…Pension Assets grows to N5.8 trillion
By Nse Anthony-Uko
The National Pension Commission (PenCom) has announced that “one of the pension fund industry strategic goals is that by 2019, 40 per cent of pension funds assets will be invested in the various types of infrastructure and housing.
Pension assets in Nigeria have appreciated in valued to N5.8 trillion as at July 2016, from N5.3 trillion in February this year. This value of assets now currently stands as the largest and only available pool of patient capital to be used to fund infrastructure development in Nigeria.
Currently the regulation says 15 per cent of pension fund assets can be invested in an infrastructure bond.”
This disclosure was made by Mr Ehimeme Ohioma, Head, Investment Supervision Department of the National Pension Commission (PenCom) at the Finance Correspondents Association of Nigeria (FICAN) 2016 conference on Tuesday in Abuja where he spoke on ‘Using pension funds for infrastructural development to enhance growth’.
“We want to see visible projects being developed with the utilization of pension fund but we will not compromise on safety of these funds in doing that but that’s our target,” he said.
The PenCom chief also disclosed that the commission is about to commence of enforcement of pension contribution from employers. He revealed that the PenCom director-general has met with the Economic and Financial Crimes Commission (EFCC) boss to clamp down on defaulting contributors.
According to Ohioma, ”we have the records of media houses and quoted companies, it will be publicly done with a name and shame agenda and prosecution because you are denying people their life long benefits.”
Speaking on the performance of private recovery agents that were engaged to recover pension funds from defaulting contributors, Ohioma stated that ”so far about N9 billion or close to N10 billion have been recovered from companies that deducted but have not remitted it’s an ongoing exercise insolvent companies that cannot pay salaries so cannot pay pension are separated from companies that are still running, made deductions and have not remitted that’s the criminal part to it.”
According to Ohioma, Nigeria will adopt the indirect way of investment in utilizing pension funds to develop infrastructure. This he said is “because of our level of development.”
Ohioma noted that “because we are still in the developmental stages we can only invest indirectly through instruments, so if a road or rail project is going to be built, the financial instrument that will finance that infrastructure will be developed in the financial market or through issues. For pension funds to invest in that fund the proceeds will now be used for that road or infrastructure.
Ohioma revealed that PenCom is “coming with a multi structure investment fund awaiting the approval of President Muhammadu Buhari where people will invest according to their risk capital according to age bracket.”
In his words “if you are starting work now with 30 more years to work, you shouldn’t be investing in money market or short term investments you should be doing long term investments because of the issue of inflation; if you’re close to retirement you don’t want to take risks you want interests coming into your account in interest bearing instruments.”
PenCom he said has almost finalised guidelines for the commencement of micro pension. What is left he noted is execution. Micro pension is for people in the informal sector to key into the pension scheme, “they can open their own accounts and start saving, it would be like regular employment, you alone will decide how much you will be saving everyday, it could be N50 or N100 daily and you don’t necessarily have to go to a bank to do that, from your mobile phone you can make remittances into your account.”
Very soon the commission, he said would be coming “up with details and a lot of adverts sensitization and education that is almost being finalized. It will be better invested by skilled professionals as compared to going to dump it in a bank or with one individual.”
A department, he added “has been created in the commission to do that, the micro pension department, they are working seriously, that is the most staffed department in the commission.”
He noted that 70% of the work force in developing countries are in the informal sectors with the World Bank saying “we have a working population of about 60 million but we have roughly 7 million registered pension contributors so we are asking where are the other 50 million they are in the informal sector and that is where we are paying attention to now because if you exclude those population, the problem of poverty we are trying to solve will be a drop in the ocean because they need to provide for their future.”
Ohioma highlighted the challenges in using pension funds to develop infrastructure to include: availability of investment products since pension funds can only be used to fund infrastructure if bonds are issued for the project.
To this end, what PenCom expects “to see are the state governments wanting to develop road, rail or housing to issue well structured bonds to finance that project and not only pension funds other institutional investors such as insurance companies banks and investment banks invest in that fund so availability of investment products is one of the challenges we have in terms of pension fund investment in infrastructure.”
Another challenge he noted “is political risk, especially in Africa that is very prevalent, political inconsistency, lack of continuity one government leaves after four years another one takes over and doesn’t want to give glory to an ongoing project that was started by the previous administration and it becomes abandoned yet people have invested in that project, that’s another challenge in investing pension funds in infrastructure.”
Another challenge is liquidity risk, “infrastructure projects are very illiquid they’re there for a very long time and you cannot sell off a portion like you can do with your shares. For infrastructure you cannot sell off one square meter of road that has been constructed. So it has to be the full road so there is the issue of liquidity risk. If you invest money it has to be long term for such projects to be viable and generate steady returns.”