Uduanu: There Will be More Consolidations in Pension Industry

The Managing Director/Chief Executive Officer, Sigma Pensions, Mr. Dave Uduanu, in this interview, spoke extensively on the recent recapitalisation exercise in the pension industry and the expected impact. He also spoke on the move to deploy pensions funds to develop infrastructure and other issues, Nume Ekeghe presents the excepts:

The pension industry recapitalisation has just ended with 20 PFAs standing.  What does this mean for the industry?

I think it is a good thing. So, there are 20 Pension Fund Administrators (PFAs) standing but I think it is still early days and I believe there will be more consolidations in this space. If you look at the pension industry beyond Stanbic IBTC, it is still very fragmented as Stanbic control anywhere around 40 percent of the markets so there would be more consolidations in the space.

The entry of banks is also good news as we have seen GTBank invest, FCMB and there are chatters about Access Bank investing in this space, so that’s good news. I think they will bring more capital, more resources, more infrastructure in terms of branch network, technology, and just the aggression the banks have used to do their banking businesses. But more importantly, they’ll be a very formidable competitor to the number one player; so, I think it is good news. Also, with new capital, PFAs can invest more in customer service and technology in other to better serve the customers.

How is this recapitalisation going to impact operations and customer service?

The National Pension Commission (PenCom) has a minimum requirement for branches to serve customers. So, for every 10,000 funded accounts you have, you are required to set up a branch; although we think that technology will disrupt that because you can use technology to effectively serve more people.  

We think that with the resources and the competitive pressures that have been occasioned by the recently opened transfer window, PFAs will invest more in technology and people to serve customers better.  And of course, if you don’t serve customers, well, they will change their PFA to someone else.

On customers changing PFAs, has there been a lot of movement between PFAs, and has the market accepted this initiative?

In the scheme of things, there has not been much movement. I think movements are less than 5 percent since the transfer window started so that isn’t a whole lot. But again, these are early days and I think that there might be more movements in the future as there are issues with the transfer window now in terms of data recapture and some reluctance by PFAs to allow customers to move willingly and freely, as PENCOM would have envisaged. 

But I think as the market opens up, customers will move. However, I have to caution that what is important is that people are moving for the right reasons. The reason to move should be investment returns and customer service but we are seeing some induced movements where people are moving for no reason or maybe for gifts from PFAs, which is not the right reason to move.

So early days, but I think that there is a need for the regulator to sensitize this space so that people move for the right reasons.

You mentioned inducement, are there no checks by the regulator to avoid this practice?

There are checks but there’s so much one regulator can do. It is located in Abuja and even with a few geographical regional offices; there is not much it can do when it comes to sensitization. So, I think self-regulation is more important. PenCom is doing a lot but I think the operators will have to regulate themselves better to ensure that they continue to maintain the ethical standards that the industry has been known for.

Recently when the Central Bank of Nigeria (CBN) announced the commencement of the Infrastructure Corporation of Nigeria (InfraCo), they mentioned they plan to tap into pension funds especially as over the years there have been talks on pension funds being deployed to finance infrastructure. What are your thoughts on this?  

InfraCo first of all is a positive step in the right direction and it is an idea whose time has come. The government holds a lot of assets that are described as public goods. There are toll roads, there are rail lines that are owned by the government, which need to be financed, and government finances are stretched so InfraCo is a good idea.

Pension funds are best suited to finance infrastructure on a large scale. However, those infrastructures can only be financed through instruments issued by an InfraCo and those instruments should have appropriate guarantees or mitigations to ensure that the pension assets are safe and the returns should also be attractive.  So, on a risk-return basis, PFAs can then evaluate the attraction of infanCo.

I think it is positive and I think that pension funds will find room to invest within the context of InfraCo depending on how InfraCo managers come to the markets. 

Finally, I think the best way for them to come to the market is to issue debt instruments with either full or partial guarantees. Initially, they can start by giving full guarantees for pension fund assets and I think they will raise the money.  

As to whether they will raise the amounts they need, I don’t know, as these are early days. But I think if they can start with something like N1 trillion over two or three years, we will see how that goes and that can be a step in a positive direction.

Sigma Pensions recently released its result; can you speak on Sigma pensions’ financials?

We did well last year and it was a good year for the company. We were able to recapitalise the company from internally generated resources. We didn’t raise money from the public. Our earnings grew and our revenue grew as well. And more importantly, despite the COVID-19 induced locked down from 2020 to 2021, we did well and that just shows the resilience that the company has. Also, the fact that we were prepared for the COVID-19 situation and the company continues to grow. Furthermore, our assets under management (AUM) grew between 13 to 15 percent, which is strikingly above the industry average.

On being technology savvy, how much does technology play in the everyday running of Sigma Pensions?

Technology is a game-changer for Sigma Pensions. For instance, we are completely paperless. So if you come to our office, you would not see any paper because we are now paperless. Being paperless is not an end in itself, but it has reduced the costs of doing business. Also, we can work remotely completely for a whole year if we want to and nothing will happen to our customers and they will not feel it. More importantly, that allows for self-service as some of our customers can do all they need to do with us in the comfort of their homes. So, I think it’s a good advantage.

Finally, What can your existing customers and new customers expect from your firm in the nearest future, and what gives Sigma Pensions a competitive edge above its peers? 

One of the advantages of choosing Sigma Pensions is that we are one of the better performing managers in the market. Last year, three of our funds were ranked among the top five in the industry, which is good meaning that you get good returns on investment. We also have very good customer service. We are proactive as we have deployed very good technology solutions to allow our customer service to have seamless access to our services. So, on the balance, we are one of the top PFAs in terms of the key parameters of investment returns, customer service, and technology savviness. Also, we have a young and energetic workforce.

Finally, you need to watch our space; Sigma is a company that is flying and thriving so let’s watch that space and you would hear more good news about Sigma soon.