Aisha Dahir-Umar
PENSION FUNDS AND NATIONAL ECONOMIC DEVELOPMENT
By
Aisha Dahir-Umar, Acting Director General, National Pension Commission
PRESENTED ON 19 JUNE 2018, AT CIIN BREAKFAST SEMINAR
OUTLINE
•Background
•Highlights of Contributory Pension Scheme
•Safeguard Of The Scheme
•Implementation Updates
•Pension Fund Investments
•Impact Of Pension Fund On The Economy
•Key Challenges
•Way Forward
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BACKGROUND
•Contributory Pension Scheme was established by the Pension Reform Act 2004
•The Pension Reform was re-enacted by the PRA 2014
•The rationale for the reform
•To usher in a sustainable pension system to ensure that workers get retirement benefits as and when due
•The need for Government to stem the growth of pension liabilities arising from the unfunded DB scheme
•Need to restructure domestic debts by shifting from DB to DC scheme
•Establishment of the National Pension Commission (PenCom) as apex Regulator to oversee all Pension matters in Nigeria
•Private management of pension funds and asset
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HIGHLIGHTS OF THE CPS
•Contributory in nature
•Employee 8% plus employer’s 10% portion set aside monthly
•Employer may choose to contribute the total of 18% (minimum) for/on behalf of employees
•Individual RSA account with PIN – portable in nature
•Privately managed by PFAs and custody with PFCs
•Life Insurance cover minimum of 300% of gross emolument
•Coverage and exemptions
•Strictly regulated and supervised
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SAFEGUARDS OF PENSION ASSETS
•Separation of the function of management of fund from its custody
•PFC has issued a guarantee on the total assets under its Custody
•The PFAs invest Pension Funds strictly in accordance with the Regulations and Guidelines issued by the Commission
•The Commission monitors pension fund investment on daily basis
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SAFEGUARDS …. Cont’d
•Strict Corporate Governance and Disclosure Requirement
•Pension Assets are not to be used to meet claims of any creditors or be sold, or granted as loan
•Establishment of the Pension Protection Fund to absorb any systemic losses
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IMPLEMENTATION UPDATE
•21 Pension Fund Administrators (PFAs), 7 Closed Pension Fund Administrators (CPFAs) and 4 Pension Fund Custodians (PFCs)
•7,975,976 registered contributors 3,516,873 (44%) for public and 4,459,103 (56%) for private as at March 2018
•26 State Governments already adopted the CPS
•Total Pension asset valued at N7.94 trillion as at March 2018.
•180,783 retirees, currently receiving N6,139.52million monthly pensions by programmed withdrawal, 51,819 retirees on N2,544.59million monthly annuity as and when due as at March 2018
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SUMMARY OF PENSION FUND ASSETS AS AT 31 MARCH 2018
TOTAL PENSION FUND ASSETS
ASSET CLASS
N’ Million
Actual
Weight
Allowable
Limits
Ordinary Shares
795,321.63
10.02%
25%
FGN Securities: Bonds & T/Bills
5,589,617.03
80%
FGN Bonds
3,930,457.53
49.48%
Treasury Bills
1,659,159.50
20.89%
State Gov. Securities
161,426.72
2.03%
20%
Corporate Debt Securities
390,844.06
4.92%
35%
Corporate Bonds
384,777.02
4.84%
Corporate Infrastructure Bonds
6,067.04
0.08%
Supra-National Bonds
7,368.39
0.09%
5%
SUMMARY OF PENSION FUND ASSETS AS AT 31 MARCH 2018 (CONT’D)
TOTAL PF
ASSETS (Cont’d)
ASSET CLASS
N’ Million
Actual
Weight
Allowable Limits
Local MM Sec.
651,733.83
8.20%
35%
Banks
577,600.14
7.27%
CPs
74,133.69
0.93%
Foreign MM Sec
0.00
0.00%
Mutual Funds:
19,224.23
0.24%
20%
Open/Close-End Funds
9,454.96
0.12%
Reits
9,769.27
0.12%
Real Estate
219,242.25
2.76%
Private Equity Fund
27,586.08
0.35%
5%
Infrastructure Fund
7,989.75
0.10%
5%
Cash & Other Assets
73,153.86
0.92%
NAV
7,943,507.85
100.00%
INVESTMENT PHILOSOPHY AND ECONOMIC DEVELOPMENT
•Economic development is the sustained growth and increase in social well-being through increasing the productivity and efficiency of the economy
•Underlying principles of Investment of pension funds:
•Maintain Safety and generate fair returns to ensure that retirees receive their retirement benefits as and when due
•Positive impact on the economic growth and development of the nation
•PRA 2014 and investment regulations targeted critical areas towards economic growth and development
•Development/restructuring of a portfolio mix that allow funds into various asset classes to stimulate investment in infrastructure: Transportation, power housing e.t.c. for real sector/economic development.
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NATURE/SUITABILITY OF PENSION FUNDS
•Long term in nature accumulating over the work life of employees (35years or more)
•Other funds of similar nature include Endowment/Foundations; Family funds ; SWF; and Life Insurance funds generally
•Invested with focus on long term income growth and /or capital appreciation both in the initial evaluation and continues review to match members profile – Proposed multi-fund structure is better placed to address members profile
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IMPACT OF PENSION FUND ON ECONOMIC DEVELOPMENT
•Savings mobilization: Pension Fund has improved the savings culture of workers and constituted a pool for investment
•Total Pension asset valued at N7.94 trillion as at March 2018 currently available as pool of potential capital for economic development
•Relative importance depicted by proportion of pension assets to Nigeria’s gross domestic product (GDP) is estimated at 6.54% as at March 2018
•The fund had provided capital that further deepened the financial markets
•Active player in the activation of the domestic bond market through Steering Committee
•Holds sizeable % of fixed income securities, mostly government bonds and it has increased depth of bond markets (47% of FGN Bond stock of N7,564.94 billion held by Pension funds @ 31/12/16 – DMO
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IMPACT OF PENSION FUND … cont’d
•Pension as critical Institutional Players:
•Non-Bank/Public investors group (which includes pension funds) holding of Domestic debt stock had consistently increased from 36% in 2012 to about 49.68% in 2016
•Relative holdings of banks had declined from 66% to 33% over the same period.
•Key Demand group – sum of N1,308 billion FGN Bond allotted in 2016: 21.82% held by Pension funds, next to Fund Managers/NBFI (31.21%) and Banks (24.86%); Others are Govt Agencies 18.39%; Insurance 1.6% (DMO)
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IMPACT OF PENSION FUND …cont’d
•Housing and mortgage Development
•Facilitating Affordable Housing:
•PRA 2014 makes provision for a portion of pension fund in RSA to fund equity contribution for a residential mortgage
•Promotion of Nigeria Mortgage Refinancing Company
•Indirect investment in housing/real Estate through ABS/MBS, REITs
•Infrastructure financing
•Pension fund is available for development infrastructure as a veritable step to enhance economic development.
•At least 20% of Pension portfolio available for Infrastructure financing – Infrastructure bonds (15%)/ funds (5%), e.t.c.
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IMPACT OF PENSION FUND …cont’d
•Deepening of the Annuity market:
•About N259,580.78million transferred to the insurance industry in exchange for the monthly annuity of N2,544.59million to 51,819 retirees as at 31 March 2018
•Development of Rating agencies and rating culture
•Strong Corporate governance Structure in Companies/outlets where Pension fund are invested.
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KEY CHALLENGES
•Limited investment outlets:
•No of quoted equities that meet investment criteria (funds growth >local equities; bloated price & suboptimal diversification)
•Few qualified infrastructure projects and instruments such that allocated funds are underutilised – Over 20% available; under 5% utilized!
•Low liquidity, inadequate credit risk rating, crowding effect e.t.c. have hampered the growth of local corporate bonds; pension funds concentrated in government securities
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WAY FORWARD
19 JUNE 2018
•Inclusive and expanded coverage of the total working population and increasing asset size to 10% of the Nigerian GDP or more by 2019
•Widen coverage by driving more State Govt compliance and informal sector participation
•Development of inflation indexed bonds to promote risk-adjusted returns on bond investments by pension funds
•Incentives for the listing of more blue chip companies on the NSE. – MTN e.t.c.
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WAY FORWARD
19 JUNE 2018
•Creation of more investment outlets-Infrastructure Bond/Funds with appropriate credit enhancements
•Development of local Mortality table reflecting the Nigerian environment with appropriate impact on pension benefits and retirees’ disposable income
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`Thank you
National Pension Commission
Plot 174, Adetokunbo Ademola Crescent,
Wuse II, Abuja
09 – 4610466 – 8
benefitsinsurance@pencom.gov.ng
info@pencom.gov.ng
www.pencom.gov.ng
