THE CONTRIBUTORY PENSION SCHEME AS A CATALYST FOR ECONOMIC DEVELOPMENT IN NIGERIA

THE CONTRIBUTORY PENSION SCHEME AS A CATALYST FOR ECONOMIC DEVELOPMENT IN NIGERIA
A PRESENTATION
BY Chinelo Anohu-Amazu Ag. Director General
NATIONAL PENSION COMMISSION


Genesis of the Pension Reform

　
Prior to the Pension Reform Act 2004, the public sector operated Defined Benefit (DB) Scheme that was:
largely unfunded or underfunded
marred by weak, inefficient and less transparent administration
unsustainable due to accumulated pension debt
Private Sector was characterized by low coverage and compliance leaving most workers with no and/or inadequate retirement benefit arrangement
The Pension Reform of 2004

　
The Pension Reform Act 2004 introduced the Contributory Pension Scheme (CPS) to: provide sustainable, predictable and adequate source of retirement benefits
applies to employees in the Public Service of the Federation, the FCT and the Private Sector organizations with 5 or more employees
Establish the National Pension Commission (PenCom) as the sole regulator and supervisor of pensions matters in Nigeria
Objectives of the Pension Reform

　
Ensure that every worker receives his benefits as and when due
Empower the worker
Assist workers to save in order to cater for their livelihood during old age
Stem the growth of outstanding pension liability
Establish uniform rules, regulations and standards for administration of pension matters
Establish strong regulatory & supervisory framework
Coverage of the Contributory Pension Scheme
The Contributory Pension Scheme (CPS) coverage by virtue of S. 1 of the PRA:
Public Service of the Federation
Public Service of the FCT
Private Sector Organization with 5 or more employees
States and LGs that have enacted Laws and adopted the CPS
Exemption from the Contributory Pension Scheme by virtue of S. 8 of the PRA:
Pensioners existing before PRA 2004
Persons who had 3 or less years to retire as at June 2004
Judicial Officers by virtue of S. 291 of the 1999 Constitution
Personnel of the Military, Intelligence and Security Services (PRA Amendment Act 2011)
Features of the Contributory Pension Scheme
　
Contributory and fully funded
Shared Responsibility between the employer & employee
Minimum of 15% of monthly emolument
Incremental accumulation of pension funds and assets
　 Based on Individual Retirement Savings Account (RSA)

Portable Accounts
Employee maintains his RSA for life regardless of transfer of service or change of employment
　 Assets privately managed by PFAs and kept by PFCs
Life Insurance Policy maintained by Employer up to three time Annual Total Emolument


CPS Key Institutions: PenCom
The National Pension Commission (PenCom) is the sole regulator and supervisor of the pension industry in Nigeria with mandate to:
Regulate and supervise pension schemes
Formulate, direct and oversee the overall policy on pension matters in Nigeria
Approve, licence and supervise PFA, PFC and other institutions relating to pension matters
Issue Regulations and Guidelines
Maintain National Data Bank on pension matters
Receive and investigate complaints against PFC, PFA and Employer
Enforce sanctions and penalties
CPS Key Institutions: Operators
　
Pension Fund Administrators (PFAs)
Opens RSAs for all employees in liaison with PenCom
Appoints a PFC for receipt of contributions and safe custody of pension funds and assets
Investment of pension funds and assets
Administers retirement benefits to retirees
Provides customer support services including account statement
　 Pension Fund Custodians (PFCs)
Receives pension contributions and informs PFA within 24 hours
Holds pension assets in safe custody in trust for RSA holders and beneficiaries
Executes transactions and other related activities on behalf of the PFA
Closed Pension Fund Custodians (CPFAs)
Reserved for private sector employers that were managing their pension before PRA 2004
　 Approved Existing Private Sector Schemes (AESs)
Pension Transitional Arrangement Departments (PTAD) for Public Service
National Pension Commission (PenCom) regulates and supervises all operators and schemes
Safeguards of the Contributory Pension Scheme
Separation of the function of Management from that of Custody of pension assets
Government Contribution is a charge on the Consolidated Revenue Fund
Guarantee of assets in custody by owners of the PFCs and mandatory statutory reserve requirement by PFAs,
Meticulous Investment Limits and Risk Rating
Daily monitoring of pension fund investment
Fit and Proper Persons requirements for pension funds management
Strict Corporate Governance and Disclosure Requirement
Pension assets shall not be used to meet the claim of any creditors or be sold, or granted as loan
Statutory Reserve Fund: PFAs required to set aside 12.5% of PAT to absorb any losses
Strict compliance to Rules and Regulations by Operators: Requirement for appointment of Compliance Officers
Scheme is strictly regulated and supervised by PenCom
Compliance with PRA 2004 by Employers
Remittance of Contributions - Sec. 11(5), Sec. 11(7)
Provision of Information - Sec. 90
Opening of RSAs by employees - Sec. 11(1)
Transfer of legacy pension assets to licensed operators- Sec. 44 and 46
Funding of CPFA - Sec. 39(1)(g)
Funding of Existing Pension Schemes - Sec. 39(1)(g)
Provision of Group Life Insurance Policy for employees - Sec. 9(3)
Compliance with S.16 of the Public Procurement Act 2007 by public sector employers in award of contracts
Enforcement Mechanisms

　
Administrative Mechanisms:
Public Enlightenment
Collaboration with other Regulatory Authorities
Imposition of Regime of Sanctions and Penalties
Engagement of Recovery Agents
Judicial Mechanisms:
Institute criminal and civil actions, as appropriate, for infractions Relevant Courts
Federal High Court, National Industrial Court, Investment and Securities Tribunal Benefits Administration under the CPS
Grounds for Accessing Retirement Benefits in the RSA governed by Sec. 3 & 5 of PRA 2004 Retirement or attaining the age of 50yrs, whichever is later
Incapacitation
Death/Missing Person
Modes of pension payments: Sec. 4 of the PRA 2004
Programmed Withdrawal offered by PFAs Not less than 50% of terminal monthly emoluments Purchase of Annuity from Life Insurance companies RSA balance applied wholly or in part to pay premium
Regular payments of annuity by an Insurance company for life Lump sum withdrawal May be withdrawn before programmed withdrawal or annuity
Subject to balance on RSA Benefits Administration under the CPS…Cont’d
Pensioners receiving their benefits under the CPS as at March, 2014 stood at:
Programmed Withdrawal
No. on PW - 86,628
Cumulative Lump-sum - N115.71 Billion
Average monthly withdrawal - N24.72 Billion
　
Life Annuity
No. of Annuitants - 9,212
Cumulative Lump-sum - N20.48 Billion
Premium - N45.27 Billion
Average monthly payments - N465.13 Million
Customer Service Delivery under the CPS
A number of measures have been adopted in the industry to improve service delivery
Know Your Customer (KYC) techniques for proper monitoring of client needs
Client feedback mechanism
Development of follow-up models for settlement of outstanding client issues
Establishment of Contact Centres


Pension Fund Investment Portfolio

PENSION ASSETS DISTRIBUTION AS AT MARCH, 2014

 

Domestic Ordinary Shares	566,570.62	13.72
Foreign Ordinary Shares	52,930.71	1.28
Total FGN Securities	2,638,414.69	63.91
State Govt. Securities	197,671.35	4.79
Corporate Debt Securities	80,457.96	1.95
Supra-National Bonds	1,730.35	0.04
Local Money Market Securities	318,080.63	7.7
Foreign Money Market Securities	1,015.42	0.02
Open/Close-End Funds	20,762.36	0.5
Real Estate Property	153,237.53	3.71
Private Equity Fund	51,406.08	1.25
Cash & Other Assets	46,008.74	1.11
Total Pension Fund Assets	4,128,286.43	100

 

The Role of Pensions in an Emerging Economy

Provides Social Security by alleviating old age poverty


Ensures that every pensioner receives pension as and when due
　 The CPS stems further growth of pension liabilities
Fully funded towards future pension obligations
Curtailment of the burgeoning pension liabilities of Federal and State Governments
Supports Economic Development
An efficient avenue for Infrastructure and economic development
Availability of investible funds to support the development of the real sector
Stimulates Job Creation Employment generation both directly and through third party service providers to the pension industry

Pension Assets and Economic Development
Globally, pension funds partner with other institutional investors such as DFIs and asset managers, to finance infrastructure development and
The investments were mainly in core projects such as toll roads, highways, rails, etc
The long term nature of pension funds makes them suitable for this type of financing
Current Approved Asset Classes & Portfolio Limits


Flow of Development & Wealth Creation from Pension Assets
Contributory Pension Scheme: The Journey So Far
Initially licensed 26 PFAs, 7 CPFAs and 5 PFCs
Presently reduced to 20 PFAs, 7 CPFAs and 4 PFCs due to mergers and acquisitions
Number of registered contributors is over 5,980,415 as at February 2014
There are 95,840 retirees currently receiving pensions as and when due under the CPS as at March 2014
Total pension fund assets had grown to over N4.13 trillion as at March 2014
Nigerian CPS has become a model for other African countries: Study visitations from Ghana, Malawi, Uganda, Tanzania

Outlook & Next Steps
Enactment of the PRA 2014 to facilitate compliance and enforcement, enhance supervisory powers of the Commission, expand coverage of the CPS, create enabling environment for investment in the real sector
Repositioning the Nigerian Pension industry for the next decade
Building capacity in the industry and engaging the services of skilled and experienced financial advisers for deal structuring
Sustained support for initiatives to provide affordable housing and infrastructure development
Outlook & Next Steps…… Cont’d
　
Deploying strategies for increased compliance by employers, participation by the Informal Sector and adoption of the CPS by States & Local Governments
Collaboration with other Regulators and stakeholders in the Financial Services Sector to create enabling environment for investment in infrastructure and housing:
Taxation
Land titling and registration
Credit enhancement (FGN guarantee)
Sensitization and capacity building
Reorganizing the administration of public sector pensions and repositioning the PTAD
Continual review of extant laws and regulations
Thank you.