The Nigerian pension industry has grown geometrically since the sector was reformed in the last decade as the industry now worth over N8 trillion. Following the nomination of Zenith Pensions Custodian for the Pensions Custodian of the Year 2017, TELIAT ABIODUN SULE and KELVIN AMADIN UMWENI, both of BusinessDay Research and Intelligence Unit (BRIU), engaged NKEM ONI-EGBOMA, managing director, Zenith Pensions Custodian who shared her experience with BusinessDay analysts on how her institution posted stellar performance in 2017. Excerpts:
The pension industry has come a long way as it is now worth over N8 trillion. Could you please give us the general overview of the pension industry in Nigeria in the last few years?
Pension industry in Nigeria witnessed a rebirth in 2004 following the enactment of Pension Reform Act (PRA) of 2004. It was a total shift from the old unfunded Defined Benefit (DB) scheme to Contributory Pension Scheme (CPS). Nigeria adopted a hybrid of Chilean model and instituted PFA, PFC, CPFA and also AES to be managed by PFAs. The business was novel however, there was quite a number of teething issues and also getting the public to understand and appreciate the difference in the new scheme and ultimately the public acceptance. In spite of the challenges the formidable regulatory requirements instituted from inception helped build a solid structure for the industry which has enable it stand the test of time. The industry experienced steady and rapid growth in both the coverage and funds under custody to enviable Assets under custody of N8.3t today. This is a success story.
The Pension industry as at today has been a major source of long-term pool of funds for improved capital formation in the Nigerian economy. As earlier mentioned with the total Assets of over N8.3 trillion , this will assist in funding long-term investments in the country for Instance in the area of funding infrastructural deficit currently experienced in the country. It might interest you to know that out of the N8.3t total assets in the industry today our ( Zenith Pensions Custodian) share is about 40 percent (over N3.3 trillion). What has helped us to achieve this outstanding performance and remain focused is our service quality, investment in human capital, IT and sound corporate governance. With premium placed on corporate governance and compliance with the regulations no infraction has recorded against us since inception.
Do you mean no penalty was paid to PENCOM in 2017?
No, none.
What is the percentage of women on your board?
I would say it is about 50 per cent. We are seven (7) on the board and we have four (4) females and three (3) males.
Earlier this year, BusinessDay carried a report that PENCOM imposed certain fines on PFAs for not giving clients adequate returns. PENCOM found it so exploitative and imposed some fines on certain players. Between then and now, what has actually changed in the ways either PFAs or PFCs treat their clients?
Though PFCs were not affected however, the grouse was on level of returns on invested Pension Assets and PFAs generally reviewed their investment strategies to up their game while having safety of the assets as the primary concern hence, strictly adhering to the PenCom investment guidelines; PFAs skewed their investments towards investment with higher returns and also tactically and strategically moved between investments to take advantage of uptrend in the returns of certain investment classes while diverting from those with lower yields. Another strategy was to manage the tenor of some of their investments to create opportunity for pre-liquidation when the opportunities arise. Also, there is lock-in strategy on high yields investments for a longer period. Lastly, PFAs also enhanced their cash management policy to avoid idle cash and that all funds are put into good use promptly.
The pension industry is highly regulated just like banks. From time to time, you can invest in this, you cannot invest in that. What kind of impact has regulation had on your activities/operations?
The impact has largely been positive. A great pointer to this was the 2007 – 2009 global financial crises, the impact in the industry was almost insignificant because of the minimal exposure of the Pension assets to capital market and any other volatile asset classes such as alternative investments. On the flip side some of the PFAs investments were dominated by government securities (T/B and Bonds) as they have exhausted other asset classs investment limit. Hence, this was the need for the expansion of the investment scope. Nevertheless, without doubt the high level of regulation and controls in the industry need to be sustained considering past experience.
We noticed in your financials that operating income increased by 54 per cent. What strategy can you say was responsible for this massive growth?
Total Pension Assets under your custody as a Pension Custodian drives your total operating income. Hence, the significant growth of the total assets under our custody accounted for the rapid growth in our income. It has been basically hard work especially in the area of retention and growing of existing clients and businesses and also bringing in new businesses on board. Our mutually beneficial strategic partnership with our highly valued customers helped to grow and more business to our clients means more business to us .Also, the window that was opened recently for Pension Custodian to manage the custody of Annuity Pension Funds was tactically explored by us in our usual style. We go for the crème-de-le-crème and give them the best customer service so that they cannot think of switching.
Pension assets are either in the capital market or money market. The capital market is unimpressive year to date. What unique strategy are you putting in place so that by year end, you will record a stellar performance as the one you posted in 2017?
Well, if you look at the dynamics of Pension Industry in Nigeria the responsibility of taking investment decisions lie with the PFAs. However, a high percentage of Pension funds are still in Government Securities (Bonds and TBills). Most PFAs have grounded research units that consistently analyse various markets to guide their organisation on where to pitch their tents in line with the projections based on basic fundamentals. Our partners (clients) have the capacity to achieve and sustain good returns on funds they manage and we (in conjunction ) with our parent bank collaborate with them in terms of offering timely market information and strategic synergy where required. The success of our customers is our success.
The pension industry at N8.3 trillion is huge but we still understand that so many state governments are not compliant. The public sector is also big of which most players there are not compliant. State governments haven’t keyed into that scheme. So what strategies are players putting in place to attract the public and informal sectors to the scheme so that the full potential of the industry can be unlocked?
In line with your segmentation, the regulators are in constant engagement with the law makers and appropriate authorities for compliance and continuity as some agencies/parastatals started but stopped paying. There is also a direct engagement of the various state governments by the PenCom and recently PenCom published in the national dailies the level of compliance by all states. Operators (PFAs) are also aggressively engaging some of these state governments and offering to take them through the training process. Some states started but latter stopped remittance as well.
PenCom strategy of the use of recovery agents also had its positive impact on the progress recorded in formal sector. The upcoming Micro-Pension is targeted at the informal sector and going by EFIna- report the target is an immediate 25.1m banked individuals and an ultimate size of 63.4m adult population.
What about the states that don’t have difficulty paying salaries only that when they deduct, they don’t remit? Is it not possible for PFAs and PFCs to put in place schemes that will make governments remit timely?
The industry at various level will engage such states. It is actually unethical to deduct people’s Pension Contribution and fail to remit. Depending on their responses, level of engagement will be exploited in following due process until we are able to achieve our desired result.
