The revised fee structure by the National Pension Commission (PENCOM) which pension operators will charge funds under management is seen by analysts as a positive move for the industry.
Five analysts surveyed by BusinessDay expect the reduced fees structure to move Nigeria’s pension industry towards cost efficiency level, optimization of income of asset under management (AuM) and increase the return on the pension assets.
Johnson Chukwu, MD of Cowry Asset said it is an inevitable direction the industry has to go because at some point every industry will go towards cost optimization.
“It is a good move for the industry; the industry has to move towards cost efficiency level and optimization of income of asset under management. The industry has actually increased materially, so at this point, as the income per naira of asset under management is going down operators have to compensate for it by increasing or expanding their asset under management,”Chukwu said in a phone response.
The opinion of Ayo Akinwunmi, Head of Research at FSDH Merchant Bank was not different as he said the reduction in the fees that the pension operators will charge the fund under management is positive for the industry.
“The pension assets have grown substantially since inception to justify the reduction in the fees. I also believe that the pension assets will continue to grow into the future. Thus the income the pension operators will earn should increase with higher level of pension assets,” Akinwunmi told BusinessDay in a mail response.
The fee structure for Nigeria pension industry was revised by the National Pension Commission (PENCOM), and it is valid for the period between 2018-2020, as compiled from the commission’s statement, released on Thursday, 21 June 2018.
The revised fee structure which will be effective from 1st of July, 2018 cover charges by the commission, Pension Fund Administrators (PFAs), Pension Fund Custodian (PFCs) and the commission itself.
According to BusinessDay survey, the 2018 new fee structure follows the last revised fee by the commission in March 2009.
PENCOM is the regulator of the Nigeria pension industry while the Pension Fund Administrators (PFAs) are responsible for obtaining funds from contributors and investing them. Pension Fund Custodians (PFC) on the other hand are concerned with the safekeeping of the funds and assets.
Bismark Rewane, MD of economics consulting firm Financial Derivatives Company (FDC) thinks the revised fee structure is a good move and as such gave it his okay.
On the impact it will have on the industry he said “it will make it to grow, the most important thing is that asset under management ought to grow. It has been relatively flat which was mainly as a result of recession,” Rewane said.
An analyst who asked not be quoted said the reduction in the fees charged on asset will also increase the return on the pension assets, with all things being equal, which will encourage more companies, state governments and individuals to join the pension scheme and ultimately, the pension contributors and the lager economy will benefit.
Another expert in the industry said in the first place, the pension industry operators have to move towards increasing their asset under management for retirement saving accounts particularly.
“Because it can been seen clearly from the revised fee that there has been a decrease in the percentage they charge for managing their asset management but I think the reduction in the percentage charged can also be complemented by the expected increase in volume.
“The industry is gradually going to move toward efficiency because that would be the competitive landscape, once the window for profitability is opened, once the transfer window is opened, at that point cost efficiency and income maximization will be attained,” the expert who asked to be quoted anonymously said.
A breakdown of the new fee structure showed it was divided into four different fund segments.
Fund one is an optional fund, which means interested contributors, must write to take part in it. Fund two and three are the default fund for contributors aged 49 and below, and aged 50 and above respectively. The fund four is for retirees, as stated by PENCOM.
The total fees for fund one are 2.25 percent comprising PFAs at 1.6 percent, PFCs at 0.40 percent and PENCOM at 0.25 percent. The estimated fees for 2019 will drop marginally to 2.025 percent, consisting of PFAs at 1.5 percent, PFCs at 0.30 percent and PENCOM at 0.225 percent.
For the second fun which will be effective from 1st July 2018, a total of 1.925 percent will be charged consisting 1.4 percent for PFAs, 0.3 percent for PFCs and PENCOM will be charged 0.225percent.
While from next year a total of 1.79 percent will be charged comprising 1.3 percent for PFAs, 0.275 percent for PFCs and 0.215 percent for PENCOM. For the following year, a total of 1.65 percent will be charged by all parties comprising 1.2 percent by PFAs, 0.25 percent by PFCs and 0.2 percent by PENCOM.
For the third fund effect from the same period under review, a total of 1.8percent will be charged, comprising of 1.3 for PFAs, 0.275percent for PFCs and 0.225 percent by PENCOM.
While in 2019, a total of 1.65percent will be charged comprising 1.2 percent for PFAs, 0.25percent for PFCs, and 0.20 percent for PENCOM. In 2020 1.5 percent comprising 1.1 percent for PFAs, 0.225 percent for PFCs and 0.175 percent for PENCOM will be charged.
For fund four which will also be effective from July 2018, 7.5 percent will be charged comprising 5 percent by the PFA’s, 1.5 percent by the PFCs and 1 percent by PENCOM.
Meanwhile the Fees for 2019 and 2020 were not disclosed.
The fees charged on Funds I, II and III are said to asset-based fees while those charged on Fund IV are income based fees.
The new revised fee structure also showed that for closed PFAs, a maximum total rate of 1.1 percent can be charged comprising 0.80 percent by the CPFA/PFA, 0.20 percent by the PFC and 0.1 percent by PENCOM. A closed PFA cannot receive funds from contributors other than employees of its parent organization.
While for Approved Existing Schemes (AES)/Retirement Gratuity Funds, a total of 7.5 percent can be charged. This comprises 5 percent by the PFA, 1.5 percent by the PFC, and 1 percent by PENCOM.
“At some point, as an industry is evolving the benefit of that growth in the industry must also be appropriated by every stakeholder including the customers. In this instant the reduced charges will allow the customers of the PFAs, the retirement account holders to enjoy part of the benefit of the science the industry has achieved, that is lower average cost,” Chukwu of Cowry Asset limited concluded.
