We didn’t go into pension management by accident – ARM Pension boss

ARM Pension Mangers Limited recently embarked on awareness programme targeted at sensitising its clients and the general public on the need for good health and financial planning. In this interview with some journalists, SADIQ MOHAMMED, managing director/CEO of the PFA, shares his thought on the company’s vision and value creation plans for its clients. Excerpts:

As a pension service provider, how important is the health of your clients to your business that warranted organising this kind of awareness programme?

Broadly, there are two reasons why we put together this kind of programme: One is for our business, because the well-being of our clients is very important to us, be it as it relates their pensions or as it relates to them as human beings. Looking at their health, their finances or their business, it is only when they do well on those areas they can be able to enjoy whatever they have accumulated with us.

So, health is very important to us because it means so much in pension plan. Secondly is personal financial planning. That means financial literacy or getting to understand some of the products out there.

For example, you may be running a business as an entrepreneur, but do not consider other things that also should support your plans, because there is education for your children, there is mortgage and on top of that there is mortgage insurance such that in the event of death mortgage will be repaid by insurance. There is life insurance itself and it could get to the point where you start taking insurance even for the business you are running.

So, it all depends on the extent of information available, whether the person has knowledge of those products and whether they would want to take some of them. There are so many aspects of the well-being of a person, which you can encapsulate into personal finance and physical well-being. I think this is very important to us as pension providers and at the same time as part of our corporate social responsibility.

I am sure you are aware that we have increased our annual retirees’ forum to take place in each of the six geopolitical zones of the country and we have always used such opportunities to provide our clients with free medical tests through collaboration with some doctors; so people get things like free eye tests and all that.

We also provide knowledge on how to start a business, say fish farming, business centre, and internet cafe; through our partners so that it helps our clients to get the necessary know-how to start their businesses, expand their business and all that.

We have expanded beyond that to expose them to personal financial planning for example children’s education, life insurance, health insurance, mortgage insurance and so on and so forth, so that people are aware of what is happening. And luckily for us, all of these are available within the ARM circle.

So, ARM is not only there for pensions, there is ARM Securities, ARM Life Insurance, there is infrastructure fund, there is agric fund and we are looking forward to the time when there will be ARM Healthcare and education fund, so that we would have touched every Nigerian in our own little way.

Specifically, what is the implication of heath being ‘good or bad’ on your clients pension benefit?

We have taken this initiative to sensitise our clients and those who are not our clients around maintaining a good health by doing certain things – watching what you eat, how much you eat and exercising regularly to maintain good health.

Also, the health of the mind is also important; which comes together with the physical health also. Eventually, people begin to live longer and enjoy the fruit of their labour in terms of the pensions they have contributed.

If you also take it from the smallest level, it helps the person, the family when they live longer and contribute to the income of the household, the share joy of being alive and the grand children getting to know their grandparents rather than being told about people who died long ago.

You can also take it from the larger scale. That income which the person is still earning even at old age, say from fish farming, business centre and all that are part of production to GDP. I mean, at both micro and macro levels, it impacts the economy. So, the longer people live the more prosperous the society becomes, and this is what we will like to see.

ARM no doubt is a leading pension fund operator in Nigeria. What makes you thick among other operators in the industry?

ARM Pensions is a member of ARM Group which has been in existence in the last 20 years. As an asset management company when we started in 1994, not many people understood what asset management was all about, let alone having confidence in it.

To give you the background, we have always managed pensions as ARM under the parent company, even before the Pension Reform started. We have managed the pensions that existed at that time particularly from multinational companies and other big private companies in Nigeria.

For instance, ARM had the staff pensions which it was managing by itself for her own staff. So, it was not a business we went into by accident or as ‘follow-follow’. So, we didn’t copy other people, we have been part of it before the legislation on pensions came and required that we set up a full-fledge subsidiary that would deal with only pensions, and operate as a PFA.

So, all the funds that were managed under ARM Group for pensions automatically were transferred to ARM Pensions as starting funds. So, it’s part of our pedigree to manage pensions. Even if you ask independent parties within the industry on what we stand for they will surely tell you.

There are certain things we are known for; for instance, we don’t cut corners, we don’t compromise values. It’s tough a thing to do in our environment, but we have been guided by the fact that sustainable business is built around certain values. You may not seem to win in the short term, but in the longer term it shows on what you do. We remember there are banks, I won’t mention their names that did cut corners and today they are gone.

The second or third point is expertise either in our asset management or pensions fund management, which is basically managing investment for clients, be it retail or corporate institutions. But we have gone beyond all that, in the sense that today we have businesses outside the traditional asset management of buying stocks, bond, treasury bills, investing in money markets and all that.

So, we have gone beyond that. We now have private equity funds that focus on investing in alternative spaces, in private companies, in private projects, in infrastructure, in agriculture and all that.

If you look at the Nigerian Stock Exchange you won’t find infrastructure, you won’t find power, you won’t find telecommunication, you won’t find utilities, and so on. So, for this reason we have realised that the future of Nigeria is in the alternative space and not in the listed or normal traditional space.

Just a simple metrics that is used globally, that, capitalisation of the stock market over GDP, how much is that? Today, it’s $75bn market capitalisation over $500bn. That is the market capitalisation GDP ratio.

So, the market capitalisation is just 5 percent of the GDP. With this, it shows that for you to say you are investing in Nigeria, you must look at the remaining 95 percent. And over time, the remaining 95 percent will convert into market capitalisation.

We want to participate in the process; start small companies, grow them to bigger companies and then they list on the Exchange. Dangote started as a private company with N10,000 from his grandfather, everybody knows the story. Today, it has market capitalisation over N3trn on cement alone. And that is how much a small business can grow if nurtured. So, we want to be part of the process.

So far, would you say the contributory pension scheme is a success in Nigeria?

Definitely, it has being a phenomenal success beyond the wildest imagination of most people. I can tell you there are a lot of people at the beginning that were not sure including some multilateral institutions that have seen it in other parts of the world that were doubtful because they think it will not be possible in Nigeria given the way things were done in the past.

It is a pleasant surprise for everyone because we virtually started from point zero in 2004 and today having over $26bn in the industry which has been accumulated for the benefit of Nigerians or people that work in the country. Today, those funds are now being used for everybody.

Government has also benefited through sales of treasury bills, state bonds, and corporate bonds. The pension fund has funded these instruments, which means the fund has funded the federal government of Nigeria, the various states that have issued bonds and the corporate bonds from the private sector.

On the equity side, we have a huge exposure depending on the stock you are looking at. We could have as much as 5 percent of the stock market, which also means we have funded the capital market to some minimum percentage.

Hopefully, we would grow that percentage as the pension fund increases. On the fixed income side, we are funding the federal, states and corporates. Even the International Monetary Fund (IMF) has issued a bond here that was oversubscribed. So this money goes into different developmental projects. You can measure that by what some state governments have achieved in terms of infrastructural development.

Lagos State is a good example; there are others that I cannot mention. On the corporate side, companies like Flour Mill plc, Cadbury plc and a host of them have raised bonds to build plants and what have you.

Apart from that, within the 10 years that the scheme has been in existence, it has changed the landscape in the sense that even the ordinary man on the street can walk into their bank and collect their pension without hassles compared to the past where people queue up endlessly.

Now if you go to your PFA and they don’t attend to you, just make some noise and your problem will be sorted immediately. It is now a private business and what you get is quick response. It’s like your bank not paying you your deposit.

In the past, if you are a government worker you cannot walk into your pension office to complain that your pension has not been paid, let alone if you are in the military where you cannot address your superiors let alone ask for your pension.

Despite the success that you talked about, there are some impediments that you have faced and still facing, what are they and how can those be resolved?

First of all, I think there are still some trust issues which is historical given what happened in the past where people have believed in it and it failed. A lot of people were not sure if the new scheme will work.

But in the last 10 years since the contributory pension scheme started, people have realised that it does work because a lot of people have retired and have collected their pensions. This business is very straight forward in the sense that at the point of retirement you collect your pension. You can either go into a programme withdrawal or annuity.