Pension growth sustainable as more people trust the system—says PenOp boss

Misbahu Yola, chairman, Pension Fund Operators Association of Nigeria (PenOp) is seeing a great future for the country’s pension industry, which he says would continue its growth trend as more people and institutions find comfort in the system. In this Interview with MODESTUS ANAESORONYE, Yola reviews the industry in 2013 and makes projections for the New Year.

Kindly do a review of the pension industry in 2013, and highlight some of the major achievements and challenges?

There are particularly two sections of the industry. We have the Contributory Pension Scheme (CPS) and the leftover of the old scheme in the federal public sector and some states of the federation. So it’s important to outline the difference because the states are at various levels in pension scheme.

Some states are still in the old scheme, some have commenced steps to comply with the new scheme and some have complied fully while some others have not done anything at all. On the side of government, we manage the new scheme while the old scheme is still managed from the office of the head of service of the federation.

So, let me start with the scheme we manage, that is the CPS. The numbers are going up. Right now, we have pension assets in excess of N3.7 trillion and registration in excess of 5.6 million, meaning that registration has gone up by 500,000 and assets by over 700 million during the past year. And that is a significant improvement.

However, growth has tapered a little bit because most of the organised private sector have complied with the scheme. There are a few smaller companies struggling to comply, and PenCom has appointed recovery agents to deal with that.

So, some progress have been made in terms of assets and in terms of registration but in terms of returns on investment, I would say it’s fair, because the outlets are limited given the lack of depth of investable outlets. When you look at asset placement, it’s restricted towards government securities, money market and equities with very little in other variable asset classes for obvious reasons.

The primary issue here is safety. You will put your money where you believe you can get it back when you want it, without issues. So, our primary focus is to maintain safety of these assets. We are still learning and trying to see how we can maximise the opportunities allowable by our regulator.

There are still outstanding issues about the multi fund, there are still outstanding issues about exploring the informal sector, and there are still outstanding issues about getting the biometrics. If you like these are some of the challenges the regulator is trying to resolve. If you recall, the regulator hasn’t exactly had an executive board for the last 12 months until two weeks ago when the president inaugurated PenCom board.

We expect that these would speed up action towards resolving some of the mentioned issues because whatever we do the regulator is central. They give the policy, they give the regulation, and they are the umpire and not being available all this while has somehow stunted certain policy decisions.

We now have a chairman and a board; we are expecting a substantive DG. There has been an acting DG and credit also goes to her for keeping the pace as it were of the regulator. They haven’t slowed down in terms of supervision of the operators, except that there are new things that needed to come which would require the board.

For the states, some of them have moved forward, some have passed their laws and some have completed registrations. Again, that also is some improvement though there is still a long way to go. For the federal public sector in the old scheme which is not part of what we do, I am glad that that the various pension offices including the military, the police, the Customs, Immigration have all been consolidated into one body called the PTAD.

This is a provision in the Pension Reform Act 2004, just that it never came into place until this time. It has now come under one umbrella in the office of the Head of Service of the Federation, and that I believe would bring some order as it were to the old scheme.

And this should as well come under the supervision of PenCom as the industry regulator. So, for 2013 some progress was made in the pension industry. For us at PenOp, a new executive was inaugurated in 2013 and so has continued to support activities of its members.

What is your expectation of the industry in 2014?

The contributory pension scheme would continue to consolidate. I mean the pension assets would keep growing. I also see more people getting more comfortable with the CPS. I am aware of some institutions that ran the defined benefit scheme (the old schemes) that have now decided to start the contributory scheme. They are becoming more comfortable and have said from 2014 new employees or entrants would have to choose their PFAs and get on with CPS. It’s a measure of confidence in the CPS. With the board of PenCom now inaugurated, there would be more actions and is expected that some of the outstanding issues would start to be addressed.

Biometric is on a front burner because of identity issues and without it we are not going to be able to do the transfer window effectively. That is primarily what is stalling the transfer window because we must get the identity right. In the course of the year, we would be looking at how to structure in the informal sector. It’s really difficult but that is something critical.

I believe also that the Commission would continue to go after those who have not complied with the Reform Act. I see us closing the year with higher numbers. I expect nothing less than six million contributors at the end of 2014. I also expect the pension assets to near something close to N4.5 trillion and can be even more than that but not likely to be less. It’s a long term something. For me it looks bright and can only be better.

With tapering in terms of corporate institutions enrolment, what gave you the confidence that this growth trend would be sustained over time?

Well, as long as people are working they will continue to make contributions. Mind you, this is a monthly contribution, except they are no longer working. Don’t forget that we are talking about of five million people here, so, how many people are you going to have that will not contribute during the year?

For instance, if each contributor brings an average N1,000 monthly, the 5 million people would contribute N5billion and if it’s in one year it will amount to N60 billion. That is contributions, what of growth from investment? 

Look at it again, if you do N8,000 monthly as an average, that would be N40 billion and in one year would be N480 billion and when you add that to total assets you will be talking about over N4 trillion.

Now, what of additional growth from investment? If you say some people are retiring, the rate of retirement is far less comparable to the growth. Even those who retire don’t take everything they have contributed, at worst they take the lump sum and the balance is administered over a long time until the entire assets leave the system.

As the chairman of PenOp, are you not worried about the chairmanship of PenCom being combined with the chairmanship of PDP given the attention required at this time in PenCom?

I am not in a position to answer that question on whether one person can perform the two roles together. But, whatever the case may be, I believe that the structures in the Commission are solid and whatever happens in politics should not have any negative impact on its operations. It’s been built such that there are checks and balances.

Again, the Exco is a set of very professional people made up of technocrats and so that should not be much a challenge. So the structures establishing the regulator, the PFAs and the custodians are in intact and so the pension assets are safe except something I can’t contemplate.

When you assumed office as the chairman of PenOp a few months ago, one of your cardinal programmes is institutionlisation of the body; what has happened so far?

One of the institutionlisation efforts I did say was to get an executive secretary and that we have done. Another is to get a corporate independent office and we are at the stage of inspecting available spaces and by February we would have settled with that. We are also trying to design our website and what we are doing today are part of it, geared towards enhancing of public communication and enlightenment.

What message do you have for the public and Nigerians about the CPS?

From what I have seen in the last eight years, the CPC in my opinion is a much healthier pension system than the old scheme with a number of reasons. Firstly, it gives you sense of responsibility as an employee. Secondly, it is compulsory particularly for the private sector institutions that never had pension arrangement and it is for the benefit of the employees.

In the past, pension scheme was majorly for the public sector workers but the CPS has expanded the scope to the benefit of other Nigerian workers in the private sector even though they have to make some contributions, it has given them some sense of responsibility.

If you look at CPS, it’s been on for eight years and you cannot mention any single incident of an untoward event; this is because it is very safe and transparent. Because of the structures in place, ranging from the regulator, to the administrator or the custodian, you cannot find any of such incidents and this makes the system wonderful.