While everything else shuts down, PENCOM is giving us hope in a better Nigeria

PENCOM

The status quo in Nigeria is not exactly giving us so much hope right now; with a recession that has moved from being a mere technicality, to a word (albeit out of context) when it has actually been mostly a reality all along.

There’s also looming danger that former President Obasanjo won’t stop talking and now, Lagos State. Have I said Obasanjo won’t stop talking?

There’s however something that has not failed to lift my spirits in recent times. News about PENCOM. Yes, the National Pension Commission.

Over the past few weeks now, every time I have read about the Commission, there’s reason to smile and when one time, it looked like bad news, it turned out it was just the Labour Congress raising an alarm about something again.

PenCom, for non-Nigerians (or many Nigerians), is the National Pension Commission in Nigeria which was established to ensure the proper administration of everything pension-related in Nigeria.

Just recently, the only thing that Pensions in Nigeria was synonymous with was scams and frauds and bribery. Nothing good. But all that has changed drastically from the looks of it.

Below are a few of the stories that have been in the News lately about PenCom.

Not afraid to say NO to shaky investments

On the 25 July, 2016, when stakeholders in the construction and building sector asked that pension funds be invested in housing in Nigeria, the Director-General of PenCom, Dr. Chinelo Anohu-Amazu had no qualms saying no in a bid to be cautious with pension funds.

According to the stakeholders, there is need to create financial products and mortgage backed securities in conjunction with Pension Fund Administrators and mortgage banks.

While the DG agreed, she noted that investment of the fund in housing was limited by the cumbersome nature of that type of investment.

According to her, “traditionally, real estate is complex; when you need to get your fund out, real estate may not be easily disposable”.

Good thinking.

162,025 retirees benefitting from Contributory Pension Sensure effective administration of the Nigerian Pension Industry ensure effective administration of the Nigerian Pension Industrycheme

On the 28th August, it was reported that a total of 162,025 retirees were already benefitting from their entitlements under the Contributory Pension Scheme, 12 years after the scheme kicked off in Nigeria.

Under the scheme, employers, both in private and public sectors are expected to contribute 12% added to 8% deducted from the workers’ salaries while in service.

The total amount per worker will then be paid to said worker upon retirement as a lump sum or as regular payment through their pension fund administrators.

Pension Fund Assets Grown to NGN 5.74trn

While speaking on ‘the use of Pension fund as catalyst for economic diversification’ at the 17th Annual Lecture of the Catholic Brothers United, Director-General of PENCOM announced that the pension fund assets under the Contributory Pension Scheme had taken a giant leap and stood at NGN 5.74 trillion at the second quarter of this year.

Chinelo Anohu-Amazu, noted that the pension fund assets had seen a drastic growth over the decade from about a NGN2 trillion deficit in June, 2004 to NGN5.74 trillion in 2016, accounting for at least 6 percent of the country’s GDP.

Anohu- Amazu said the pool of fund was being invested on behalf of the contributors based on the provision of the Pension Reform Act (PRA) 2014.

Investing NGN2.32 million in Infrastructure by 2019.

Having seen such drastic growth in its funds, PenCom announced on the 30th August that it planned to deploy at least 40 per cent of the total pension funds in the country (about NGN2.32 trillion) into investments in infrastructure development by 2019.

The Director-General of PENCOM said this was part of the Commission’s five-year strategy to enhance inclusive growth and generate better value for contributors.

She noted the current huge infrastructure gap in the country across critical areas of the economy and attributed this large infrastructure deficit to population growth, demographic changes and urbanization, which have increased the demand for infrastructure in the country.

The only way to attempt to bridge the gap, she said, was through the use of part of the pension funds to execute projects to add value to the quality of life of the people.

According to her, “infrastructure is a potential avenue for pension funds to reap higher and consistent returns on investment”.

“If adequate policies, structures and regulations are instituted, pension fund investments in infrastructure and real estate development, provide veritable avenues for portfolio diversification as well as properly match pension assets with their future liabilities.”

Analysing further, the DG said that though federal government’s allocation in the 2016 to capital expenditure increased to 26.2 per cent, (about NGN1.59 trillion), the Federal Ministry of Finance annual infrastructure needs estimate was about NGN7.3 trillion.

To this end, she revealed that a monetary funds investment structure was currently before the President for approval.

Once the approval was given, she said the micro pension department created to coordinate the pensions funds for the informal and private sectors to commence the use of the funds for investment development in alternative asset classes, including Infrastructure “bonds” and “funds”, private equity funds, real estate/housing development.

“Alternative Assets are the only investment class with guaranteed returns, which are consistently above inflation rates.”

Pension funds hit NGN 5.8 trillion

According to the Head of Investment Supervision Department, PenCom, Ehimeme Ohioma, the huge asset was waiting to be invested in infrastructure where the nation currently suffered a huge deficit.

And although windows have been created in the capital market through which pension funds could be invested, especially through bond and infrastructure funds, they have not attracted any significant volume, as total investment in infrastructure stands at a mere four per cent of the allocated 20 to the sector.

He identified the reason for this as the existence of stringent regulations on products that can be invested in, “Investors will only invest in available products. Pension Fund Administrators cannot develop products in which they are to invest. We are now engaging stakeholders, we are now asking ‘why are you not developing these products?’

“Over the years, we have amended our regulations to enable people come up with more products.

We engage stakeholders and if we are convinced that our regulations are too stringent because of the level of our development, we need to loosen it up a little bit to encourage people to come in to produce more products, yes we will do that. But I think execution is our major challenge in the country.”

And finally, Pension Funds Administrators reported to have invested N1.7bn in infrastructure

The National Pension Commission has made good on its promise to give guidelines to operators on the direction for investing the growing pension funds in infrastructure.

It stated that as much as 15 per cent of the total value of the pension fund assets under management could be invested in infrastructure through infrastructure bonds; and another five per cent of the total value of pension fund assets could be invested in infrastructure through infrastructure funds, making 20 per cent of the total value of the pension assets.

It added that both outlets must meet the conditions for the investment of pension fund in infrastructure before the Pension Fund Administrators could channel the fund into the investment.

The regulation provided that the fund could be invested in infrastructure projects through eligible bonds, subject to two major conditions.

First, that “the infrastructure project shall not be less than NGN5 billion in value and awarded to a concessionaire with a track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission Act, and any regulation made pursuant thereto and certified by the ICRC and approved by the Federal Executive Council.”

Other conditions for the investment of pension assets in infrastructure, it added, included that the projects must have business plans and financial projections indicating they were viable as well as economically and financially rewarding.

The regulator said the bonds or Sukuks issued to finance the infrastructure projects should have robust credit enhancements including guarantees by the Federal Government or eligible bank/development finance institution and a maturity date preceding the expiration of the concession.

The Director-General, PenCom, Chinelo Anohu-Amazu, said all investments of pension funds must follow laid down guidelines.

She says if any administrator invested the funds in assets not approved, the Commission would know and would either sanction or withdraw the operator’s licence.

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