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PFAs to invest N3.4tn in infrastructure

By on July 8, 2013

Pension Fund Administrators will invest part of the growing pension funds in infrastructure after the Pension Reform Act 2004 must have been replaced with a new act.

This was contained in a memorandum submitted by the National Pension Commission to the Senate Committee on Establishment and Public Service and the House Committee on Pensions at the joint public hearing for the proposed enactment of the Pension Reform Act 2013.

Acting Director-General, PenCom, Mrs. Chinelo Anohu-Amazu, said the commission proposed that the funds should be utilised for national development.

The bill states, “There is a consensus among stakeholders that the PRA should facilitate the optimal utilisation of pool of funds generated by the Contributory Pension Scheme towards national development.”

It added that provisions had been made in the bill for the expansion of permissible investment instruments to accommodate initiatives for national development, such as investment in the real sector.

Although the memo stressed the investment in infrastructure, PenCom insisted on the safety of pension fund assets.

The latest investment guideline by PenCom, however, stated that without the Federal Government floating an infrastructure bond, the PFAs could not be allowed to invest the funds in infrastructure.

PenCom also noted the funds could not be invested in electricity without the issuance of government or private bonds, which must align with Pencom’s requirements for investing the pension funds.

Based on the current investment regulation, the commission said the pension funds could be invested in infrastructure bonds registered by the Securities and Exchange Commission.

“No investment has yet been made on such securities largely because they are not available in the market,” it added.

In December, due to the changing dynamics of the financial environment, PenCom reviewed the investment guidelines for the growing pension fund to safeguard the assets.

Major highlights of the guidelines are the consent of pension operators to invest the assets in Exchange Traded Funds; introduction of guidelines for global depository receipt, notes and eurobonds and maximum restriction of transactions done by PFAs with related parties such as stockbrokers to 30 per cent.

According to PenCom, the new multi-fund structure will be incorporated into the amended regulation in the first quarter of 2013.

The Pension Fund Custodians are mandated to only take instructions from the PFAs on the investment, as they must not contract out the custody of pension fund assets to third parties, except for allowable investments made outside Nigeria.

The Chairman, Pension Fund Operators Association of Nigeria, Mr. Dave Uduanu, said the pension assets were safe and being effectively managed by the PFAs.

According to him, the funds are not left idle and there are regulatory guidelines to monitor the investment of the money.

He explained that PFAs were not investment banks or charity institutions, but were buyers of securities and investment instruments and must therefore be prudent with their investment.

According to Uduanu, the assets are not there to provide mandatory infrastructure as that is the duty of the government. For this reason, he said, the PFAs could only consider investments that would yield returns. This, he stressed, would enable the pensioners to always get their entitlement when needed.

The Chief Executive Officer, Riskgaurd Pension and Insurance Consultant, Mr. Yemi Soladoye, also said the initial investment guidelines introduced when the CPS started were quite narrow as they did not take care of some relevant issues.

This, he said, was changing as the operators were seeing the need to consider not only the safety of the funds but the yield and diversification.

Soladoye added, “Pension funds are long-term funds where people contribute for years, such funds are usually directed to projects of national development, especially, provision of infrastructure.”