The pension industry in Nigeria got its share of the impact of the Covid 19 pandemic as firms downsized in order to improve margins. Notwithstanding, some PFAS with shrewd management will deliver superior returns to contributors and stakeholders by year end. In this interview conducted by TELIAT SULE, the managing director of Crusader-sterling Pensions, ADENIYI FALADE, shared his experience on the developments in the out-going year and itemised what stakeholders should expect from the firm in 2021. Excerpt:
Kindly assess the pension industry in the world with respect to Nigeria’s pension industry. How far has the journey been?
The pension industry started in Year 2004. This makes it about 16 years journey. From negligible contribution to the Nigerian GDP in 2004, it now contributes over 7% with very huge potential to contribute more. The Nigerian pension industry is also a major employer of labour and a prime mover of the Nigerian financial market. To this end, it has been quite a remarkable successful journey and the future is still very bright. 9 million workers are already enrolled into the Contributory Pension Scheme. The plan is to add another 30 to 40 million via the Micropension Scheme over the next few years.
Countries like New Zealand, Canada, Australia and South Africa who have contributed to pension for much longer period than Nigeria also passed through similar experiences to Nigeria. The pension industry of these countries today contributes significantly to GDP of their countries as shown below:
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According to the above table, Nigeria and Ghana have the largest room for growth of contributors in their current pension schemes. Less than 15% of the recorded employed population are currently contributing to pension schemes. This demonstrates the large future potential of the Nigerian pension industry. (Courtesy: PWC).
The pensions industry regulator, PENCOM recently introduced the Retirement Savings Account ( RSA) Transfer System. What is your take on this policy and how do you think it will impact the pensions industry?
The transfer window has been long awaited and highly welcome. The foundation of the Contributory Pension System in Nigeria is rooted in empowering individual contributors since they now bear the investment risk. This is in contrast to the former Defined Contribution Scheme where the sponsors/ employers bore the investment risk and thus took most of the key investment decisions, including appointment of investment managers.
Because they bear the investment risk, it is imperative therefore, that contributors are allowed to make their choices of pension managers as well as their fund types. Multifunds were introduced few years ago for the same reason whilst the opening of the RSA Transfer System now, is just to complete the cycle of empowering the RSA contributors. This is exactly the way it was done in Chile and other countries that have adopted the Contributory Pension Scheme. Opening of the transfer window will engender healthy competition amongst industry operators and will bring improvement in service delivery, returns on funds under management and governance.
The CBN late in 2019 barred individuals and domestic non-bank financial institutions from participating in the primary and secondary open market operations. How has this policy affected the players in the pensions industry?
Federal Government’s securities are very important to the pension industry. Currently, over 60% of the industry pension funds are invested in this asset class. The policy on OMO bills created huge liquidity glut and dislocation in the financial market which in the absence of suitable matching assets have caused steep rise in prices of fixed income instruments and corresponding fall in yield. The net implication is that operators in the pension industry, just like asset managers in other sectors, are currently challenged to find suitable assets to deliver real returns for monthly remitted funds.
The desire of every pension fund manager is to deliver real returns on funds under management for contributors, i.e., returns in excess of inflation. This obviously is now a big challenge as there is a wide gap between inflation at 14.20% and risk-free rates (Yield on T-bills and bonds) currently at a rate of about 1.3%. Nevertheless, for us at CrusaderSterling Pensions, we are working very hard to earn real returns for our contributors. All hands are on deck to invest in other alternative asset classes and instruments.
Compliance by firms is measured by how regularly firms remit the contributions of their members. How has COVID 19 affected pension remittance in the last few months?
Pension remittances by companies often mirror the state of the economy. In a period of recession, compliance rate is naturally low. Expectedly, COVID-19 impacted pension remittances, especially since most companies could not operate at full capacity. Some companies actually shut down operations. Airlines and hospitality industries for example shut down during the lockdown period. Consequently, pension remittances were affected significantly during the lockdown period. The good news however is that, from our perspective at Crusadersterling Pensions, remittances have since recovered and arrears have been paid by most companies in default in the last few months.
In spite of the success recorded in the nation’s pension industry which now has assets running into trillion of naira, so many Nigerians are still not captured, how can the system be improved upon?
The total number of Nigerians captured in the Contributory Pension Scheme till date is about 9 million (in a country of estimated 85 million workers). This is because 70% of the Nigerian workforce are in the informal sector. These sets of workers in the informal sector could not fit into the Contributory Pension Scheme due to many reasons especially their irregularity in income and their preference for more flexible mode of withdrawals. Therefore, the industry introduced the Micropension Scheme designed and fitted for organisations in the informal sector with fewer workers and individuals with irregular income. The Micropension Plan also allows greater flexibility in payment withdrawal. Going forward, the consensus is that there is need for the Micropension Model to be slightly re-jigged into an incentive driven scheme to improve compliance and pension coverage levels.
There is therefore a lot more that stakeholders including government can do to sensitize and incentivize Nigerians towards full compliance with pension coverage laws.
Covid 19 affected many sectors of the Nigerian economy. How did pension industry players fare now that the year is about to end?
The pension industry is a service provider to all the sectors of the Nigerian economy. It is therefore a mirror image of the economy. Due to Covid-19, IMF has predicted that the Nigerian GDP will contract by 4.3% this year. Q3, 2020 GDP has already declined by 3.4%. Year 2020 expectedly therefore may not turn out as one of the best years for the pension industry in my view. The industry fundamentals however remain very strong and robust notwithstanding. The industry asset under management is over N11 trillion and its contribution to GDP is well over 7%.
What should stakeholders expect from your firm in 2021?
Crusadersterling Pensions is one of the leading Pension Fund Administrators. We were licensed to operate by PENCOM in year 2005 and have grown our customer base and asset under management significantly since then. Our vision is to be the preferred PFA with the highest customer base whilst delivering superior returns to stakeholders. Our mission is to create wealth for retirement and deliver superior returns to stakeholders and we rate ourselves very highly on governance compliance. We are very customer centric and have deployed many digital channels for superior customer service delivery.
We operate in all states of the federation and have dedicated account officers to all customers. Our clientele list boasts of contributors from blue- chip companies in oil & gas, banking, fintech, manufacturing and the Public sector. In 2021, our plan is to leverage our cutting edge to deliver on our mission and vision.
