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The Pension Industry and the Nigerian Economy

The pension industry in Nigeria has evolved over the years.  Currently, it is an interesting time in the industry with the commencement of the Transfer Window. This act will positively impact on the industry and redefine the perception of pension among the public.

In this interview, Eric Fajemisin, Chief Executive, Stanbic IBTC Pension Managers Limited examines Nigeria’s pension industry, growth and challenges, its impact on the economy and shares insight on the way forward.

1. With your many years of experience in the Pension Industry, in what areas do you think the pension industry has contributed to the growth of the Nigerian economy and what significant initiatives is the industry planning to implement in the future to boost economic growth in the country?

The pension industry has contributed to boosting economic growth through the provision of long term capital which is made available to both the government (in the form of bonds and Sukuk for deployment to catalyse growth in various areas of the economy) and companies (through both equity and debt capital) for their growth and expansion plans. The pension industry has also supported the economy through the procurement of some of the services used as inputs from established companies and SMEs in the process of creating value for RSA contributors.

These activities create jobs indirectly beyond the direct jobs created by Pension Fund Administrators (PFAs) when they recruit employees and agents. Furthermore, the industry contributes to the reduction of old age poverty as we invest and pay retirees regularly when they are unable to work actively. This has also made commendable efforts in the transparent management of pension savings, thereby ensuring prompt payments to boost consumer demand, improve the standard of living and overall longevity.

The success of the pension industry has also benefited the insurance sector, which is now able to sell annuities to retirees. Annuities have been one of the fastest growing areas of the insurance sector in recent years and is hinged on the success of the Contributory Pension Scheme (CPS).

The industry has remained at the forefront of driving advocacy by pushing for strong corporate governance standards as this has the capacity to  mobilise additional foreign and local investments.

It is important to note that economic growth in any country is usually driven by the policy choices and reforms adopted by the government to achieve its macroeconomic objectives. A conducive macroeconomic environment usually attracts capital for growth.

In addition to some of the contributions noted above, the industry and the regulator (National Pension Commission), are working on several additional initiatives to boost confidence in the pension system while being mindful of our fiduciary responsibilities.  These initiatives include potentially developing affordable housing solutions for RSA contributors and appropriate governance and framework to support the increased allocation of pension funds to infrastructure investment.

2. What is your assessment of the pension industry in Nigeria in the last ten years, and what opportunities do you see?

Currently, the pension industry accounts for about 6.5% of GDP which is in stark contrast to more developed economies where the pension assets account for over 87% of GDP (in the US, UK and Switzerland). We must nevertheless acknowledge that the industry has achieved significant milestones, mainly attributable to exemplary regulatory oversight, desire to deliver quality pension service to contributors and transparency of the operators due to the robust structure of the contributory scheme with the inherent checks and balances built into it.

A massive win is the stability and reliability in the payment of pensions to retirees as opposed to issues such as lack of transparency, non-payment of pension, the bureaucracy that existed prior to the passage of the original Pension Reform Act (PRA) in 2004 and the establishment of the Contributory Pension Scheme (CPS).  Contributors now receive periodic statements. Retirees are paid their monthly pensions regularly and promptly and contributors have 24/7 access to their PFAs to resolve complaints.

Pension assets also constitute the largest pool of institutional assets in Nigeria at over N11trn, which also serves as a catalyst for other forms of foreign capital and portfolio flows to Nigeria. There are also opportunities to expand the coverage of the CPS beyond the formal sector, and the introduction of the Micro-Pension fund is geared towards achieving this. Currently, there are only about 9.1 million contributors to the scheme, some of which are already drawing pensions. This is relatively modest when compared to the labour force of the country, which is estimated at 80 million. So, while the industry has recorded commendable growth, there are still critical areas of development, and by extension, lots of room for expansion and improvement which we continue to drive and expect to yield fruits in the future. 

We are also of the opinion that with the right incentives, framework and collaboration, the opportunity for pension funds to invest in infrastructure can be enhanced. This can act as a catalyst to grow associated sectors as more funds would be available to execute projects and drive business growth.

3. Can you give us insights into how Stanbic IBTC Pension Managers Limited has been fostering awareness for pensions, especially the voluntary contributions?

Stanbic IBTC Pension Managers Limited (SIPML) has been fostering pension awareness through its various public enlightenment campaigns. We segment our target audience and apply the appropriate engagement tools and techniques for different segments.

Our focus is on creating value-adding activities and customised communications fit for focus segments. Pension awareness, as well as voluntary contribution drive, are targeted at all segments using the following engagement tools, amongst others:

  • Marketing Campaigns – comprising adverts and publications
  • Digital engagements on social media and digital conferencing tools
  • Pension newsletters
  • Customer fora – retire well sessions
  • Signature events – employer fora, pre-retirement seminars, etc.
  • Micro-pension campaigns
  • Pension on Wheels mobile touch point

4. What are some of the technology innovative tools that the pension industry has put to good use since this era of adapting to the new normal?

Given that the pandemic required some restrictions and physical distancing, the pension industry explored the use of technology to continue collaboration and service to clients. Some technology platforms that have been more actively used during the new normal are Microsoft Teams, Zoom etc.

Furthermore, the industry moved to make it easier for account holders to complete the mandatory data recapture exercise required by the regulator electronically; hence they could fill out the required forms online and were able to submit alongside relevant supporting documents. Customers’ benefit applications that were hitherto processed and sent in hardcopy format to the regulator for approval are being sent via a dedicated email account now, thus ensuring continuous processing of benefit applications.

Clients have adapted to the new normal, embracing the use of the digital channels to keep in touch and deal with service requests. For instance, some of the channels deployed by Stanbic IBTC Pension Managers Limited to improve the experience of our clients include the use of Mobile App, Short Code SMS, Online Portals, Live Chat, Social Media platforms and email. Clients have embraced these portals which enable us to continue serving them amid the new ways of working.

In addition, we deployed an online PRE-BOOKING portal to improve our customer experience further. On this portal, clients can choose when they want to visit physical offices and the type of service they require. In addition, we revamped our online RSA registration portal to enable more seamless digital onboarding of customers. Customers can initiate and complete their registration online with ease.

5. The impact of COVID-19 has drastically changed the way things and businesses are done. How is Stanbic IBTC Pension Managers positioning itself to get used to the new norms in the business environment?

COVID-19 has changed the way we do business. As a Pension Fund Administrator, the performance of the Nigerian economy and businesses have severe implications on our business. The lockdown put restrictions on movements and business activities as some companies were laying off staff and introducing pay-cuts. The unusual decline in crude oil price in the month of March and April resulted in few retrenchments in some related industries, which by extension naturally impacted pension contributions for the affected clients.

The uncertainty created by the pandemic required significant support from both the monetary and fiscal policy authorities; as a consequence of these interventions to support the economy, we witnessed significant decline in the yields of fixed income securities.

On the other hand, there has been a significant recovery in the equities market after it declined by 20.65% in Q1 2020; the low yield environment has driven the prices of equities higher with the NSE ASI returning 13.74% on a year-to-date basis as at 31 October 2020.  We have, therefore, continued to position pension funds under our management optimally so to achieve the objectives of our clients.  

In terms of client engagements, we are adopting digital channels for most of our client meetings. All our planned events are being deployed digitally. Registration of new clients, as well as the regulatory requirements to administer data recapture to existing clients, are dealt online. Our employees are advised to observe the required COVID-19 safety protocols while prospecting and closing out new businesses.

6. What has been the reactions of Nigerians to pension schemes recently, following the advent of the COVID-19 pandemic?

The few weeks of COVID-19 lockdown presented a typical scenario of life after active service to most Nigerians. A lot of people relied on their savings to survive within the period of lockdown, which could be related to the essence of the pension scheme.

Some businesses in the informal and formal sector that are yet to adopt the contributory pension scheme are beginning to rethink the need for a pension plan for their employees following COVID-19 lockdown experience, while some existing clients now fully appreciate the benefit of voluntary contributions and how it will impact their lives in retirement. Consequently, we have seen a few clients electing to commence voluntary contributions.

7. What has been the impact of government policies on the industry? Have government interventions been positive or otherwise?

The pension industry, as a part of the Nigerian economy, will always be impacted by government policies. In some instances, the policies have led to a further paucity of investment vehicles for funds being managed by Pension Fund Administrators (PFAs); increasing liquidity, driving returns downward and introducing greater reinvestment risk into the industry.

In other instances, the policies have been beneficial; such as the requirement for the submission of certificates of compliance with the provisions of the Pension Reform Act (PRA) 2014 to qualify for the award of government contracts which has had the effect of driving compliance with the Act.

As this is an evolving industry, constant engagement with government and regulatory agencies is key to ensuring that the scheme continues to deliver on its promise now and in the long term.

8. What are the major challenges in the pension industry? What do you think the regulatory agencies should do to ameliorate the challenges in the industry?

We believe that there is a need to incentivise the adoption of the pension scheme to encourage the populace to subscribe to the scheme. The PRA 2014 allows for contributors to access 25% of the funds in the RSA as equity contribution for a residential mortgage. However, this provision in the law is not yet operational. Our savings culture in the country is poor compared to other economies and anything that would encourage greater savings, especially towards old age, should be on the front burner for the industry.

Also, there may be a need to review the documentation requirements and the framework for accessing funds in the RSA. The current regulations in this regard were developed at the inception of the scheme and do not necessarily take into cognisance recent developments as a result of improved technology and the establishment of identity databases. There is also the need to enhance the diversification of the investments to hedge against the risk of devaluation and inflation. 

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