Transcript Achieving sustainable growth of Nigerian Economy through

National Pension Commission
A developing economy perspective on
Pension Fund Reforms and liberalisation of
the domestic economy: Nigeria
Presentation by
M. K. Ahmad
Director-General
National Pension Commission
August 2007
……ensuring your comfort after retirement
Presentation Outline
 Rationale for Reform
 Objectives of the Reform
 Key features of the scheme
 Implementation Breakthrough
 Pension reform and the economy
 Key success factors
 Pension fund investments
 Lessons and policy implications
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National Pension
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Rationale/Goals of the Reform
Rationale for Reforms
Most schemes were under or unfunded
Unsustainable outstanding pension liabilities
Weak and inefficient pensions administration
Defined Benefit Scheme/PAYG was unsustainable
Most workers in the Private Sector not covered by
any form of retirement benefit arrangements
Pensions
Reforms
Primary objectives of Reform
Ensure that every worker receives his retirement
benefits as and when due
Empower the workers & assist them to save in
order to cater for their livelihood during old age
Establish uniform rules, regulations and standards
for administration of pension matters
Secure compliance & promote wider coverage
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National Pension
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Secondary objectives of Reform
 An integral part of government medium term development agenda
– National Economic Empowerment and Development Strategy
(NEEDS)
 To reduce the fiscal cost of pension to the government
 Stem the growth of outstanding pension liability
 Mobilise long term savings
 Stimulate the development of an efficient capital market
 Provide long term finance for the real sector
 Promote GDP growth
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National Pension
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Key features of the scheme
The Key Elements of the Pension Reform
The Establishment
of Contributory
Pension Scheme for
both Public and
Private Sectors
The Establishment
of Transitional
Provisions for both
the Public and
Private Sectors
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The establishment
of PenCom as a
single Supervisor
& Regulator of all
pension matters in
the Country
National Pension
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Commission
Key features of the scheme … cont’d
Old System
New System
Type
Largely Defined
Benefit
Defined
Contribution
Funding
Mostly unfunded &
PAYGO
Contributory & Fully
Funded
Membership/
Coverage
Voluntary in private
sector
Mandatory for all
employees
Pension Portability
Not Portable
Personalised & Very
Portable
Management
Largely State &
Management & Union
Influence
Private Sector &
Individual Choice
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National Pension
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Key features of the scheme … cont’d
Old System
New System
Retirement
Benefits
Discriminatory
Uniform Application
Supervision
Fragmented &
Unregulated (SEC,
NAICOM, JTB)
Strictly regulated by
PenCom
Pension
Liabilities
Implicit & not
transparent
Explicit through
Retirement Bond &
Capped
Tax
exemption
Limited
Contribution & Retirement
Benefits
Insurance
Policy
Voluntary & mostly in
private sector
Mandatory for all
employers
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Implementation Breakthrough
Establishment of Supervisory and Regulatory Framework
Regulations/Guidelines
Issued
(Transitional
arrangements,
Licensing, Investments, valuation of investments, Fees Structure,
Life Policy and Operational Guidelines)
Reporting requirements for operators & Daily monitoring
Consultative process in rule - making
Licensing of Operators
23 PFAs, 4 PFCs, 6 CPFAs
Registration of Contributors
Registered a total of 2.45 million RSAs as at the end of July 07
Public sector – 73.16%
Private sector – 26.84%
􀂾
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Implementation Breakthrough….Cont’d
 Accumulation of Pension Funds

Generated pool of long term investible funds for the first time in
Nigeria
 Estimated size of pension fund is N655 billion (USD 5.12 billion) as
at end of July 2007 & Normal monthly accumulation of about
N6billion (USD 0.05 billion)
 Out of the assets N190.2 billion (USD 1.49 billion) are new
contributions while N464.8 billion (USD 3.63 billion) are transferred
by legacy funds
 Public Sector Accrued Pension Rights being covered by
Retirement Benefits Bond. About N1.6 trillion (USD 12.5 billion) for
over 800,000 employees
 Public education & enlightenment


Seminars/Workshops, Website, FAQs also in local languages
Strong partnership with key social partners- labour/employer
Unions
 General acceptance of the Scheme by employees & key Unions
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Impact of the Reform on the economy
Buoyant
Capital Market
Social Impact
• Increased market integrity/transparency
• Innovative products
• Improved regulation/supervision
• Creation of domestic institutional
investors
• Vibrant and competitive securities
market
• Lower transaction costs
• Improved integrity/corporate
governance
• Avenue for long term borrowing
• Improves living
standards of the
elderly
• Secures
financial
autonomy
&
independence
of
retirees
• Improves
Labour
market
Sustainable Economic Growth
• Promotion of Employment Generation Activities
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Key Success Factors
 Political will and policy consistency and continuity are essential
 Macro economic stability and low inflation to protect pension
assets (single digit inflation achieved and lower/stable exchange
rate)
 Effective regulation and supervision
 Commitment create an effective agency- licensing, inspection
 Level of development of the financial market is critical
 Determine the type of pension reform (multi-pillar not appropriate with
underdeveloped financial market)
 Number and diversity of financial instruments
 Liquidity and valuation of assets
 Transparency and efficient settlement system is key
 Sound banking and insurance companies due to banking and
insurance reforms
 Contributions and payments
 Insurance and annuity contracts
 Custodial services
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Pension Fund Investment Management: Key Objectives
 Secure safety & security of funds
 Ensure adequate, affordable and sustainable
benefits
 Link between contribution and benefits
 Ensure diversification & acceptable risk levels
 Safeguard conflict of interest
 Promote & sustain public confidence
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Pre-requisites for Pension Fund Investments in Nigeria
 Authorised Markets for Trading


Primary - new issues
Secondary – Floors of recognised Stock Exchange
 Quality of Instruments



Instruments/Issuers must be rated
Records of past profitability and/or dividends payouts
Instruments must be readily marketable
 Foreign investments and derivatives are future
possibilities
 Regulated investment limits (asset
class/instruments) & performance benchmarks
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Un-authorised investments/future possibilities
 Direct real estate, private equities/venture
capital and unlisted securities – not allowed
due to:

Valuation and reporting issues
 Liquidity/exit
 Transparency and disclosure requirements
 Specialized expertise and the need for capacity
building
 Need to build contributors’ confidence
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Opportunities for entrepreneurs
 Indirect
promotion
of
businesses/institutional operators







other
Sales agents
Stock brokers
Rating agencies
Insurance companies and brokers
Mutual funds
Mortgage finance institutions – through mortgage
bonds or mortgage securitization
Factoring and Leasing
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Lessons and policy implications




Pension reform should not be an isolated policy
decision, but complimentary to other reforms
 Financial sector reform e.t.c
Political will and policy consistency/continuity are
essential
Adequate and timely delivery of data are essential for
planning
Conducive investment climate that would create
avenues to invest the pool of pension funds
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Lesson for developing…..Cont’d
 Challenges of expanding coverage of the informal
sector: problem of identification, securing buy-in,
irregular income basis for contribution, mode of
collection
 Challenges of enforcement, compliance and evasion
 Inter-regulatory agencies’ co-operation is essential
 Awareness and sensitization programmes
 Need for skill development and capacity building
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Abbreviations
SEC- Securities & Exchange Commission
PenCom- National Pension Commission
NAICOM – National Insurance Commission
JTB – Joint Tax Board
PFA – Pension Fund Administrator
PFC – Pension Fund Custodian
CPFA – Closed Pension Fund Administrator
RSA – Retirement Savings Account
ABS – Asset backed Securities
MBS – Mortgage Backed Securities
REITs- Real Estate Investment Trusts
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National Pension
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Thank You!
National Pension Commission
Plot 174, Adetokunbo Ademola Crescent
Wuse II, Abuja - Nigeria
234 (9) 413 8736 – 40
[email protected]
www.pencom.gov.ng
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National Pension
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