Investing pension fund in infrastructure

Ivor Takor

We have heard and read stories alleging that the Federal Government intend to borrow 2 trillion Naira from pension fund to develop infrastructure. We have have even been asked to comment on the issue. Our position at the Centre For Pension Rights Advocacy on the the matter is that the pension reform carried out in Nigeria in 2004 brought about the enactment of the Pension Reform Act 2004, which has been replaced by the Pension Reform Act 2014.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, third party custody of the pension fund and assets by Pension Fund Administrators, 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 services of the federal, states and local governments and the private sector who had contributed to the Scheme receives his/her retirement benefits as and when due.

As at January 21, 2020, pension fund assets under the Contributory Pension Scheme had risen to 10 trillion Naira. 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 nations 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 attracted the attention of the Federal Government for infrastructural development.

The 10 trillion Naira pension Fund is not warehouse in any account of PenCom, the Central Bank of Nigeria, the Pension Fund Administrators or the Pension Fund Custodians. The fund is warehouse in the private individual Retirement Savings Accounts of contributors, who are workers cum beneficiaries. The funds are invested by the Pension Fund Administrators on behalf of the workers, based on guidelines issued by the Regulator. The investment is carried out with two principal objectives, which are adequate return on investment and the safety of the fund.

Therefore in answer to the questions we have been asked at the Centre and in reaction to the commentaries we have read in print and online media’s, we are stating categorically without any fear of contradiction, that pension Fund is about investment and not borrowing. Pension Fund Administrators are investing Organisations and not borrowing Organisations. The spirit and letters of the Pension Reform Act 2014 envisage investment not borrowing. The Government, PenCom and Pension Operators know this very well.

We are aware that a Committee is currently studying and working out modalities of how a huge sum of pension fund can be invested in infrastructure. To us at the Centre, we see the development as a welcome one because the law and guidelines for investment of pension fund, makes provision for investment in infrastructures. However, we want to believe and advise that critical stakeholders in the industry especially workers who are the owners of the fund are being carried along through their representatives, the industrial Unions and the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC). It should be noted that their understanding and buy in, in such huge investment is extremely important. There is a popular maxim that you cannot shave the hair of a person, in his/her absence. Pension Fund Administrators who are businesses have the interest of their shareholders first and other person or individuals are secondary while trade unions have the interest and welfare of their members as their principal objective. It is for that reason that they are established.

We want to point out that Retirement Savings Accounts of Workers are not guaranteed by the Federal and State governments nor any other Organisation for that matter. The accounts and the funds in them are open to operation and investment risk, which is borne by the owners of the accounts. Therefore their representatives must have a say on any critical decision on the contents of the accounts.

The law doesn’t confer on the Federal or State governments, the power to decree or order how the funds in private individuals Retirement Account should be invested. They can negotiate the terms and conditions under which they are ready to do business with those who have legal ownership and power to invest the fund.

The Governments especially the federal government, should have at the back of its mind the fact that some of the owners of the fund who have retired, are yet to be paid their retirement benefits as a result of federal government delays in paying their accrued rights of pension under the defunct Defined Benefits Pension Scheme. Moreover, the Federal Republic of Nigeria Constitution as amended 2011, provides that pensions shall be reviewed with every public service salaries review or every five years, where there is no salary review. There was a salary review, with consequential 33% pension review for pensioners under the defunct Defined Pension Scheme and other pension adjustments without a consequential adjustment of pensions of pensioners under the Contributory Pension Scheme.

We conclude by submitting that the Contributory Pension Scheme has created a huge pool of long term investable fund, which should be utilized for infrastructural development. This should be done within an agreed framework put in place by all critical stakeholders.

I make this submission as a member of The Presidential Pension Reform Committee, headed by Chief Fola Adeola, which midwifed the Pension Reform of 2004 as well as someone, who retired under the Contributory Pension Scheme.

Ivor Takor, mni (Esq.)
Centre For Pension Right Advocacy

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