Inflation, unemployment, retrenchment, and Naira depreciation have conspired to put pressure the Nigerian pension industry, whose net asset value has grown to N6 trillion in nominal terms as at November 30, 2016, a 13 per cent increase from 5.3 trillion levels in 2015.
Inflation-adjusted growth for the pension asset within the period was only 5 per cent as the consumer price index that measures inflation moved from 9.6 per cent year-on-year in December 2015 to 18.55 per cent in December 2016.
177,000 employees were reported to have lost their jobs as at September 2016; these people removed up to N49.55 billion from pension fund asset as 25 per cent maximum withdrawals allowed by the Pension Reforms Act 2014 (the Act), further constraining the growth of industry assets. More people lost their jobs in the last quarter of 2016 as Nigeria’s output shrank and companies attempted to remain afloat in the face of plummeting income.
“You will begin to see the effects of people who lost their jobs in the last quarter of last year by the by the beginning of the second quarter of this year. It is usually a 4-month cycle from the time an employee loses a job and the time he/she can access the 25 per cent,” said Eguarekhide Longe, Chairman of the Pencom Operators of Nigeria (PENOP), a professional umbrella of all operators in the pension industry of Africa’s biggest economy.
In a telephone conversation with BusinessDay, Longe, who is also the Managing Director and Chief Executive Officer of AIICO Pension Managers Limited, said that the eroding effect of lost jobs on the industry is counterbalanced by new contributions to the system which sustains the growth in the value of the assets.
The value of industry assets dropped by 7 billion dollars between December 2015 and December 2016 as the pressure on the country’s Naira worsened. The Naira lost depreciated from N197/$ in December 2015 to N305/$ in December 2016, causing pension assets’ value to shrink from $27 billion (N5.3 trillion) to $20 billion (6.0 trillion) within the period.
Longe said that employers are not sufficiently complying with the Act. He said that the compliance level of employers is less than 60 per cent for varied reasons.
He said that tax evasion moves by companies is a factor that leads to non-compliance. As Companies seek to evade tax, they do not declare the true number of staff they have on their payroll; they do not remit the correct pension contributions and this reduces the growth of the assets.
“A lot is being done to correct this. Recovery agents have being engaged by PENCOM and people are being made to pay when they are caught. But there is a limit to which you can enforce it.”
With the pension industry’s strategic objective of covering 30 per cent of the working population in Nigeria under the CPS by the end of 2024, it is intensifying efforts to extend coverage to the above segment of the country’s economy given that workers in this category constitute the larger percentage of Nigeria’s working population.
INNOCENT UNAH
