There are strong fears that Nigeria’s N9.5 trillion pension fund assets may in the nearest future be depleted by inflation.
The Nation reported that the fund’s value has been eroded by 100 per cent between 2012 and 2019. It opined that there is need to review the investments of the funds.
The need for the regulatory authority, the National Pension Commission (PenCom) to allow more foreign investment of the pension funds is now inevitable to combat this threat.
This is being envisaged by experts considering the depreciation of the Naira in recent times.
Pioneer Director-General of PenCom, Muhammad Ahmad while speaking on ‘’The Pension Industry – The Way Forward” during a retreat for National Assembly members on pension in Uyo, AkwaIbom State, drew the attention of stakeholders to the dangers ahead.
He stated that there is the need to ensure that contributors and retirees do not suffer unduly for the depreciation of the Naira over the years.
Giving an instance, he said that in 2012, one dollar exchanged for an average of N170.
Today, one-dollar exchanges for an average of N360. What this means is that pension contributors, have had the value of their contribution eroded by over 100 per cent in that period for no fault of theirs or the fund managers, he noted.
In this regard, he said the investment of a portion of pension funds in permissible foreign assets is an issue that needs to be at the front burner.
He pointed out that a cursory look at the Pension Reform Act (PRA) 2014, Section 87 (1) shows that there is allowance for the investment of pension funds outside Nigeria, but this area has remained fairly non-operational with negative long-term implications for contributors as enunciated above.
He further observed that Section 87 (2) of the Act states that the Commission may, subject to subsisting Central Bank of Nigeria (CBN) foreign exchange rules, recommend to the President for approval, portfolio limits for investments of pension funds or assets outside the territory of the Federal republic of Nigeria”.
He stressed that it is imperative that PenCom and the operators engage the CBN to develop a workable framework to access foreign exchange for pension fund investment for the benefit of RSA holders in the immediate future.
He said: “Going forward, however, I will strongly suggest that the need for Presidential assent be removed and replaced with the power of the Board of the Commission to issue investment regulation for foreign investments as is done in a number of North and South American countries. This can be achieved by collaboration between the operators, PenCom and the legislators. However, this is not urgent as the process has not been tested.
“There is the need to encourage development of enabling framework for pension funds to facilitate national development. In this case, Public Private Partnership (PPP) rules need to be strengthened at both the national and state levels while Africa infrastructure collaboration initiative projects like roads, rails, telecommunication, and power, among others should be promoted.
“There is also need to promote credit enhancement market in the short term – currently InfraCredit is virtually the only private institution providing such guarantees (incentives) in Nigeria. However, enabling environment such as policies on project preparation to enable quality project issuance need to be established so as to walk ourselves out of provision of guarantees in the future.”
He posited, investment of the fund is a critical factor that will enhance the growth of the pension industry.
“We need to constantly review the scope of investments that the Pension Fund Administrators (PFAs) can deploy the pension contributions in. We are aware that the investment climate is very dynamic and investment opportunities open up every day.
“We, thus, need to ensure that the fund managers have the flexibility they require in order to make investment decisions for the benefit of the RSA holders. I must add though, that we must find the balance between the need for speed and returns and safety. In this regard, safety first should be our guide”, he noted.
The Head, Branding & Communications, Pension Fund Operators Association of Nigeria (PenOp), Wale Odutola, said the monies from the pension fund have been deployed into critical areas of the economy but perhaps, not as diversified as expected to fully support the growth.
Odutola who is also the Managing Director, ARM Pension Managers, said what is most crucial to them now, is how the fund will have more impact in the next 15 years.
“We have had 15 decent years within the pension space but the next 15 years are probably even more important because the challenge then becomes how do we grow from about N10 trillion to N20 trillion.
“And by growing, I am not talking about investment performance but how we will add more people to the pension industry such that we all can begin to benefit from it and have some sort of security when we retire. This remains the biggest challenge for us as a sector”, he added.
Credit: The Nation
