- PFAs Made N2.2tn Profit on 15 Investment Portfolios
Since the inception of the Contributory Pension Scheme, operators have made about N2.2tn profit from the investment of the funds in 15 different portfolios, according to reports.
Over the years, governments and private investors have been eyeing the growing pension funds for loans to execute some of their projects.
Many people, especially those who believe that the pension funds are idle funds, are of the opinion that the money should be released to finance the development of infrastructure as well as cushion the effects of the economic recession that the country has been grappling with.
Since the commencement of the Contributory Pension Scheme in 2004, the funds have grown to the tune of N5.96tn.
The Head, Benefits & Insurance Department, National Pension Commission, Mr. Lana Loyinmi, says that the major objective of the Pension Reform Act, which gave birth to the CPS, is to ensure that every worker receives his or her retirement benefits as and when due.
Loyinmi, who notes that the scheme is contributory and mandatory, says the employer contributes 10 per cent while the employee pays eight per cent of the annual emolument into the Retirement Savings Account.
He explains that contributed funds are remitted into an individual’s RSA, which is fully funded and has a 100 per cent asset backing.
According to him, RSAs are privately managed by Pension Fund Administrators while the custody of assets is maintained by Pension Fund Custodians.
Retirement benefits payment is the last stage of the whole process under the CPS, says Loyinmi.
Investment portfolios
The total assets under the CPS grew from N4.05tn in 2013 to N4.61tn in 2014 and rose to N5.3tn as of the end of 2015, according to figures obtained from PenCom
The report also shows that the funds have increased to the tune of N5.96tn.
The commission says the funds are not lying idle, but have been invested in at least 15 different investment portfolios, with the bulk of the money going into the FGN securities.
PenCom specifically says that 58 per cent, totalling N3.49tn of the money, has been invested in the FGN bonds while N683.91bn, or 11.47 per cent of the funds, has been invested in treasury bills.
The operators have also invested 8.80 per cent of the funds, totalling N524.72bn, in domestic ordinary shares while N413.17bn or 6.93 per cent of the money has been invested in local money market securities.
According to PenCom, the operators invest N294.3bn or 4.94 per cent of the funds in corporate debt securities while N214.8bn or 3.6 per cent of the money has gone into real estate properties.
The operators also invest N137.78bn, N85.49bn and N45.8bn, which translate into 2.31 per cent, 1.43 per cent and 0.77 per cent, in state government securities, foreign domestic shares and cash/other assets, respectively.
According to the report from PenCom, the remaining funds of N23.96bn, N18.75bn, N12.48bn and N1.8bn, which represent 0.4 per cent, 0.32 per cent, 0.21 per cent and 0.03 per cent, have been invested in private equity fund, open/close-end fund, supra-national bonds and infrastructure funds, respectively.
Investment guidelines
PenCom has produced investment guidelines, which regulate how the operators should invest the funds; and these regulations are subject to review when necessary.
The commission notes in the guidelines that the Pension Fund Custodians should only take written instructions from licensed PFAs with respect to the PFAs investment and management of pension fund assets held in the custody of the PFCs on behalf of the contributors.
It says that in discharging their contractual functions to the PFAs, the PFCs should not contract out the custody of pension fund assets to third parties, except for allowable investments outside Nigeria.
The commission states that the PFC must obtain an approval from the commission before engaging a global custodian for such foreign investments.
“The PFAs, in discharging their contractual functions to the contributors, shall not contract out the investment/management of pension fund assets to third parties, except for open/close-end/hybrid funds and specialist investment funds allowed by this regulation,” says PenCom.
The Head, Investment Supervision Department, PenCom, Mr. Ehimeme Ohioma, says that the regulation of investment of pension fund assets issued by PenCom was amended in 2010 to allow for investment in alternative asset classes such as infrastructure bonds and funds, private equity funds and real estate/housing development.
Returns on investment
Since the inception of the CPS, the operators have made about N2.2tn as profit from the investment of the funds in their custody.
The Chairman, Pension Fund Operators Association of Nigeria, Mr. Eguarehide Longe, confirms this, saying the N2.2tn is the profit made from the total contribution of over N3tn from workers and their employers in both public and private sectors of the economy, who subscribe to the pension scheme.
Longe says, “Of the total funds, not less than N2.2tn is the investment income. So, it means that the managers of that money have received the amount piecemeal, over the last 11 years, which is over N3tn. They have added N2.2tn to that as profit, which shows that the money has been active.”
He says the pension funds are invested optimally and managed professionally by the PFAs.
Longe notes that the investment guidelines released by PenCom are broad and comprehensive enough to include assets that will make notable impact on the society.
According to him, the PFAs can be more venturesome in the asset classes that they develop and invest in.
“The CPS provides a very positive opportunity over the long-haul to improve the general wealth environment of the country,” he says.
He notes that the money is being managed in accordance with the guidelines so that when people retire, they can receive their pensions seamlessly.
“If you then decide that you are going to utilise that money to create projects that are not adequately thought out, rather than add to the money, it disappears or brings no return, you then have a problem,” he says.
He also notes that the increase is regularly reflected in the balance of the RSAs of the contributors to the scheme.
Recession
Since Nigeria’s economy plunged into a steep recession this year, there has been agitation that the funds should be used in some critical sectors in order to improve the living standards of the people.
Specifically, there have been increased requests that the funds should be used to solve the country’s infrastructural problems.
The Chief Executive Officer, RiskGuard Africa Nigeria Limited (Pension & Insurance), Mr. Yemi Soladoye, says pension funds are long-term funds and that part of the reasons for creating the pension scheme is to finance national development projects.
“As long as you can guarantee the safety and security of the funds, it is okay to borrow the government’s part of the funds, because that it part of the reasons why we generate long-term funds,” Soladoye says.
He also supports investing the bulk of the funds in government securities, stressing that it will be safe there as long as the country is safe for investment.
