companies and private sector in particular operate on profit basis. So, if they need to cut cost and staff because of the economic condition, they would do because it is unavoidable. But certainly it is not good for our business. We hope that with all the fiscal and monetary policies that the government is introducing, the tide of unemployment can be reduced and in fact new employment created. Possibly, the reduction in MPR was an attempt to boost the economy and if the economy is boosted, employment goes up. We wait to see the impact the reduction in MPR will have in the next couple of months

There are still lots of states that have not adopted the contributory pension scheme, what is PenCom and operators like FCMB Pension doing to encourage these state governors to come on board and is there a forum in the industry where issues like this are discussed?

We have a Pension Fund Operators Association of Nigeria (PENOP) and I was the chairman for two years and that was between 2014 and 2016. It is a forum where we discuss issues that affect the industry. We have several committees such as the technical committee; the legal and regulatory committee, where compliance is discussed and we also have a publicity committee. There is also a consultative forum where we discuss with PenCom every three months and here issues that affect the industry – both strategic and operational issues – are discussed. So, there is forum for that. Unfortunately, pension is not one of those things that the federal government can legislate for states. So, individual states have to do their own legislation. So, even the Pension Reform Act 2014 actually just encourages states to join, but it wasn’t made mandatory for them. Certainly, if all the states of the federation key into the scheme, it will be better for the industry. At the moment, there are only 12 states that are in the scheme and only about six are properly funding it. The others have keyed in, but are not funding it as well as they should and a couple of others have not done anything at all in that regard. Maybe they are facing financial challenges, but I can tell you that PenCom and the operators are consistently engaging and showing them the benefits of the scheme and we would continue to push them. I commend the states that had the courage and some of them include Lagos, Delta, Rivers and Kaduna. Jigawa has contributory scheme that is mixed and the state has also done well in that regard. It will take time, but we try to educate them as to why it is beneficial to do it.

For FCMB Pensions, what is your medium term projection?

We hope to double our assets in the next three years. In the long-term we want to be a top player by expanding our growth either organically or inorganically and that is our target in the medium term. In the immediate term, what we are doing is aligning with the branding and network of the group. So far, the FCMB Pensions name change has gone smoothly. We haven’t had any issue and people are now aware that there is FCMB Pensions and Legacy Pension is gradually receding, even though in all our communication we state that this is formerly Legacy Pension so that we don’t lose those who identify with the legacy brand.

Talking about inorganic growth, are you considering acquiring a firm?

Inorganic growth is an option for everyone in the industry and all I can say is that all options are on the table.

Finally, what message do you have for your contributors and other stakeholders?

For our contributors, the brand change should give them more confidence that there is a strong financial institution behind us – an institution that has more than 35 years’ experience in marketing, retail, capital market, asset management, stock broking and banking. That should give comfort to our contributors. They should also have the comfort that we now have a wider network and they can reach us more easily and we hope that in the next couple of months, we would be able to also leverage on technology for our contributors to transact a lot more easy.