Pension reform: A view from the outside

In October 2020, former President Muhammadu Buhari appointed Mrs Aisha Dahir-Umar as the Director General (DG) of the National Pension Commission (PenCom) after a lot of uncertainty on the status of the leadership of the Commission. Dahir-Umar and the Executive Management Team have now been in the saddle for three years and I think it is important to ask this question: how much ground have they covered in discharging their responsibilities to the pension industry? As it is well known about Nigeria, we are never short of reform policies. Since 1999, we have embarked on groundbreaking reforms in various aspects of the economy. The big issue all the time is how well these reforms are impacting the sectors. There is this dim view that reforms do not always succeed in Nigeria. Some reforms are launched with fanfare and expectations but before the music dies down, they are gone with the wind for reasons that have to do with lack of continuity, dynamism and commitment. The pension reform has, however, bucked the trend.

I must necessarily start by admitting that PenCom is a government agency that has gone through leadership changes over the decades and still remains strong in performing its regulatory and policy-making duties. Kudos must go to those who laid the foundation of the Commission, and we have to mention former President Olusegun Obasanjo when we discuss the success of Nigeria’s pension reform. The Commission started off on a good footing in 2004. Interestingly, Mrs Dahir-Umar served as a member of the Fola Adeola Committee that recommended the establishment of PenCom. She was the Committee Secretary. When she was appointed as DG by Buhari, I expected her to maintain and improve upon the standards. Anything less, the pension reform would unravel.

The hard facts in the last three years have been very encouraging despite the mountains of challenges that still need to be climbed. One of the most newsworthy developments is the fact that pension assets have grown by N5.94 trillion between then and now, moving from N11.35 trillion to N17.29 trillion. Given the turbulence the economy has passed through, including the effects of the COVID-19 pandemic, the Pension Industry has every reason to appreciate its steady growth. A major impact of this growth is felt in the financial sector. The growing pool of funds has not only helped with savings mobilisation, but it has also expanded the capital market and provided consequential benefits to the economy. Pension funds contribute significantly to infrastructural finance in the country, especially in waste management, independent power generation and road construction (through Sukuk bonds). Thanks to the growing pension assets, the real sector of the Nigerian economy is receiving more long-term funds for investment.

Furthermore, between 2020 and 2023, there has been an increase in the number of contributors enrolled on the Contributory Pension Scheme (CPS), which is core to the pension reform. Over the period, CPS has recorded over one million new contributors, according to official statistics. This is remarkable within the context of other developments, such as the exit of certain contributors based on legislative and administrative approvals, and the economic recession induced by COVID-19. Hitting the 10-million mark in the number of registered contributors is good for the headlines but, more importantly, it is worth noting that enrolment has not tanked. With what the economy has gone through in the last three years, the natural expectation would be for enrolment to drop. That it has kept growing speaks volumes of the resilience of the management of the reform. 

Another area of interest to me is the recapitalisation of the Pension Fund Administrators (PFAs). When PenCom issued a directive in April 2021 asking PFAs to recapitalise, I received this with mixed feelings. Their shareholders’ funds were mandated to be increased from N1 billion to N5 billion, with the deadline set for April 2022. On the one hand, I believed it was necessary to strengthen the PFAs because they were carrying more responsibilities by the day. The number of registered contributors and value of pension assets needed to be managed in a way that the PFAs would have to improve service standards, in addition to meeting the operational needs in the industry. On the other hand, I was wondering if the capital review would not lead to the deregistration of some PFAs that might not be able to meet the requirement. It could shake confidence in the industry if it ever came to that. The good news is that the capital review turned out well. No company went under. Indeed, they all came out stronger, with some receiving foreign investments. What looked like a delicate policy initiative by PenCom ultimately delivered a good outcome.

From the figures I am seeing, PenCom has also succeeded in its efforts at digitalising the industry. It has revved up the deployment of technology in recent years, and this has seen to the clean-up of the database of contributors in a country where pensioners used to suffer over “missing files”. In 2019, PenCom had deployed the Enhanced Contributor Registration System (ECRS) to replace the outdated Contributor Registration System (CRS). PenCom then asked all PFAs to do a data recapture of Retirement Savings Account (RSA) holders who had been registered on the old system. Contributors’ biodata and biometrics were recaptured under ECRS.

This did not just improve the integrity of contributors’ data, but it also made it easy for the automation of the process of generating employer codes for employers. A direct benefit of this is that since PenCom launched the “Transfer Window” in November 2020 — by which contributors can change PFAs once a year if they are not satisfied with the service of their current PFAs — the ECRS makes the process smoother for RSA holders. Data recently released by PenCom shows that nearly a quarter of a million RSA holders have changed PFAs. The stark reality that account holders can move elsewhere has created competition among PFAs. This can only promote quality service delivery and competitive investment returns.

I must not fail to mention that in 2022, when PenCom issued guidelines for the Residential Mortgage, I saw another dimension to the pension reform. My focus all along had been the payment of retirement benefits. Mortgage never featured in my imagination. Section 89 (2) of the Pension Reform Act (PRA) 2014 provides that “a Pension Fund Administrator may, subject to guidelines issued by PenCom, apply a percentage of the pension assets in the Retirement Savings Account towards payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account.” Realising the policy guidelines to implement this section opened up yet another outlet for the impact of pension reform on the individual’s life. Employees can now become homeowners while still in active service by accessing a percentage of their RSA accounts towards mortgage. According to PenCom, over 300 applications have been approved since the initiative took effect in August 2023 and contributors have accessed over N4 billion for this purpose. This is massive.

As an ordinary Nigerian with extraordinary interest in the pension industry, I must commend Mrs Dahir-Umar and the Executive Management of PenCom for keeping the flag flying in the last three years. This is not an invitation for them to rest on their oars. As I noted already, there are still challenges to be overcome. PenCom must lead the conversation on how to address the issue of low pensions. I recently read an interview granted by Mrs Dahir-Umar in which she said employers and employees need to engage more on these issues. As the regulator, PenCom is limited in what it can do, but it should continue to moderate the discussion so that the enthusiasm will spread. PenCom should also step up its advocacy on the need to stop attempts by many government bodies and officials to exit the CPS. These are real dangers to the reform.
Abayomi, an economist, lives in Akure, Ondo State.