Another look at Nigeria’s pension scheme

Industry update inside the business Passed into law six years ago, the Pension Reforms Act 2004 (“The Act”) came as a marked departure from all other existing pension schemes in Nigeria, and meets with the expected skepticism and resistance. Six years on, latest figures from National Pension Commission (PenCom) put the total number of Nigerians registered for the scheme at 4.3 million and assets accumulated worth N1.8trillion as at July 2010 with 15 out of the 36 states of the federation in compliance with the scheme. This does not however mean that the Pension industry in Nigeria does not have its own peculiar challenges. In as much as we must commend PenCom for their effort so far, they must look for ways to address areas of challenges in the Pension industry in Nigeria today, and ensure that the scheme records even more success.

COMPLIANCE BY PRIVATE SECTOR EMPLOYEES One of the major problems of the Pension Industry in Nigeria is that most employees in the private sector are yet to comply fully with the provisions of the Pensions Reforms Act. There are employers who are yet to register a single staff for the scheme; some register only a few employees and claim the others are contract or casual workers who are not on their payroll. Employers also fail to make the compulsory monthly contributions into employees RSA.

REGULATIONS FOR TRANSFER OF ACCOUNTS The Pension Reforms Act 2004 stipulates that an employee may transfer from one PFA to another without giving any reason for such transfer, not more than once in a year. This is yet to be realized. Although PenCom has drafted a guideline, it is yet to be implemented. Seamless transfer from one PFA to another gives the RSA holder a choice to leave a PFA if they have not been enjoying the desired service..

INVESTMENT OF PENSION FUNDS Investment of pension fund is still an area of concern to most industry watchers. Pension industries all over the world are guided by the Prudent rules. PenCom’s investment guidelines reflect this rule, which seeks to ensure safety, liquidity and sustainable returns. This notwithstanding, experts are asking for more investment outlets, even in line with the Prudent Man Rule, particularly in a very liquid market situation as we have it today. PenCom had earlier this year reported that it was looking at the possibility of investing pension funds in infrastructure, and it was lauded as a step in the right direction.

INCORPORATING THE INFORMAL SECTOR The informal sector represents the major employer of labour, and those who perhaps are most in need of the limited social security benefits that the Pension Scheme provides, but they are yet to be incorporated into the scheme. How does the artisan benefit from the pension scheme? How will the Okada Rider open a Retirement Savings Account? How should market women plan for retirement?