18th February, 2013
Muhammad Ahmad, immediate past Director-General of the National Pension Commission retires after eight years having served two terms, leaving the commission with some strides
Muhammed Ahmad, immediate past director-general, National Pension Commission, PenCom, formally completed his second term in office in December last year. Ahmad held sway between 25 September 2004 when the Pension Reform Scheme became effective and 16 December last year when the board of the commission was dissolved.
Prior to the introduction of the Pension Reform Act, PRA, in 2004 by the Olusegun Obasanjo administration, pension schemes in Nigeria were underfunded or unfunded, while pension administration was weak and inefficient, just as most workers in the private sector were not covered by any form of retirement plan. Cases of unsustainable outstanding pension liabilities were rife.
When Ahmad mounted the saddle, he was confronted by these challenges which required urgent attention. He did his best possible to surmount these challenges. And Ahmad believed, to a large extent, the scheme has succeeded in Nigeria.
According to him, in spite of the negative perception occasioned by the crisis in the old scheme, Nigerians have come to terms with the fact that there is life after retirement and the only way to secure it is by contributing to the scheme. As he succinctly put it, “I believe we have made some progress and the prospect is that employees have realised the importance of contributory scheme and they are raising issues. We have been receiving complaints from employees that their employers are not contributing, they are not getting the services they need from their Pension Fund Administrators, PFAs, and we have taken appropriate action on that, and that is the key. The concern is to make the employees the vanguard.
Ahmad gave kudos to the private sector that was initially reluctant to join the scheme, as they thought it was a government scheme, but are now the greatest contributors to the fund. More private sector workers are joining the scheme, and that is how it should be, because the future of this economy is not about the government. It is about the private sector, he said.
By November 2012, the total number of contributors to the pension scheme stood at 5.27mn, up from 4.94mn in December 2011 and 4.54mn in 2010. Ahmad, however believes these numbers fell short of expectation, given the huge population of the country and the number of people engaged in active service.
In 2012 alone, 350,000 workers joined the scheme, as against 286,000 employees in 2011. In June last year, PenCom under Ahmad successfully concluded the recapitalisation exercise initiated for PFAs. At the end of the exercise, 18 out of the 24 PFAs came out successful. Now, there are 20 recognised PFAs. PenCom raised the shareholders’ fund of PFAs to N1bn unimpaired by losses during the exercise. And a deadline of 30 June 2012 was given for compliance.
Pension fund assets stand at about N3tn. Of this amount, over N1.8tn has been invested in government securities. This represents over 61 percent of the total assets. And over N370bn or 13 percent has been invested in money market instruments, just as N335bn or 12 percent was invested in equities, while real estate got N167.89bn or 6 percent. State government securities got N109.24bn, representing 4 percent, corporate debt securities, N72.10bn (about 2 percent) while unquoted securities stood at N24.67bn or 1 percent, and other investment portfolio, N23.49bn or 1 percent.
The regulation on investment of pension fund assets was revised to expand the allowable investment outlets to include alternative asset classes like private equity funds, infrastructure financing (debt instruments and funds), supernational bonds, among others.
The investment regulatory framework put in place by the commission include regulation on investment of pension assets, regulation on valuation of pension funds assets, as well as regulation on fees structure.
Ahmad ensured that pension fund was not invested in wasteful ventures. But as the stock market continues to witness recovery there are moves to increase pension investment in the market to 40 percent funds from 25 percent. When the stock market remained in abyss, only 12 percent of pension assets was invested in equities, far below the 25 percent maximum requirement. There were calls in some quarters to invest the stipulated 25 percent but Ahmad will not shift ground.
In December last year the Federal Executive Council approved the utilisation of part of the pension funds’ asset for infrastructure development in Nigeria. But the contributory pension scheme, CPS, would require infrastructure bond guaranteed by the federal government before it could be used for infrastructural development.
Ahmad also introduced a regime of fines into the pension system. For instance, employers were required to pay fine for non-remittance of pension. Any employer who fails to remit funds deducted from employees to their Retirement Savings Account, RSA, under the management of PFAs, would pay a 2 percent fine of the unremitted amount in favour of the RSA holder (employee) after two weeks of delay and I percent in favour of PenCom after each month of delay. It was tagged “Regime of Sanctions and Penalties for Non-Compliance with Pension Reform Act of 2004.
Any employer who coerces employees to open RSA with a PFA that is not their choice would pay N1000 after three months per employee for every month of violation. Employers risk sanction for not urging workers to open RSA, just as auditors are expected to report devious PFAs to PenCom.
Ahmad engaged 172 debt recovery agents nationwide to collect unpaid contributions from employers. The agents comprise of lawyers and accountants. He disclosed that 50 percent of the interest penalty from outstanding contributions recovered through the efforts of agents will be given to employees with RSA, while the balance would be used to settle the agents to defray the cost of recovery, while PFAs would not be allowed to charge administrative fee on RSAs that benefited from the recovery in the arrears or in retrospect. Agents are required to submit monthly progress report with respect to recoveries from employers assigned to them.
The former PenCom boss sought the mandate of Attorney-General of the federation to enable the commission institute criminal proceedings against erring employers, and the amendment of section 85 of PRA 2004 to provide for stiffer penalties.
Under Ahmad, PenCom issued certificate of compliance to 554 employers who provided evidence of complying with provisions of the PRA 2004. The certificate is meant for organisations wishing to bid for contracts with ministries, departments and agencies, MDAs.
So far, 21 states have passed the Pension Reform bill, just as 14 states have commenced the process that will lead to the passage of the bill. However, only eight states have fully complied with the pension scheme. These are Lagos, Ogun, Delta, Kaduna, Jigawa, Osun, Niger and Zamfara states.
The level of compliance is, therefore, still low. The PRA requires that where there are five or more employees in an organisation, they should join the scheme. The scheme has failed in this area, as many small organisations are yet to key into it. The commission could not effect commencement of transfer windows for contributors billed to take off in December last year as PenCom could not conclude work on the supporting information and technology, IT, applications.
Another challenge is that while most private sector employers are yet to comply with stipulations of the scheme, some employers would deduct such monies from employees salaries but not remit same to the PFAs.
Other identified challenges under the new pension regime include general misconception and knowledge gap about the scheme, initial reluctance of employees to register with PFAs, widening coverage especially in the informal business in the private sector, lack of adequate capacity building in the new pension industry, and quantifying and transferring legacy funds and assets hitherto managed by employers, insurance companies and fund managers.
According to Jorg Michael Dorstal, Assistant Professor, Graduate School of Public Administration, Seoul National University, South Korea, the pension reform has failed to contribute to basic social security in old age for the majority of Nigerians employed in the informal sector. There is also fear that the minority of covered workers are likely to experience problems since some PFAs have so far produced negative real returns for pension savers. Besides, the appropriateness of the institutional design of the reformed pension system is highly questionable. The university don argued that among countries with funded pension systems, Nigeria has by far the lowest Gross Domestic Product, GDP. High degree of financial instability and lack of appropriate investment outlets for pension savings cast doubts on the basic utility of the system and in terms of the actual management of the current system. Dorstal remarked that PenCom as the regulator has been weak in enforcing regulatory compliance.
Before joining PenCom, Ahmad was director of Research and Information Technology at the Federal Inland Revenue Service, FIRS on secondment from the Nigeria Deposit Insurance Corporation, NDIC. He coordinated the enactment of the PRA 2004 and the implementation framework for the Contributory Pension Scheme in Nigeria.
—Clement Oriloye