A lot could be said about pension in Nigeria, with a working labour force of about 69million people according to NBS and about 7million pension accounts, less than 11% of the labour force has a pension plan for retirement, there was an 18% increase in pension membership from 2014 to 2017. Some of the issues are:
· People are not enlightened as to their right to a pension plan;
· Small businesses have the perception that it is not for them even when they have above 15 employees which is the pension act threshold;
· Some employers would rather not accumulate the extra cost;
· For some even when all the policies and procedures are in place, the pension funds are not remitted by the company.
A large proportion of the population remains inadequately covered by the pension system which creates a situation where the future generation which is currently largely unskilled and undereducated might be burdened with providing for the older generation, whereby limited funds that could be used for other resources are used to take care of family members.
Although there could be conversations about the possibility of pension being able to fund individuals for 2 to 3 decades after retirement especially taking into consideration the time value of money but it goes a long way to providing a safety net for life after retirement.
There have been gaps in the implementation of pension in Nigeria for example previously public service had a Defined Benefits Scheme i.e. the payment of retirement benefits were budgeted annually by the government, it created a situation whereby employees’ the pension was one of the most vulnerable items on the budget because it could probably be the first on to get off the list when there is any funding issue and because the scheme was usually not funded there was no accumulation of investment income, poor management and lack of database also made the issue worse.
It might also have been said that the lack of a proper pension scheme may have contributed to corruption in civil service as people were not guaranteed a safety net after retirement, there are also issues of funds being sent to the pension fund custodian without proper schedule as to which employees they should be allocated to so the funds were basically hanging. In the private sector as well, issues of employers not remitting the funds periodically and as they piled up it becomes difficult to close the gap.
The above might have been because they did not feel they would be penalized, even when it is said to be mandatory for employers to remit or they pay a penalty of 2% on the fund to be remitted, although in recent times there have been efforts made by PENCOM to penalize companies, as at April 2018 it was reported that employers have been forced to pay penalties amounting to over N6 billion that was deducted for employees’ pension, failed to remit same to their respective employees Retirement Savings Accounts (RSA) this is a head start but there are still a lot of organizations that are yet to remit their employees’ funds.
The majority of the pension accounts are individuals within the age bracket 30–49 with 66% of total pension accounts. In a country where over half of the population is below 30, it would have been assumed that the less than 30 years age bracket would be slightly higher than its current figure of 730,239 which is 9% of the total pension accounts, but this is in line with the fact that the under 34 age bracket has an unemployment rate of 26.6% compared to the country average of 18.9% according to NBS Q3 2017 labour force reports which shows that things are not improving as they should be and the effects of one situation covers most if not all aspects of our society. The private sector contributes the most to a pension with over 4 million accounts.
According to a circular by NPC, the Retiree Fund and active RSA shall be wholly invested, based on the following maximum portfolio limits in these asset classes:
When the new pension act was to be implemented there were hopes that the supply of new investment capital would increase the development of domestic capital markets. However, most of the pension fund which is over ₦7 trillion goes into government securities which are deemed to be safer.
Foreign investors are usually not willing to put in the long-term funds in businesses in Nigeria because the country is perceived as too volatile and risky, but the country needs long term investments in certain businesses in the private sector to boost productivity and employment (e.g. Manufacturing, Infrastructure — Railway and Electricity, etc.) investments that could be made in which the funds are retained for years.
The high-interest rates that can be obtained from government securities only prove how volatile the country is as investments would only come in at a high premium.
Long term investments such as the pension fund are needed in the above areas of the economy, although the risk could be higher and the returns lower but in long-run returns could improve when businesses start to grow, as it could increase employment and improve the economic situation of the country in a long run.
Pension fund administrators’ portfolios heavily based on government securities are based more on their risk management policies than for example investing in the stock market.
This isn’t to state that investments should be made solely for improving the economy, but investments should be made based on its individual merits and pension fund administrators have the technical expertise in-house to research on these investments as well as advise them on improvements that could be made in their businesses.
Synergy could be created to improve both parties. Then, maybe one of the biggest obstacles that the pension funds have had to face is a limited array of potential investments they are able to make.
Considering these factors, we might need to rethink the way pension is being managed in Nigeria, the investments as well as ensuring that we continuously increase the number of people included in the fold especially those in small businesses.
Pension Fund Administrators in Nigeria according to PENCOM:
- AIICO Pension Managers Limited
- APT Pension Fund Managers Limited
- ARM Pension Managers Limited
- AXA Mansard Pension Limited
- CrusaderSterling Pensions Limited
- Fidelity Pension Managers
- First Guarantee Pension Limited
- Future Unity Glanvils Pensions Limited
- IEI-Anchor Pension Managers Limited
- Investment One Pension Managers Limited
- Leadway Pensure PFA Limited
- Legacy Pension Managers Limited
- NLPC Pension Fund Administrators Limited
- NPF Pensions Limited
- OAK Pensions Limited
- Pensions Alliance Limited
- Premium Pension Limited
- Radix Pension Fund Managers Limited
- Sigma Pensions Limited
- Stanbic IBTC Pension Managers Limited
- Trustfund Pensions Plc
Pension Fund Custodians in Nigeria according to PENCOM:
- Diamond Pension Fund Custodian Limited
- First Pension Custodian Nigeria Limited
- UBA Pensions Custodian Limited
- Zenith Pensions Custodian Limited