Takor: Government can invest fund not borrow
The Director, Centre For Pension Rights Advocacy, Ivor Takor, in this interview with COLLINS OLAYINKA, ABUJA insists that borrowing from the pension fund is illegal as far as the law that set up the contributory pension fund is concerned.
The Federal Government plans to borrow N2t from the pension fund. What are your thoughts on this?
The pension reform carried out in Nigeria in 2004 brought about the enactment of the Pension Reform Act 2004, which has been replaced by the Pension Reform Act 2014. The Act established for the country, a Contributory Pension Scheme, which is fully funded, privately managed by Pension Fund Administrators (PFAs), third party custody of the pension fund and assets by Pension Fund Custodians, who are all licensed in line with the provisions of the Act, by the National Pension Commission (PenCom), the regulator established under the Act.
The fund is based on private individuals Retirement Saving Accounts (RSA). The principal objective of the scheme is to ensure that everyone who worked in the public service of the federation; states and local governments, as well as the private sector, who has contributed to the scheme receives his/her retirement benefits as at when due.
As at January 21, 2020, pension fund assets under the Contributory Pension Scheme had risen to N10t. This is a very good development for an industry that, on its take off in June 2004, had a federal public sector pension liability. Pension funds in nature contribute to a nation’s huge pool of long-term investable fund. Therefore it should not come as a surprise to anyone that the huge pension fund assets in the country will attract the attention of the Federal Government for infrastructural development.
The N10t pension fund is not warehoused in any account of PenCom, the Central Bank of Nigeria, Pension Fund Administrators, or Pension Fund Custodians. The fund is warehoused in private individual RSAs of contributors, who are workers cum beneficiaries. The fund is invested by the PFAs on behalf of the workers, based on guidelines issued by the regulator, and the investment is carried out with two principal objectives, which are adequate return on investment, and the safety of the funds.
Are there other governments around the world that borrow from pension funds?
I don’t know of any government around the world, especially among the advanced countries that borrows pension fund. I however, know that there are countries in advanced economies where pension fund has been invested in infrastructure such as road. Pension fund all over the world are meant for investment and not for borrowing.
In what ways can pension fund be protected from abuse, especially from government?
Let me say this here. I was a member of the Fola Adeola Committee that carried out the pension reform, and I was a member of the pioneering board of the National Pension Commission, where I represented the Nigeria Labour Congress for over six years. Security of the fund was paramount in the minds of members of the committee. It is for this reason, that the law made provision for a third party custodian of the fund by the Pension Fund Custodians, distinct from the PFAs, who have the responsibility of managing and investing the fund, and the actionable pension commission as the regulator. Both the Pension Fund Custodians, and the PFAs are private sector organisations, who have little or no interface with the government. Most importantly, the funds are in private individual accounts of workers, who are owners of the funds. The law makes provision as to how the funds can be invested and that is what is being done.
Why is labour antagonising the borrowing plan?
To the best of my knowledge, labour is not against investment of pension fund in infrastructural development. Labour however, will definitely be against and resist the borrowing of pension fund for infrastructural development. Let me say here that the Federal Government, through the Minister of Finance, has come out to allay fears that government intends to borrow pension fund for infrastructural development. The Minister has said that what government is thinking of doing is to put in place viable instruments, in which pension funds can be invested for the development of infrastructure.
Has government engaged labour to clarify issues on the matter?
To the best of my knowledge, the Federal Government is yet to do so. We are aware that a committee is currently studying and working out modalities of how a huge amount of pension fund can be invested in infrastructure. I want to believe that government will bring into the committee, if it still exist, critical stakeholders in the industry, especially the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC), which represents workers – the owners of the fund on such a critical issue.
What are the areas that both government and labour can come to an agreement on the matter?
I said earlier that we know government is interested in getting pension funds invested in infrastructure. I also said that labour is against investing pension fund in infrastructure development. Therefore there is a meeting of the mind on the matter. What has to be addressed is the security of the fund and adequate return on investment. Having said that, there are critical issues that will be discussed and agreement reached. The first is that we in labour have at the back of our minds, the lack of continuity in policies direction, especially when there is a change of government, be it within the party or another party. Therefore, my advice to my colleagues in labour will be that any arrangement to invest pension fund in infrastructure should be through issuance of infrastructural bonds, by top grade private sector companies, who will execute the projects. The Federal Government and state governments should guarantee the bonds.
The issue that will then be addressed is what is the guarantee of the Federal Government, who is currently in default of the guarantee it has given for the pension rights of its workers, known in industry parlance as accrued rights.
Secondly, how can state governments that have not keyed into the contributory pension scheme that have accumulated the funds seat on the table to talk about using the fund to develop infrastructure in their states. Should non-contributory states collect from contributory states and the federal? For security of the fund invested, I will suggest to my comrades that they should insist that repayment should be a monthly affair, deducted at source from the Federation Account monthly share, and they should then sort themselves out monthly with the companies that they guaranteed.
Is it wrong for the government to borrow to fund critical infrastructure?
It is not wrong for the government to borrow to fund critical infrastructure. What matters is the agreement reached with the borrowing Organisation. It is, however, wrong to borrow pension fund to fund infrastructure, no matter how critical the infrastructure is. What is advisable in the case of pension fund, at least in our situation is to invest pension fund in viable instruments.
Will such borrowings amount to abuse of the process?
It will surely be an abuse because in the case of Nigeria, borrowings can only be done outside the provisions of the Pension Reform Act 2014. In any case, the government has said it has no intention to borrow and labour on its part, will never agree to that.
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