You probably imagine your pension contribution as a pot of treasure waiting for you at the end of your career. You could have dreams of sunny beaches, playing on a golf course or taking a long vacation or you just want to see new places in the world. But being told stories about your pension probably hasn’t crossed your mind yet – well until now. We are not saying that it will happen, but what if there is a possibility that it might?
The economy of Nigeria and many countries is in bad shape at the moment. Being in bad shape means government will seek for an alternative source of financing its expenditure. A good alternative revenue sources gives hope of reviving the economy and putting it back on the track to prosperity. That’s where your pension money comes in.
According to a recent record of the National \Pension Commission, PenCom, the pension assets under the Contributory Pension Scheme stood at about N5 trillion. That is nearly the total budget of the country in 2016, which means if the government was to invest the money in the budget, the country will most likely not have need to borrow money to make up for the deficit in the budget.
But the government cannot, because your pension is being handled by the Pension Fund Administrators, PFAs., according to Taiwo Oyedele Partner/Head of Tax & Regulatory Services at PricewaterhouseCoopers.
It doesn’t mean they are not thinking about it. At a summit, a minister of the federation suggested that the N5 trillion pension funds can be put to better use if they are invested in providing infrastructures like road, railway and waterways construction. The dilemma is, in the effort to provide infrastructure for the public, government officials often divert the funds and in the end pension money cannot be accounted for.
How do PFAs ensure your contributions are kept safe? Oyedele explained that “PFAs are regulated under the Pension Reform Act. The regulation on investment released by PenCom defines the objective of investing these funds as a way of ensuring safety and maintenance of fair returns. It also provides that pension fund assets can be invested in infrastructure projects through eligible bonds and debt securities provided certain requirements are satisfied.”
“These include but not limited to projects awarded through a transparent and open bidding process to a concessionaire with a good track record to manage, in accordance with due process requirement of the Public Private Partnership Policy as certified by the Infrastructure Concession and Regulatory Commission and must be approved by the Federal Executive Council and of the core infrastructure such as railway, toll roads, ports and so on that are approved by PenCom.”
“Such assets if properly managed can yield long term and predictable revenue stream that match the long term liability of a pension fund covering the same period which makes it a wise decision to invest. Also such infrastructure investment must be closely regulated and often have a monopoly with the society meaning that competition risks are reduced, making them more attractive to pension funds.”
Pension funds become susceptible to mismanagement in situations where there is poor compliance and weak enforcement – especially as it relates to the public sector. Most states are not fully compliant and where they are, the contributions are usually not remitted as at when due. Corruption is inevitable when there is non-regular monitoring to ensure that employers remit timely all deductions and contributions due under the law. In the same vein, a system that lacks “effective controls to avoid errors and un-reconciled amounts in the process of remittance to the custodians and administrators, poor data and insufficient information about contributors and regular reconciliations of retirement savings accounts,” Oyedele said.
The role of protecting pension fund investment is however not exclusive to PFAs. The government and you are active stakeholders therefore has a role to play in protecting it. Oyedele suggest that the government should strictly enforce compliance in its agencies and regularly monitor across the board both private and public sector contributors. PenCom can also leverage on technology to become more effective and importantly, proactive in identifying and addressing the loopholes in the law or regulations.
Good record keeping of your contributions is one way you can protect your pension. Your records provides evidence should the need arise. Also ensure that you get regular reports from your PFAs that clearly show contributions and returns on investments. That your pension contributions are accounted for is not enough, there should be returns as a result of investments. Demand for it. Do not hesitate to seek clarifications for any discrepancies you observed. You can either take it up with your employer or the PFAs and if unresolved promptly notify PenCom.
Frank Eleanya
