Aisha Umar-Dahir is the acting Director General of the National Pension Commission (PenCom). In this exclusive interview with Daily Trust, she spoke on the pension industry.
How has been 2019 for PenCom in terms of regulating the industry?
The Commission has remained focused on its mandate of providing effective regulation and supervision of the pension industry throughout 2019. Particular attention has been given to provision of continuous capacity building and provision of necessary infrastructure in order to keep pace with developments in the global pension market and in the Nigerian economic environment. In this regard, special efforts were made at enhancing the risk based supervision capabilities of the relevant departments in order to fully achieve our goals on the soundness of the industry, safety of the pension assets and fair return on investment.
The operating environment has been quite stable with the exception of the investment horizon, which has been significantly affected by the downturn of economic indices. This has affected the universe of eligible securities and marked a major shift away from the Capital Market due to the significant decline of the All Share Index. This challenge has encouraged the Commission to intensify its efforts at encouraging eligible alternative investments by the PFAs.
What is your take on the growth of pension assets and RSA membership in 2019?
Pension assets had grown by an average of N117 billion on monthly basis between January and October 2019. This was possible despite the economic conditions in the country. The actual size of the assets was N8.64 trillion as at 31 December 2018, which grew to N9.81 trillion as at 31 October 2019. This shows that the assets had grown by N1.27 trillion in 10 months. Indeed, the growth was achieved due to heavy exposures of the PFAs in FGN securities and the relatively very high yields during the year, while investments in equities came down to just below 5 per cent in October due to the prevailing performance of the stock market indices. However, with the recent policy of the Central Bank of Nigeria (CBN) barring all local institutional investors from Open Market Operations (OMO), the stock market has begun to show some positive signs, which is expected to drive the PFAs back to the equities market. It is being anticipated that some rebalancing of the portfolio will take place as interest rate and yields on bonds and treasury bills further drop. In general, the growth of the pension assets has been excellent throughout the year.
On the other hand, RSA registration has grown by an average of 40,000 new contributors on monthly basis in 2019. Total registration was about 8.8 million RSAs as at 31 October 2019, which was very far away from reaching the target of 20 million RSAs by the end of 2019 as aimed under the Commission’s Corporate Strategy. Indeed, the late commencement of the Micro Pension Plan was a factor in this development, but it is expected that the registration would be greatly enhanced from the first quarter of 2020 when the Micro Pension Plan is fully implemented.
How has the PFAs performed during the year?
The performance of the PFAs has been relatively good given the prevailing conditions of the operating environment. It is important to note that under the multifund structure, performance is fund based and the results showed that the conservative funds, Funds III and IV, had performed better at around 13 per cent (annualized). However, the performance of the growth funds, Funds I and II, was relatively lower at around 9 per cent and 10 per cent. This was due to their exposure to equities, which was highly affected by the performance of the stock market. However, recent developments are pointing to promising results (higher returns) for these funds as exactly envisaged in their design. Because they are funds for the younger contributors, they were designed to take these shocks and rebound when market conditions improve.
Pension payouts have been relatively satisfactory and as-and-when-due except in the case of retirees with some accrued rights to be paid by the Federal Government.
What is your assessment of the pension industry?
The Nigerian pension industry has one of the finest governing structures in the country today, ranging from regulation to administration and custody. The separation of these roles has provided the desired protection of the pension assets against fraud. These structures and the processes embedded in them, have been the subject of study visits to Nigeria by many African countries.
The industry has evolved to be a catalyst for economic development in the country. It has grown from a position of huge liabilities to an industry with assets under management of N9.81 trillion Naira as at 31 October 2019. This growth is phenomenal by whatever standards. Indeed, much has gone into the evolution of the investment portfolio, including the admission of many instruments that were hitherto not allowed and in some cases, the investment limits were broadened as particular allowable instrument is better understood or it became more readily available.
However, the most important story of this journey has been the establishment of a robust pension system that is sustainable and has achieved its main objective of steaming the growth of pension liabilities in the public sector and publicly owned companies.
How would you grade PenCom’s performance?
The performance of the Commission during the year has been great – an A+, the facts are verifiable. No doubt, National Pension Commission, is today the best financial regulator in the country for its achievement in regulating an industry from scratch to a world class financial force of more than N9.8 trillion, which is equivalent to about USD31 billion. Indeed, the capacity to continue to ensure the safety of these assets, before and throughout the year, is a significant milestone achieved by the Commission.
The management and staff of the Commission, who worked tirelessly and selflessly in providing all that is required for the continuous growth and safety of the industry, are a pride to this nation.
Will the transfer window be opened in 2020?
There is no doubt the Commission is committed to opening the transfer window. Work has reached an advanced stage in finalizing the arrangements to achieve this. Already, the Enhanced Contributor Registration System has been completed and the recapture exercise has commenced. However, only recaptured RSA holders will have the opportunity of transferring their RSAs. In addition, the asset transfer modalities are currently being finalized. This involves the work being done to develop an application that would determine the transfer positions between PFAs. Unlike banks, the asset transfer will involve cash transfers and transfers of other assets. Thus, it is imperative that care is taken in coming up with a strategy to effectively do the asset transfers. The Commission had already presented its thoughts to the PFAs and their inputs were received on same. Given these developments, the transfer window is expected to be opened within the second quarter of 2020.
What are PenCom’s plans for 2020?
The Commission would continue to strengthen its processes and institutional framework to ensure continuous consolidation of the gains of the pension reforms. We shall continue to ensure sound corporate governance in the industry through full compliance with the reporting standards.
Fourthly, special focus will be given to the development of eligible instruments for pension fund investments in alternative assets, which would drive economic development in the country. Similarly, the work on the Framework for the implementation of non-interest Fund will be completed and implementation is expected to commence before the end of the second quarter of 2020.
There will be drive for the full implementation of the Micro Pension Plan. The Commission will develop a blended benchmarking methodology in assessing the performance of PFAs. This will capture benchmarks that effectively measure the performance of the various asset classes on the RSA portfolios as well as taking into account, the investment strategies of the PFAs.
Finally, we shall continue to purse capacity building in all the areas of our operations to continue to ensure the effective regulation of the industry.
