Strengthening capacity for pension provisions in Africa

The attention of the global economy has been drawn to Nigeria since the last 10 years following the coming on board of the Pension Reform Act 2004, with the vigour and commitment it has brought towards improving social security in Africa’s most populous black nation.

This development has continued in some other countries in Africa, which have either understudied the success story of Nigeria’s Contributory Pension Scheme(CPS) or adopted similar programs to boost their citizens social security welfare.

In the 10-year period, the pension industry in Nigeria has experienced phenomenal growth from a deficit of N2trn in the form of pension liabilities in 2004 to an accumulation of pension fund assets of up to N4.1trn by the end of 2013. The huge pool of funds that the CPS has put together is a firm backing to the economy; this is a testimony to the hard work and diligent service of the regulator, The National Pension Commission (PenCom).

The beauty of the Continent’s pension system is the efficacy that has been brought to supervision and regulation, building contributor’s confidence and growing assurances for safety of the funds, a clear departure from what existed previously.

To consolidate this growth and further enhance pension provision for the citizens, global experts on pension, policy makers and regulators would converge on Abuja between July 7 and 8, 2014 to look at the pension industry- focusing on Africa.

The forum, World Pension Summit-Africa Special, is targeting to become an annual specialised summit for Africa organised by the World Pension Summit and the National Pension Commission of Nigeria. The Summit with theme ‘Shaping the Future’, which is for all African pension professionals will present, and debate upon specific African pension innovation, key scenarios, and scheme development. Global insights and best practices will be presented, shared and discussed by renowned international experts.

Since 2004, Nigeria has taken up a leading role with her pension reform, a true showcase for the African continent. The enactment of the Pension Reform Act 2004 has proven to be the key starting point of a new era in pensions for Nigeria.

On the occasion of the tenth anniversary of the pension reform in Nigeria, the World Pension Summit ‘Africa Special’ will kick-start a unique knowledge platform for all African nations on pension market development and how to address all complexities involved.

The aim of this Summit is to exchange expertise between pension professionals in Africa and to stimulate pension market developments and pension innovation.

This inaugural edition of the World Pension Summit ‘Africa Special’ will focus on key lessons learned amongst African Nations and share experiences on relevant topics and developments such as on pensions investments, risk management, funds management, administration, regulatory essentials and communication/financial literacy. The World Pension Summit ‘Africa Special’ will be held annually, with Abuja as the conference location.

In order to stimulate and incentivise African scheme owners and funds to work on professionalising retirement practice in Africa, World Pension Summit and PenCom will introduce the African Pension Awards.

Setting the benchmark for Africa’s pension fund industry is the main goal of the African Pension Awards, the organisers have said. The awards ceremony is an integral part of the Summit. It is the ultimate reward for excellence, and a huge stimulus to ensure that Africa’s pensions industry remains innovative.

Harry Smorenberg, chairman, World Pension Summit, said “There is a need for a platform where experts from all over the world can exchange expertise and best practices to further essential development in social security innovation and pensions.

“More and more key budget component as housing, healthcare and pensions are becoming key to citizens of the world and securing sufficient provision is becoming a joint challenge for government, employers and the individual. WPS “Africa Special” he said is the place to exchange key developments and solutions and learn from each other.”

Eric Eggink,CEO, Eggink Van Manen, stated that the World Pension Summit “Africa Special” is most eager to be the platform of learning and getting inspired. “We think that new developments can only be fostered with meeting and sharing information and expertise.

“Understanding barriers and learning from each other how to overcome them. This can help Africa and Nigeria grow faster and create a better world,” Eggink noted.

Chinelo Anohu-Amazu, acting director general, National Pension Commission Nigeria, said “We are delighted to bring the World Pension Summit to Africa a number of African nations are experiencing strong economic growth supported by the rising investment in natural resources and robust private consumption.

“As a result the role of a pension industry in providing a stable consumer savings vehicle for Africa’s growing middle class and the investment of capital from this pension funds is of increasing significance”

The National Pension Commission (PenCom) is a public institution established to regulate, supervise and ensure effective administration of pension matters in Nigeria. PenCom was established following the pension reform in 2004 that culminated in a paradigm shift in Nigeria’s pension system from the Defined Benefits Scheme to Contributory Pension Scheme.

In its 10 years of existence, pension fund investments have contributed significantly to the robust economic growth experienced in Nigeria, as Pension Assets/GDP ratio have increased.

Prior to the pension reform and the establishment of PenCom in 2004, pension schemes in Nigeria had been bedevilled by many problems. The Public Service operated an unfunded Defined Benefits Scheme and the payment of retirement benefits was budgeted annually.

The annual budgetary allocation for pension was often one of the most vulnerable items in budget implementation in the light of resource constraints. In many cases, even where budgetary provisions were made, inadequate and untimely release of funds resulted in delays and accumulation of arrears of payment of pension rights. It was obvious therefore that the Defined Benefits Scheme could not be sustained.

In the private sector on the other hand, many employees were not covered by the pension schemes put in place by their employers and many of these schemes were not funded. Besides, where the schemes were funded, the management of the pension funds was fraught with malpractices between the fund managers and the trustees of the pension funds.

This scenario necessitated a re-think of pension administration in Nigeria by the administration of President Olusegun Obasanjo. Accordingly, the administration initiated a pension reform in order to address and eliminate the problems associated with pension schemes in the country. The outcome of the reform was the enactment into law of the Pension Reform Act 2004 and the establishment of PenCom.

Since its establishment, PenCom has been able to implement the unique contributory pension system that has pension administration and custodianship intertwined; duly licensed Pension Fund Administrators (PFAs) open Retirement Savings Accounts for employees, invest and manage the pension funds in a manner that the Commission may from time to time prescribe, maintain books of accounts on all transactions relating to the pension funds managed by them, provide regular information to the employees or beneficiaries of the fund and pay retirement benefits to employees.

The Pension Fund Custodians (PFCs), on the other hand, are responsible for the warehousing of the pension fund assets. The employer sends the contributions directly to the PFC, who notifies the PFA of the receipt of the contribution and the PFA subsequently credits the retirement savings account of the employee.

The daily activities of the 20 PFAs and 4 PFCs, presently operating in Nigeria, are constantly regulated by PenCom.