It is 4pm on a rainy Friday evening in Victoria Island, a bustling metropolis where the bulk of Nigeria’s wealth is managed through the financial institutions situated there. It’s really grey, the streets look flooded and the noise from the vehicle horns outside could trigger a migraine. My mobile phone suddenly vibrates to announce the arrival of a text message. I review, it’s a message from my Nigerian pension fund administrator reminding me of my pension account balance and showing the latest month’s contribution paid by my employer. Great! Thanks for that, I whisper under my breath. I DON GET ALERT, but GOD NO WIN here!
The expression “I don get alert, God win” is the title of a popular Nigerian song and a colloquial term to express great joy when there is an inflow of funds into the recipient’s bank account. It’s a Broken English or Pidgin English term meaning “I have received an account credit notification from my bank, God has done it”. The text message I received wasn’t really a cause for celebration on that Friday; it only made me pause and ponder for a few minutes on the state of the pension industry.
Here is why I wasn’t so delighted at the message received; in an academic paper earlier published in 2015 on pension’s returns, I expressed some concern about the negative real returns Nigerian workers received over an eight-year period from the contributory pension scheme introduced in 2004. In effect, over an eight-year period, the Nigerian workers paid fees to see the real value of their pensions decline.
There is something peculiar about the Nigerian scheme. Within the regulations guiding the pension industry in Nigeria is a requirement by the regulator to the fund administrators to take reasonable care in the management of pension funds and act in the best interest of their account holders. What exactly does that mean, take “reasonable care”? The regulator also created a number of restrictive guidelines instructing fund administrators on what constitutes a good investment for pension funds. In effect the regulator is also the fund manager. This unusual arrangement is not new in Nigeria; the Nigerian securities regulator in its infancy was charged with determining the price of initial public offers under the assumption that the investing public needed protection.
According to the World Bank, Nigeria is a lower middle income country with estimated gross national income per capita of $5,700 in 2015. Pension assets at retirement are of paramount interest to all workers and factors leading to reduction in terminal wealth or available assets at retirement need to be addressed adequately. The Nigerian pension industry is guided by the pension regulator (“Pencom”) empowered in 2004 to oversee the implementation and management of the contributory pension scheme in Nigeria. As at 2014, there were over 6 million contributors with over $25bn in assets under management. Nigeria has a population of over 177 million people.
Meaningful reform of the industry is due and provides a great deal of opportunity for participants and observers. Here is a not-so-radical idea: the regulator should cease acting as the fund manager! The performance of the scheme from a returns perspective shows that the government agency might not be best suited for this very important role. Secondly, there is certainly a need for an influx of new money managers with fresh ideas on how best to grow pension funds beyond investing in government-issued securities. The first index mutual fund situated in Nigeria was only created in 2014. It’s easy to infer from the lateness of such an instrument that the best industry knowledge for returns maximization isn’t being adequately deployed or utilized within the Nigerian money management industry.
Another important reform point is letting the contributors choose the financial instruments they like and how they get it out of the system. A 35-year-old worker in Nigeria should be able to apply his savings to a new toll bridge project or fund debt requirements of a small entrepreneur and benefit from the returns these ventures generate. The existing structure, whilst good for gathering assets, is unlikely to help preserve and grow the assets provided by contributors who will retire in a few years.
There is a need for robust reform in the management of pension funds in Nigeria beyond various proposals being mulled by industry participants. The pension industry in its current form may not deliver real benefits to the workers nor utilize the savings for the development of the country. Like other savvy savers, I am not going to be shouting “God win!” until there is meaningful change and well thought-out reform backed by research and best practice. It’s time to banish mediocrity from Nigerian pension management.
Dayo Oduwole
