The National Pension Commission (PenCom) presents its annual report for the year ended 31 December, 2010, which provides an account of its mandate and activities undertaken during the year under review. Also included in the report are the Commission’s Statement of Account and details of pension fund operators.
During the year, PenCom had continued to focus on the development of a sound and transparent regulatory and supervisory environment for the industry. In this regard, a number of regulatory and supervisory measures were taken, which included among others,
further issuance of guidelines, regulations and using risk based supervision to conduct both on-site and off-site examination of pension fund operators. The examinations revealed that PFCs have standardized the process of safe-keeping, settlement and corporate action as well as showed that PFAs have remarkably improved on pension and benefit administration.
During the year under review, the Commission, with the technical assistance of the International Finance Corporation/World Bank Group under the Efficient Securities Markets Institutional Development (ESMID) African Programme, revised the Regulation on Investment of Pension Fund Assets. Amongst other issues, the allowable asset classes were expanded to include pension fund investments in alternative assets such as Private Equity Funds, Infrastructure Funds and Supranational Bonds.
In order to ensure compliance with PRA (2004) by employers various strategies were applied ranging from public enlightenment and awareness campaigns, on-site inspection of employers, mailing of compliance letters to identified eligible organizations, collaboration with regulatory and professional bodies and application of regime of sanctions.
As a result of moral suasion employed, the year witnessed an increase in the number of states implementing the Contributory Pension Scheme (CPS) as two additional states joined the CPS. This brought the number of states that implemented the scheme to 16. In addition, five states have opened and commenced funding their Retirement Benefit Redemption Bond Account with the Central Bank of Nigeria. This would assist them settle all accrued retirement benefits inherited from the Defined Benefit Scheme.
The pension industry operated in a favourable macro-economic environment in 2010. The capital market, which is one of the platforms for investing pension funds, witnessed improved performance compared to the previous year. This was demonstrated by improvements in some stock markets indicators such as the All-Share index, which increased by 18.93 percent. The bond market also continued to serve as safety alternative for the investment of the pension funds. However, one of the remarkable features of the bond market in 2010 was the surge in pension funds investment in State Governments’ bonds that increased by 134 percent in 2010 compared to the previous reporting period.
In contrast with the capital market, the money market witnessed high liquidity in 2010, which caused a drop in interbank rates across tenors as well as in deposit interest rates across tenors, low interest rates and yields on money market instruments. The low yields on money market instruments was a challenge to pension fund investment as most of the rates closed at a negative real rate of return with the exception of the 90-day offer rate that closed at a marginal positive real return of 0.37 percent.
In terms of the registration of contributors, year 2010 witnessed an increase of 13.20 percent in the number of RSA holders over the 4.01 million recorded in 2009. The public sector had 56.45 percent of the RSA registrations while the private sector had 43.55 percent. However, due to improved compliance by the private sector employers, registrations in the sector increased by 19.44 percent against 8.49 percent in the public sector.
The period under review also witnessed a remarkable increase in the value of pension fund assets from N1.53 trillion as at 31 December, 2009 to N2.29 trillion as at December, 2010, indicating a 32.70 percent growth. The growth of pension fund assets resulted from new contributions by contributors, additional capital injections by legacy scheme sponsors as well as investment income.
The total pension contributions into the RSA in the private and public sectors amounted to N289.81 billion in 2010. The public sector contributed N162.46 billion while the private sector contributed N127.35 billion, which represent 56.06 percent and 43.94 percent respectively. The gross investment income was a modest N205.30 billion or 10.12 percent of the total pension assets during the year under review.
The RSA ‘Active’ Fund recorded a significant growth of N231.421 billion that was, 30.9 percent during the year under review. The ‘Retiree Fund’ also witnessed an impressive growth of 42.66 percent from N89.24 billion as at end of 2009. Similarly by the end of 2010, the assets of the Closed Pension Fund Administrators and Approved Existing Schemes had grown from N342.36 billion and N266.1 billion in 2009 to N404.37 billion and N423.12 billion respectively.
The Commission promises to continue to leverage on the state of-the-art information and communication technology facilities to enhance its surveillance and supervisory activities of the industry. The deployment of the Risk Management Analysis System (RMAS) would enable the Commission obtain timely information on the pension industry thereby enhancing its supervisory oversight of the Pension Fund Operators. Similarly, the Automated Fingerprint Identification System (AFIS), when installed, would enable the identification of multiple registrations using biometrics of the RSA holders. The Commission would also initiate processes to automate retirement benefits approvals process and develop framework for auctioning annuity.
Meanwhile in another development, the PENCOM, by the powers conferred on it under the Pension Reform Act 2004 (PRA 2004) and in the exercise of its statutory mandate of protecting the pension fund and assets, has taken over the management of First Guarantee Pension Limited (FGPL) with effect from Monday 15th August, 2011. The takeover became necessary due to incessant shareholders squabbles and several issues of adverse corporate governance in the PFA.
Accordingly, the Commission has constituted an Interim Management Committee to superintend over the affairs of FGPL until the shareholders convene an Emergency General Meeting (EGM)/Annual General Meeting (AGM) with a view to properly constituting a Board and putting an effective management for the PFA.
The Commission assures all Retirement Savings Account holders of FGPL and the general public that the pension funds and assets under the management of the PFA are safe and secure.