Where we are on transfer window - PenOp

 

Executives of Pension Fund Operators Association of Nigeria (PenOp), in this interview, with journalists, spoke on why the transfer window has not been opened, challenges, progress and efforts being employed to strenghten the industry. Chuks Udo Okonta was there.

When the transfer window will become operational

Ronke Adedeji, Leadway Pensions: On the issue of transfer window, a lot of work is being done to date. The transfer window is quite a complex exercise, on the face, it always appears very simple. People always say, ‘I want to change my PFA and move from A to B,’ but its complex from the perspective that when you are moving an account from one PFA to another certain processes need to take place and the major one is the identification process. We want to make sure that when you are transferring account from one entity to the other, you are transferring correctly and that you are not transferring somebody else’s account simply because they have common names. So the issue of biometrics is very key. As such, the identification process to ensure that the transfer is secure and correct has to take place. In Nigeria, we really haven’t sorted out identification, but in more developed parts of the world, identification is quite simple and straightforward. So a major criterion for us is biometrics. There are various initiatives going on regarding biometrics. The federal government has an initiative, the banking sector has an initiative, and we are also looking at it and at the end of the day, we want to come out with a process that will ensure that it is comprehensive, effective and cost effective. So it’s a large exercise in terms of getting the biometrics right, but that is even a part of the whole thing. There is also the software and the data bank process from the National Pension Commission, PenCom’s perspective. So there are still a lot of issues that we are trying to sort out. We are working hard on the biometrics, to sort out software, databank issues. We may end up doing collaboration between the PFAs; we may look at other stakeholders such as federal government and the banks to work with so that the process can be complete and effective.

State of the pension industry after recapitalisation

Dave Uduanu, Chairman, PenOp: Regarding recapitalisation, you will notice that a lot of the ‘medium to big’ PFAs already had close to N1billion before the recapitalisation programme was announced. They didn’t need to bring in a whole lot of money, which is why you don’t see that a lot of things have changed; even though the law and the guideline stipulated N150 million, a lot of PFAs were already capitalised to over N800 million or N1 billion or more and they anticipated that there will be increase in capital. So the PFAs that control at least 90 per cent of the market did not see material inflow by way of new share capital. Now the pension business is not about brick and mortar, unlike banks where everyday people go and withdraw money. The more electronic payment channels are developing, the fewer branches we are going to have because pension is not money that you need for day to day living. So, the transactional aspect of the business is much lower than in banking, therefore the need for brick and mortar is not as high as banking.

The pension funds also have distribution network through the custodians. So if you are with First Bank or with UBA or with Zenith, you have opportunity to have your pension desk in these branches. However, PFAs are putting brick and mortar in some of the more remote locations. In Nigeria, there are six geo political zones and most people look at it and say ‘ok we are really sure of this geo political zone where the commercial capital is or where we have the most customers, so I will put in a location.’ Pension funds that are owned by banks ride on their parent company network. So don’t look for the brick and mortar, look for quality of service, customer contact point, it could be call centres, cell phones, or e-mails that will resolve problems. Even the banking industry is moving from brick and mortar, the world is moving away from brick and mortar to electronic payment channels. What I believe will drive employment level in the PFAs is when the informal sector opens up. You can’t say, ‘now I have N1 billion, let me go and hire people.’ Employment is driven by business needs and business needs is driven by the opening up of the market and the size of the market. So I think that the recapitalisation has made PFAs to be stronger entities, it has also made them to invest in the things that you don’t see like risk management systems, and quality of people. Overall, the industry is better off because of the recapitalisation.

Misibau Yola, MD, Legacy Pensions: Whenever branches are mentioned in the financial services industry, it’s the banking perspective that is usually on our minds. For pension, remittances are made by employers; they are not even by individuals. What you find is that as the number of retirees’ increases, you are going to have the likelihood of more physical branches opening. Now what we have is 5.2 million registered RSA holders or probably less than 200,000 retirees. It is a small number because it is the retirees that you actually sit with a lot of the time. I believe that as the number of retirees increases we will see more branches. But as it is now, I for example, I have UBA, as my custodian, all over Nigeria, in any UBA office; people will sit there and interact with customers. So you will see the number of branches increase as the size of RSA grows.

Idu Okwuosa, Stanbic/IBTC Pensions: There is also a guideline from PenCom based on the number of RSAs you have, you must have an office in the state. So if you have a certain number of RSAs you have to have an office in that state.

Accessing 25 per cent of retirement contribution

Yola: As a contributor to the CPS, be reminded that it is six months after you had lost your job that you can access 25 per cent of your pension contribution. If you resigned by yourself, the law does not allow you to have access to that 25 per cent. The objective is to make it look like some insurance benefit if you lose your job. The truth is that you didn’t plan to lose your job, so the 25 per cent payment will help you until you get another job. If you resigned on your own, presumable, you had other plans like going to self-employment, or you want to set up your own newspaper, there wont be any 25 per cent initial payment for you. The law states that it is only when you lose your job and you have stayed out of employment for six months, then you can take 25 per cent while you are looking for another job. So when you get another job, you continue with your pension contribution.

Appointing a substantive board for PenCom

Uduanu: It is the duty of the federal government to appoint a substantive board for PenCom. Clearly you don’t want a vacuum in any organisation whether it is a regulator, parastatal or even government itself. The government has not appointed a permanent board for PenCom, however, there is an acting Director General and I will say that there is high level of continuity in PenCom because of the way PenCom is run. It is very consultative giving that everything and anything that is done, the regulators deliberate with the operators. So they just don’t wake up and issue guideline or make amendments to regulation without carrying the operators along.

PenOp is also strong and is getting stronger and is the voice of the industry and serves as a bridge between the regulator and the industry. Whilst we have desired that there will be no vacuum anywhere, we are mindful of the fact that government is always government and I believe that they will appoint a substantive board for PenCom very soon. We are working with the acting DG and they are people we are very familiar with and there is a high level of continuity. Substantially, it is not affecting the management of pension funds or what we plan to do with the funds. If there is a new leadership in PenCom, as with all new leaderships, they will take the plans and all the guidelines and bring their own experiences and views to the table and we discuss. If their views are consistent with the progress that is being chart for the industry, they will be implemented, otherwise, it will be difficult for somebody to come to PenCom today and change things completely.

Recovery agents

Okwuosa: As of date, 15,760 employers are defaulters of the CPS. Out of these, a total of 8,584 have been visited by the recovery agents. Till date the liability from people they visited is N2.5 billion, that is what we are hoping to recover from those they have seen so far. They have sent them demand notices, as well as account of custodians on how to remit the money.

Uduanu: Suffice it to say that for most of the big employers, most of them are current with their remittances to a reasonable extent. Most employers in the organised private sector pay their pension and are in compliance. The organised private sector has done very well. They treat pensions the way they treat salaries, it is important to encourage them because they have turned out to be probably the strongest pillars and supporters of this scheme even though initially when we started, they saw it as additionally tax or financial burden.

New guideline for state governments issuing bond

uduanu: The National Pension Commission, PenCom, released some guideline for state governments that want to access pension funds by way of issuance of bonds. Such state governments will not only participate in the scheme but PenCom has introduced more stringent requirement to ensure that you don’t just come in, access the funds of the PFAs and stop contributing. What PenCom tried to do is to equate pension payment with payment of salaries. PenCom put in place a mechanism to ensure that at the end of the every month it is no longer discretionary to remit money into contributors account just as salaries are not discretionary. You must pay contributors just as you pay salaries at the end of the month. It is the whole idea to make pension at par with salary. The mechanisms they want to use to do that are being fine-tuned.

One area that we are very conscious of are that a lot of investments of pension funds are located in the bond market particularly the federal government bonds. So we have taken it upon ourselves, working with the regulators to find out ways we can, through working with other partners, to can expose the funds to the real sector. Now we have to be careful how we do this. The real sector elicits both positive and negative feedbacks. The negative feedback is people being afraid of the pension fund being invested in infrastructure. That is not what we are talking about. We are talking about, how do you invest pension funds in the real sector through such mechanisms as private equities, or through the housing or mortgage market and through infrastructure bonds? So as part of that process, we are speaking to the regulators and the governments and institutions like the International Finance Corporation, IFC, the African Development Bank, AFDB, who are interested in growing the real sector of the economy. Just as everybody is conscious of the fact that funds cannot only stay in government bonds, we are much more conscious of that fact because the more we grow the real sector, the more employment is created, the more jobs are created and the more our businesses grow. The focus of our strategic plan is to bring in the informal sector, make sure all the state governments key in and invest in the real sector so that the informal sector can become much more formalized so that our economy can grow and create jobs and that way, grow the Contributory Pension Scheme, CPS, subscriber base from 5.2 million to 20 million which is our target for five year period.

Putting pension payment at par with salaries

YOLA: Under the law, pension payments are supposed to be made at least one week after salaries are paid. Ideally, if you pay salaries, you should be able to simultaneously pay pension at the same time, because you are deducting from the salary payment. A grace of one week was given just for organisations to tidy whatever they have not tidied up. For the state governments, there was a circular or guideline issued by PenCom about state governments accessing pension assets by way of issuing bonds. The initial position was that they will do Irrevocable Standing Payment Order, ISPO, for the repayment of the bond which is a normal thing. What was added was that the states will also require ISPOs for the pension payment. Therefore, they are not only having standing payment order for funds to pay to the bonds but to ensure that pension deductions are also taken at source. The whole idea is that they don’t have access to pension assets and while their bond is successful, remittance of pensions become at their own convenience. The idea is to force them, simultaneously as they are making accruals for paying the bond they are also putting down money to make sure that the monies get into the pension RSAs of their employees, so that they don’t just abandon it midway by opening RSAs, take the monies to finance their bonds and then they don’t pay back. So PenCom added an ISPO for pension deductions also. So if you want to access the monies in the pension fund, you must have both ISPOs. Ordinarily you must open RSAs, but now you have to have ISPO for pension payments. It is just to ensure that the states do not renege on that particular issue. States usually give ISPOs to the Central Bank so that the money is deducted at source before it even gets to them to spend.

So it means that once a state has raised money from the bond market, for pension funds to invest in the bond, the payment of pensions will no longer be at the instance of the state, it will be deducted at source and remitted to the PFAs. That is such a strong requirement and the push back initially could be wide but it requires financial discipline on the part of the state. That is what we need as a country.

Importance of the guideline

The guideline is important because state governments collectively are a huge employer of labour and they have a lot of employees that would ordinarily go for RSAs but because they have to make their own laws first it is at their own convenience to do that. So the idea is really to get them on board, but make sure that they come on board safely and not just half way. A number of states have already issued bonds prior to this regulation because this regulation came out in December. Prior to that Lagos, Niger, Delta, Ekiti as well as Imo state have issued bonds under the old guideline which simply require them to open RSAs and then have an ISPO for repayment of the bond.

If the question is will it encourage or deter state governments from accessing the pension fund, it is a question of explaining to the state government what the objectives are. Well initially some states might think it is stringent, but at the end of the day, if you really want to implement the scheme for your citizens, that is probably the way to go. It also means that the governor after you doesn’t cancel the initiative. Once an ISPO is with the Accountant-General of the federation, you cannot go and stop it, it is a direct deduction. It is such a strong statement from PenCom. So we will dialogue with the states on a need basis and we will see how the guideline affects the growth of the industry.

Transfer window

On the issue of transfer window, a lot of work is being done to date. The transfer window is quite a complex exercise, on the face, it always appears very simple. People always say, ‘I want to change my PFA and move from A to B,’ but its complex from the perspective that when you are moving an account from one PFA to another certain processes need to take place and the major one is the identification process. We want to make sure that when you are transferring someone’s account from one entity to the other, you are transferring correctly and that you are not transferring somebody else’s account simply because they have common names. So the issue of biometrics is very key, so the identification process to ensure that the transfer is secure and correct has to take place. In Nigeria, we really haven’t sorted out identification, but in more developed parts of the world, identification is quite simple and straightforward. So a major criterion for us is biometrics. There are various initiatives going on regarding biometrics, the federal government has an initiative, the banking sector has an initiative, we also are looking at it and at the end of the day, we want to come out with a process that will ensure that it is comprehensive and effective and also, cost effective. So it’s a large exercise in terms of getting the biometrics right, but that is even a part of it. There is also the software and the data bank process from PenCom perspective. So there are still a lot of issues that we are trying to sort out. We are working hard on the biometrics, to sort out software, databank issues. We may end up doing collaboration between the PFAs; we may look at other stakeholders such as federal government and the banks to work with so that the process can be complete and effective.

Having two RSAs

It is not possible for a contributor to have two RSAs. If the database was correct, you wouldn’t be able to have two RSAs. Even now, it is an aberration that you can have two RSAs, it means that the identity wasn’t sorted out. If your fingerprint was already there, then, any second RSAs registration would have been rejected. In a very well organised identity Programme that would be impossible, you will have only one RSA and only one in number. If you have two, something went wrong somewhere, it shouldn’t have been. But in general, PenCom recognises the first pin that was registered. They have a record of which pin was registered when, so if you are the holder of these two RSAs then write a letter to PenCom to say I have two RSAs but please resolve it. Now you can pass that through your PFA, so PenCom will now determine which PFA registered you first and that will be the valid pin and PenCom will cancel the other pin and ask the other PFA to transfer your balance from that PFA to the first PFA. That is how it works.

Accessing 25 per cent of retirement contribution

Be reminded that it is only if you lost your job after six months that you can access 25 per cent of your pension contribution. If you resigned by yourself, the law does not allow you to have access to that 25 per cent. If you resign voluntarily, you can’t access it unless you lose your job. The objective is to make it look like some insurance benefit if you lose your job. The truth is that you didn’t plan to lose your job, so the 25 per cent payment will help you until you get another job. If you resigned on your own, presumable, you had other plans like going to self-employment, or you want to set up your own newspaper, no 25 per cent for you. The law states that if you lose your job and before you get another job and you have stayed out of employment for six months, then you can take 25 per cent while you are looking for another job. So when you get another job, you continue with your pension contribution. So you cannot withdraw from it more than once.