AISHA DAHIR-UMAR: Infrastructure is Adequately  Suited for Pension Funds 

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AISHA DAHIR-UMAR

As Nigeria grapples with dearth of critical infrastructure, which where exists, is deplorable, the ever-increasing pension funds, appear to be the needed succour. In this interview with Kunle Aderinokun, the Acting Director-General, National Pension Commission (PenCom), Hajia Aisha Dahir-Umar, provides insights on how the nation can leverage pension assets for infrastructure development. Dahir-Umar also speaks on some other areas of concern in the pension industry. Excerpts:

Can you give the current value of Pension Assets?

The net assets value (value of pension funds net of fees and other charges) of pension fund asset was N9.44 trillion as at 31 August, 2019. Specifically, pension fund assets were invested in 11 asset classes among which include quoted ordinary shares, FGN securities, state govt. bonds, corporate debt securities and supranational bonds etc.

Pension funds remain crucial for the country’s infrastructural development till date. What portion of the funds has been committed to infrastructure?

Total pension fund Investment in Infrastructure as at 31 August, 2019 was N160.36 billion (Sukuk Bond N70.99 billion, Infrastructure Funds N30.69 billion, Infrastructure Bond N10.18 billion, Green Bond N13.07 billion and Agency Bond N9.96 billion, and Corporate Green bond N25.42 billion). This amount represents 1.70 per cent of the total pension assets as at 31 August, 2019

The Sukuk was deployed for road infrastructure while the Infrastructure Funds consist of Investments in ARM Harith Fund that invested in the Azura-Edo Independent Power Plant (IPP) Project in Edo State and Afri plus Fund that invested in the Constructions of 1,200 hostel rooms in University of Calabar, Cross Rivers State. On the other hand, the proceed of the Infrastructure Bond (Viathan Infrastructure Bond) was invested in power projects (Akute Power Plant, Island Power Plant, Pipp Genco and Gasco Marine Limited) in Lagos State.

Pension assets in Nigeria are currently the largest available pool of patient capital. Infrastructure is adequately suited for pension funds and is a potential avenue for pension funds to reap higher and consistent returns on investment, if adequate policies, structures and regulations are instituted. Several countries in Europe, Latin America and Africa have successfully utilised part of the accumulated pension funds by investing in new infrastructure projects or renewing dilapidated ones. Globally, productive investments in infrastructure are majorly made possible by long term funds/savings such as pension funds. The commission continues to engage relevant stakeholders (government agencies, private sector participants, multilateral development finance organisations) in developing infrastructure assets that meet requirements for pension fund investment.

Recently, there was a report that PenCom directed PFAs to invest a minimum of 60 per cent of their infrastructure funds in projects in Nigeria. This is laudable! Is PenCom collaborating or partnering with agencies like InfraCredit, Nigeria’s premier infrastructure credit guarantee company, to ensure optimum utilisation and success of these funds, ultimately protecting pension assets?

It is pertinent to clarify that the commission as a regulator is responsible for establishing rules, guidelines and standards for pension fund investments by licensed Pension Fund Administrators (PFAs). Consequently, making investment decisions on the percentage allocated to Infrastructure is the sole responsibility of PFAs, which have to make investment decisions in line with regulations set by the commission.

The commission is one of the agencies implementing the Financial Sector Strategy (FSS) 2020 and has been collaborating with all the relevant agencies including private organisations such as the Infrastructure Credit Guarantee Company (InfraCredit), towards achieving its targets on the initiatives, including investment of pension assets for the development of infrastructure in Nigeria. The FSS2020 along with the commission and InfraCredit are working to build acceptable investment models that would encourage pension fund participation in infrastructure financing.

The commission has recorded a number of successes as a result of its collaborative initiatives with stakeholders including InfraCredit and is further committed to sustaining all existing collaborative relationships.

In their show of confidence in the domestic bond market, the PFAs fully subscribed to a 10 -year N10 billion Guaranteed Infrastructure Bond (called the Viathan Bond), which 21 per cent of its proceed was used to finance the construction of a compressed natural gas (CNG) plant in Ogun State earlier in the year. Arguably, that was the first time the nation witnessed pension fund coming into play in infrastructure financing. It was unprecedented! What more and when should we expect to happen in this regard?

Licensed PFAs have continued to make investment decisions in line with the Regulation on Investment of Pension Assets (the Regulation) which allowed pension fund assets to be used for Infrastructure Financing. However, there are limited Infrastructure Bonds and Funds available for pension funds to invest. It is expected that PFAs would continue to make pension funds available for infrastructure financing as long as the products offered are viable bankable and meet the requirements of the Regulation. The commission would continue to work with relevant stakeholders to encourage the development of appropriate instruments for pension fund investments, with focus on infrastructure financing.

In as much as the commission is desirous of encouraging pension fund investments in infrastructure and housing, it will not compromise on the major objectives of pension fund investments, which are safety of the assets and maintenance of fair (real) returns on investments.

How do you see the impact of IFRS 9 on pension fund administration?

IFRS 9 is an International Financial Reporting standard issued by the International Accounting Standard Board and adopted by the Financial Reporting Council of Nigeria. The major area of the Standard that deals with reporting pension funds are the accounting treatment of impairments as well as classification and measurement of financial assets. The pension funds in Nigeria have complied with this standard in their various financial reports to stakeholders and regulators.

At the initial stage of IFRS implementation by the pension industry, there were fears about its adoption due to perceived lack of understanding by the public on fair value measurements or disclosures, particularly in classifying debt instruments, which had only two options. However, these fears were addressed by the issuance of another portion of IFRS 9 which addressed aspects of applying fair value options in financial reports.

Early reaction to market information on the adoption of IFRS 9 indicates an overall positive response to the IFRS 9. The adoption of the Standard will promote accountability, transparency and good corporate governance that will impact positively on various stakeholders. Furthermore, the adoption of IFRS by the pension industry would help to provide accurate information on the financial position and financial performance of pension funds.

Compliance to pension regulations by employers, particularly in the private sector remains a challenge. How much has the commission done to enforce obedience?

The commission has a framework for compliance with the provisions of Pension Reform Act 2014 (PRA 2014). The framework outlined the strategies to be adopted by the commission. The strategies include appointment of recovery agents to recover unremitted pension contributions and penalties from defaulting employers, Issuance of Pension Clearance Certificates, Compliance Monitoring through onsite inspection of employers, Public Awareness and Engagement and Collaboration with social partners and relevant stakeholders. The details of the implementation of each of the strategies are as follows:

Appointment of Recovery Agents: To ensure compliance by employers of labour with respect to remittance of pension contributions, the Commission developed a Framework for Recovery of Outstanding Pension Contributions with Penalty from defaulting employers. Based on the Framework, the Commission had engaged recovery agents for the review of the pension records of employers and recovery of unremitted pension contributions plus penalty. The recovery exercise which has been largely successful, has boosted the confidence of contributors and by extension encouraged non-participating employees/employers to embrace the Scheme. Through this initiative, the sum of N16.37 billion representing principal contribution (N8.37 billion) and penalty (N8.00 billion) have been recovered from defaulting employers. Both the principal contributions and penalty have been credited into the workers’ Retirement Savings Accounts (RSAs). The penalty is meant to compensate for the income that would have been earned if the contributions were remitted as and when due.

The commission is also prosecuting recalcitrant employers who failed to remit its employees’ pension contribution into their RSAs.

Issuance of Pension Clearance Certificates: The Commission commenced the issuance of Pension Clearance Certificates to organizations in 2012. The certificates are renewable annually and serve as a confirmation of compliance with the provisions of the PRA 2014 by an employer. The Certificate is one of the key requirements for doing business with Federal Government Ministries, Departments and Agencies (MDAs). From January to September 2019, the Commission has received applications from 17,400 organizations out of which 16,603 organizations were issued certificates. The 16,603 organizations that were issued certificates remitted the sum of N89.45 billion into the RSAs of 272,974 employees. The Commission has a transparent, efficient and effective process that ensures timely issuance of Certificates to qualified applicants. The Commission is on the verge of automating the process of issuing Pension Clearance Certificate.

Compliance Monitoring through onsite inspection of employers:  The Commission has continued to monitor compliance with the PRA 2014 by private sector employers through the Risk Management and Analysis System (RMAS) as well as through complaints received from employees. Defaulting employers are engaged in line with the Regime of Sanctions and On-site Inspection by the Commission. The engagements are aimed at ensuring that employees opened RSAs and pension contributions (plus penalty) are remitted to the RSAs. In that regard, the Commission had engaged 1,490 private sector employers. These efforts have proven very useful in ensuring private sector compliance with the PRA 2014 as most of the affected organizations have provided evidences of remitting pension contributions to their employees’ RSAs.

Public Awareness and Engagement: The commission has continued to engage in sensitization workshops on the workings of the CPS for the Organized Private Sectors. In this regard, several interactive sessions on the Scheme have been held with the private sector employers. The sessions have been very useful in providing a platform for the Commission to enlighten private sector, address their concerns/fears and obtain useful feedback that would improve compliance.

Collaboration with Social Partners and Relevant Stakeholders: The commission has been engaging and collaborating with Social Partners like the Nigeria Employers’ Consultative Association (NECA), Nigeria Labour Congress (NLC), Trade Union Congress (TUC), Nigerian Union of Pensioners etc.  The interactive sessions, provides the platforms for the Commission to interact with critical stakeholders in the OPS on the implementation of the Scheme. Also, the sessions provide opportunity for the Commission to keep stakeholders abreast of developments, address concerns, clarify issues and discuss the expectations of contributors, with a view to improving compliance with the provisions of the PRA 2014. The interactions further allay the fears of contributors about the Scheme. In addition, the commission obtained useful feedbacks from the OPS on the implementation of the CPS through the sessions.

Meanwhile, the commission has a fully functional complaints monitoring and resolution team which attends to complaints on non/late/under-remittance of pension contributions into employees Retirement Savings Accounts. The Team has a Regime of Sanctions which guides the administrative steps to be taken when complaints are received.

The process followed in the Regime of Sanctions are Letter of advice, Caution letter, Sanction letter and Legal action. Accordingly, we appeal to all stakeholders, including the media and employees to forward to the Commission the names and addresses of employers that are not in compliance with the provisions of the PRA 2014.

How many pension law offenders have so far been prosecuted since the enactment of the Pension Reform Act 2014?

The commission has been prosecuting recalcitrant employers who failed to remit its employees’ pension contribution into their RSAs.  As at date, the Commission had instituted legal actions against 191 recalcitrant employers. Out of that number, 79 had opted to settle out of court with the Commission, 35 Judgments have been obtained while 77 are at different stages in the courts.

What are the challenges of the new pension regime- that is,  contributory pension scheme?

In the light of the challenges of the Defined Benefits Scheme, the Pension Reform Act (PRA) 2004 was enacted. The Act established the National Pension Commission to ensure proper supervision and regulation of the Contributory Pension Scheme (CPS) and the Defined Benefits Scheme as well as the administrative structures established pursuant to its provisions. The main objective of the reform is to ensure prompt payment of retirement and terminal benefits. Though the CPS has been largely successful since its introduction fifteen years ago, there are some challenges that the commission is constantly seeking ways to address. Notable amongst these challenges are; inadequate enlightenment on the CPS; delay in payment to Federal Government retirees; database and technology issues (multiple PINs); inadequate retirement and financial planning, low public awareness; low compliance by state governments and delay/non-remittance of contributions by the private sector.

At the centre of the challenges in the implementation of the CPS is the low level of public awareness and knowledge on the workings and benefits of the CPS. The commission, in collaboration with other critical stakeholders such as the organized labour unions continue to make spirited efforts to enlighten the general public on the tenets of the CPS. It might interest you to note that the commission, through various platforms such as the conventional and social media, continues to educate the public while at the same time respond positively to requests from various organisations for enlightenment session on the CPS.

Delays in payment of pension benefits to FGN retirees owing to budgetary inadequacies is another onerous challenge bedevilling the smooth implementation of the CPS. The Commission has been engaging all relevant stakeholders with a view to ensuring adequate budgetary provisions and timely release of funds so as to reduce the backlog of outstanding accrued rights. These efforts have resulted in significant improvement in the funds released over the past year. It is expected that with the renewed commitment of the Federal Government to defray these liabilities, more timely payments will be achieved.

The issue of multiple registration has also been a challenge under the CPS. The Commission has however, deployed the Enhanced Contributor Registration System (ECRS) to address the deficiencies of the Contributor Registration System. The ECRS is an electronic platform for the submission of requests by Pension Fund Administrators (PFAs) for the registration of contributors and issuance of Personal Identification Numbers (PINs). It provides a more dynamic and user friendly interface and has also been integrated with the National Identity Management Commission (NIMC) for authentication of the uniqueness of individuals seeking to register under the CPS. The deployment of the ECRS will greatly enhance the integrity of contributors’ data and also provide a platform for the Registration of Micro Pension Plan Participants and Cross Border individuals. Ultimately, it would facilitate the opening of the transfer window which would enable contributors to move their RSAs from their current PFA to another, should they desire such transfer.

The issue of inadequate retirement and financial planning is a major challenge faced by retirees under the CPS. As you may be aware, all choices with regards to the selection of PFA to mode of retirement benefits withdrawal reside solely with the individual contributors, hence lack of knowledge in retirement and financial planning often hindered effective choices by many retirees under the CPS.  Although, the pension operators offer such value added services for the benefit of their clients, the Commission and other critical stakeholders are making various efforts to provide guidance to prospective retirees through the conduct of the annual nationwide Pre-retirement workshops.

Another challenge that the Commission currently grapples with in the implementation of the CPS is the delayed or non-remittance of pension contributions by many private sector employers. Recall that the PRA 2014 made it mandatory for employers with at least three employees to participate in the scheme. However, some private sector organizations have been indulging in delayed or non-remittance of pension contributions of their employees to the RSAs.  To address this challenge, the Commission has engaged the services of recovery agencies to ensure recovery of the outstanding contributions and the penalties thereof as prescribed in the PRA 2014. This effort has been yielding results even though there is still room for improvement.

Furthermore, 25 States of the Federation have adopted the CPS by enacting relevant legislation. However, full compliance by State Governments with the implementation parameters such as remittance of both employer and employee pension contributions, payment of accrued rights, institution of the Group Life Insurance Policy etc., are still relatively low. The Commission has been intensifying efforts at ensuring that State Governments comply with the CPS by providing technical assistance through its six Zonal Offices, one in each of the geo-political zones of Nigeria.