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Experts propose investment channels for pension funds

By on July 22, 2014

As of the end of May, the Contributory Pension Scheme, which commenced in 2004, had generated funds in excess of N4.3tn, making it the fastest growing funds in the economy.

While the law mandates the Pension Funds Administrators to manage the funds and the Pension Fund Custodians to keep the money, the whole essence of the checks and balances is to ensure the safety of the funds.

The CPS is a pension system that is becoming very popular and is being embraced by different countries worldwide.

In some countries, the contributors are allowed to borrow part of the funds for asset acquisition or used as collateral for mortgage.

These funds, which are accumulated over time and are available for a long term investment, had been used to build and develop infrastructure in many countries.

Experts say there is a need for the operators to increase the public awareness about their participation in the scheme. They note that the more the contributors, the higher the pension funds.

For instance, in Kenya, the sector had been able to introduce more people into the pension scheme through the mobile phone system.

They could be reached with messages from the regulator and operators using mobile phones and their contributions could also be collected drawing from the credits loaded on their phones in collaboration with mobile telephone operators.

Experts are of the view that this system can also be developed to accommodate individuals and artisans to save for the future through the pension scheme.

Stakeholders who gathered at the recently concluded World Pension Summit- Africa in Abuja underscored the challenges of managing the growing Africa’s pensions, pointing out that developing appropriate framework would guarantee sustainability and national development.

The Acting Director-General, National Pension Commission, Mrs. Chinelo Anohu-Amazu, said PenCom and other relevant groups were concerned about the development of retirement benefits into a veritable instrument of social change.

“We need systems that are relevant to the fundamental needs of our continent, and which are dynamic enough to initiate and also respond to developmental challenges facing the continent in an increasingly interdependent global economy,” she said.

According to her, the existence of pensions as an instrument of social redistribution is at the core of contemporary national economies.

Anohu-Amazu said that the shift towards contributory pensions was a collective resolve to invest a portion of one’s current earnings, in order to have a more predictable and prosperous retirement.

The success of the CPS, she noted, had triggered an exponential growth in the pension funds and the size of assets under management across the globe.

In Nigeria, she explained that the value of the pension assets had grown from 1.47 per cent in 2006, to 9.57 per cent in 2013 of the Gross Domestic Product.

According to Anohu-Amazu, as the proportion of the retirement income provided by private pensions continues to grow, the regulatory framework designed to protect those funds becomes more crucial.

She stresses the need to institutionalise a risk-based approach for the supervision and control of pension markets across the continent.

This risk-based approach, she said, would focus on the identification of potential risks faced by pension funds and strengthen mechanisms that were in place to attenuate those risks.

“This ultimately allows the regulatory agencies to channel their resources towards issues that pose the greatest threats to the stability of the industry,” she said.

Anohu-Amazu also said infrastructure development remained a key driver and a critical enabler of sustainable growth in Africa and the current favourable economic landscape on the continent provided a unique opportunity for the public and private sectors to collectively address the infrastructure gaps.

Focusing on Africa’s infrastructure challenges, she added it would help in creating the economic pre-conditions needed for longer-term growth as well as foster poverty alleviation.

The PenCom DG said disruptive market, demographic, fiscal and environmental dynamics were fundamentally reshaping Africa’s economic landscape.

“National governments must think of infrastructure, not in the general but in the specific, understanding the ways in which different infrastructure sectors such as transportation, energy and water are governed, financed and sustainably delivered,” she said.

Anohu-Amazu also said governments needed to outline their priorities given their peculiar economies, competitive advantages and infrastructure needs.

The Vice-President, Nigeria Labour Congress, Mr. Issa Aremu, said it was important that stakeholders should deploy pension assets in financing home ownership schemes for workers.

He also said this was one of the ways to deploy pension funds for the benefit of the contributors.

The NLC leader advocated that the pension assets should be used to provide houses for the contributors.

Aremu, therefore, urged the PFAs to deploy the pension assets in financing home ownership schemes for workers.

He said this was one of the ways to properly utilised the pension funds that would directly benefit the contributors.

The Chief Executive Officer, Retirement Benefits Authority, Kenya, Edward Odundo, noted that houses were usually expensive when mortgage institutions and other intermediaries built for sale to workers.

According him, in Kenya, workers are allowed to borrow from their retirement savings to build houses.

He said the Kenyan example showed that pension operators were not attracted to private equity and venture capital, rather they tilted towards lending to workers for housing purposes.