PenCom strives to make housing affordable to pension contributors
Passionate about securing the future of those who devoted their active years in the service of the country and economy either in the public or private sectors, the Acting Director-General of the National Pension Commission (PenCom), Mrs. Aisha Dahir-Umar, is taking measures a get a buy-in from state governors on the benefits of subscribing to the contributory pension scheme (CPS). Dahir-Umar, a graduate of English Language from Ahmadu Bello University, and a Masters in Public Administration from the same University, rose through the ranks upon joining PenCom in 2005, until her appointment as the Acting Director-General of the regulatory agency. In this interview with VICTOR UZOHO, she said with about N9.05 trillion as at April end, the Commission will continue to work with relevant stakeholders, and encourage the development of appropriate instruments for pension fund investments.
Recently, the bankers’ committee, resolved for banks to support the pension industry to release up to 25 per cent of the Pension Fund Assets to contributors to use as equity injection towards owning houses. They believe these funds can be used to stimulate demand for mortgage loans. What is your reaction to this, and how would this impact the pension industry and the Nigerian economy?
One of the major inclusions in the PRA 2014 was the introduction of Section 89 (2), which allowed a registered contributor under the Contributory Pension Scheme (CPS), to apply for a percentage of the pension assets in his/her Retirement Savings Account (RSA) as equity contribution for a residential mortgage. This is a significant development, as it would accelerate the development of both the mortgage finance and housing sectors as well as make affordable housing accessible to registered contributors.
Also, the Commission has drafted Guidelines, which are in line with the Framework of the Mortgage Guaranty Company (MGC), being proposed by the Central Bank of Nigeria (CBN). The objective of the MGC is to support mortgage originators such as primary mortgage banks and commercial banks to increase mortgage lending by guaranteeing or partially guaranteeing equity contributions to secure a residential mortgage.
So the Commission is working with the CBN, and the guidelines are expected to be exposed before the end of the year.
Recently, at the CIBN’s annual lecture, PenCom highlighted coordination among key stakeholders as a major challenge faced by the Commission towards improving infrastructure in the industry. What is PenCom doing to resolve this issue, and what are the implications if the situation persists?
The Commission is a member of the Financial Services Regulation Coordinating Committee (FSRCC), which is a statutory Committee comprising of regulators in the Nigerian financial services industry set up to deal with matters of common interest and concern to the various regulatory and supervisory authorities in the financial services industry. In addition, the Commission is one of the agencies implementing the Financial Sector Strategy (FSS) 2020, and has been collaborating with all the relevant agencies towards achieving its targets on the initiatives, including investment of pension assets for the development of infrastructure financing in Nigeria. In addition, the Commission has adopted a policy of consultation with relevant stakeholders in rule making and supervisory activities with the aim of promoting inclusiveness in its regulatory objectives.
Again, the Commission has recorded a number of successes as a result of its collaborative initiatives with stakeholders, government and other regulators such as CBN, SEC etc, and is further committed to sustaining all existing collaborative relationships. The Commission will continue to work with relevant stakeholders and encourage the development of appropriate instruments for pension fund investments, with focus on infrastructure financing.
PenCom said the Commission has invested N148 billion in infrastructures. What are these infrastructures, and how are they going to help grow the pension fund and the industry at large?
It is pertinent to clarify that the Commission as a regulator is responsible for establishing rules, guidelines and standards for pension fund investments by licensed Pension Fund Administrators (PFAs). Consequently, making investment decisions is the sole responsibility of PFAs, which have to make investment decisions in line with regulations set by the Commission.
Nonetheless, total Pension Fund investment in infrastructure as at June 30, 2019, was N150.71 billion (Sukuk Bond N86.10 billion, Infrastructure Funds N29.17 billion, Infrastructure Bond N11.49.92 billion, Green Bond N12.13 billion and Agency Bond N11.82 billion).The Sukuk was deployed for road infrastructure, while the Infrastructure Funds consist of investments in ARM Harith Fund, that invested in the Azura-Edo independent power plant (IPP) project in Edo State, and Afri-plus Fund, that invested in the construction of 1,200 hostel rooms in the University of Calabar, Cross Rivers State. On the other hand, the proceed of the Infrastructure Bond (Vaithan Infrastructure Bond) was invested in power projects (Akute Power Plant, Island Power Plant, Pipp Genco, and Gasco Marine Limited) in Lagos State.
Accordingly, pension assets in Nigeria, valued at N9.05 trillion as at April 30, 2019, are currently the largest available pool of patient capital. Infrastructure is adequately suited for pension funds, and is a potential avenue for pension funds to reap higher and consistent returns on investment, if adequate policies, structures and regulations are instituted. Many countries in Europe, Latin America, and Africa have successfully utilised part of the accumulated pension funds by investing in new infrastructure projects or renewing dilapidated ones. Globally, productive investments in infrastructure are majorly made possible by long term funds/savings such as pension funds.
From a recent survey, it was discovered that most states are yet to fully comply with the Pension Reform Act (PRA) 2014, due to their autonomy, as they reserve the right to make their own pension laws. How is the non-compliance affecting the industry, and what does the future hold if this persists?
Over the years the Commission has consistently been engaging various states, local governments, trade unions, and relevant stakeholders on the benefits of CPS, with a view to bringing them to full implementation of the Scheme. This has been through workshops, consultative meetings, and sensitisation to create awareness.
There are various challenges that have led to non-compliance to the CPS by the states. We can deduce that lack of political will, misconception about the Scheme, financial constraints occasioned by low internally-generated revenue, are some of the reasons.
Furthermore, preference of politicians to invest in visible projects such as infrastructures that serve to improve their political capital rather than settle pension obligations to retirees, has been unhelpful.
Overall, the effect of the non-compliance and lack of full implementation of the scheme by the states include the following: unfunded RSAs with the attendant effect of loss of income on pension assets; the states are unable to access the benefits from pension assets as pension operators cannot invest in the state issue bond. This results in poor access to infrastructure or other social benefits.
Also, the states are unable to accumulate the required funds to reduce their current pension liabilities or stem the negative growth of pension debt liabilities.
Amongst other effects, the workers would be denied opportunity to receive their retirement benefits as and when due.
Despite these challenges, the Commission is determined and unrelenting in its effort to get buy-in of states to implement the Contributory Pension Scheme (CPS) in order to stem the growth of pension liabilities.
The adverse consequences of doing otherwise, not implementing the CPS, is that the laudable vision of government to boast the economy and lift many workers out of old age poverty in the future is affected.
Nevertheless, record shows that there has been a modest achievement in some states that are participating in the CPS, despite the daunting challenges they face. This proves that the objective of the scheme is sustainable.
The Commission is optimistic that more states will embrace the CPS as they see the benefits of what is in the scheme.
Over three months after the launch of the Micro Pension Plan, even after the launch was delayed as a result of the general elections, PFA’s claims PenCom is yet to release the guidelines for its implementation and collection of contributions. What is your reaction to this claim, and don’t you think this would have a negative implication, especially as the scheme is expected to attract over 20 million workers and raise over N11 trillion?
The guideline on Micro Pension Plan (MPP) have been forwarded to all Licensed Pension Operators, and hosted on the Commission’s website for public use before the Presidential launch that took place in March 2019. Sections 6.1, 6.2, 6.3, 6.4, and 6.5 of the Guideline on MPP provide detailed operational modalities for registration, collection of contribution and withdrawal under the MPP.
With the issuance of the guideline, the Commission has provided operational modalities for the implementation of the MPP, while registration by PFAs have commenced.