N5trn Pension Fund: Time for calculated risk

RECENTLY, the Director General of National Pension Commission (PENCOM), Mrs. Chinelo Anohu-Amazu, said pension funds in Nigeria had risen to over N5 trillion. Not a few Nigerians may have been surprised by the revelation given the history and antecedence of pension funds management in the country.

Besides, the import of the amount involved must not be lost on the discerning mind when one re-cal that the Federal Government average annual budget in the past three or four years hovers around N4trn.

The N5trn pension fund indicates an improvement in the performance and management of pension fund as well as a departure from the ugly and burdensome picture of fraud and scam that has saturated several sectors of the pension fund management.

It is also an authentication of the pension reforms carried out by the Olusegun Obasanjo civilian administration in response to the challenges hitherto in the sector.

Nigeria had operated a Defined Benefit (DB) pension scheme which generally was starved of funds. Essentially, the problem was compounded by the non-contributory nature of the scheme.

The Country’s pension scheme had retroactively commenced in 1946 with the coming into effect of the Pension Ordinance enacted by the British Colonial Administration in 1951. The pension scheme however applied only to United Kingdom officials deployed to Nigeria.

Several pension schemes were initiated thereafter particularly during the military era but most of them were bedeviled by lack of funds, political interference, inefficient management, corruption, scams and scandals.

Attempts to correct the anomalies of the previous schemes led to the enactment of the Pension Reform Act 2004, which established a contributory pension scheme for all employees in the country.

The Pension Reform Act 2004 ushered in a Contributory Pension Scheme (CPS) that is fully funded, privately managed and based on individual accounts for both the public and private sector employees in Nigeria.

The Act also established the National Pension Commission (PenCom) as the sole regulator and supervisor of all pension matters in the country.

The end product as can be attested to is the large pool of funds as the N5trn pension fund declared by PENCOM, which can be invested on a long-term basis for the benefit of the country’s development.

Lamentably though, most if not all of the funds are cooling off in Federal Government bonds and treasury.

This underscores the need to properly deploy the pool of funds to tackle the infrastructure deficit which has remained one of the greatest challenges confronting the Nigerian economy. In fact the enormity of the infrastructure gap informed the National Integrated Infrastructure Master Plan (NIIMP) initiative by the immediate past administration of President Goodluck Jonathan.

The 30-year period infrastructure master plan was projected to gulp about N485trn with a capacity to create 33.6 million jobs. Experts believe that with the requisite demographic, natural resources and economic advantages, Nigeria has the potential to become Africa powerhouse in the coming decades. And going by the promise of President Mohammadu Buhari the feasibility of bridging the infrastructure gap can only be realisable if government redoubles its efforts to upgrade infrastructure as it affects power, housing, transportation, education, communication, healthcare, water supply and sanitation.

However experts have cautioned against government direct funding and actual execution of infrastructure development arguing that it breeds corruption essentially through inflated contracts costs.

“There is an urgent need for the current government to move far away from the usual and adapt the unusual in addressing our infrastructural gap. Government must endeavour to create the enabling policies and environment that will encourage the private sector to participate fully in developing the Nigerian infrastructure”, Kenny Daramola, Co-Founder of Capitech Partners Ltd stated.

Furthermore he said: “Government must deliberately refuse to depend on oil money to fund our infrastructural needs, where we are experiencing dwindling oil prices, which is our primary source of revenue generation as a nation. There is need for government to become innovative, dynamic and adaptive”.

Herein lays the need to have recourse to the pension funds. Although the N5trn pension fund may not in one swoop suffice for the infrastructure deficit, it will kick-start and encourage influx of private equity fund for infrastructural development in the country.

Now is the time to take the bull by the horn, a calculated risk so to speak, and invest the pension fund to grow the nation’s infrastructure to the desired level as practiced in developed climes.

Fortunately this is the thinking of regulatory authority of pension fund in the country. The DG of PENCOM said so much recently during the unveiling of the Commission’s new logo.

According to her, most of the N5trn pension funds were invested in Federal Government bond, stressing that this became necessary because the bonds were the safest in the country.

Anohu-Amazu, who acknowledged that pension funds were deployed to the development of infrastructure in other countries, added that the commission was not averse to doing that to bridge the gap of infrastructure deficit in the country but it had to be sure that those seeking to borrow the funds were credible and had the capacity to refund the money on due date.

“We have to be conscious of our primary assignment which is to make sure that pension funds were available to pensioners on demand. While we know that we need to support the development of infrastructure, we cannot do that to the detriment of our primary assignment. However, whenever we find credible people who are willing to take the funds for investments, we shall release the funds”, she stated.

Incidentally, DG PENCOM disclosed that the forthcoming World Pension Summit ‘Africa Special’, with the theme: “Building sustainable pension systems in Africa”, will focus on how to entrench enduring pension systems across Africa with particular emphasis on channeling pension funds towards addressing the huge infrastructure deficit on the continent.

It is therefore crucial at this time that everyone is yearning for improved infrastructure, that PENCOM should be encouraged to take some measured risk to assist in bridging infrastructural deficit in the country.