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Roads, power to benefit from N4.9tn pension funds

By on September 28, 2015

The Contributory Pension Scheme operators are considering investing part of the growing pension funds in long-term projects because most of the contributors are young workers who may not need their money very soon, investigation has revealed.

The total pension funds being managed under the CPS stood at N4.9tn at the end of May this year.

Statistics on the Retirement Savings Account registration by age and sector obtained from the National Pension Commission revealed that most contributors to the CPS were less than 40 years old.

According to the Pension Reform Act, 2014, only workers who have retired and are up to the age of 50 years can access the retirement funds under the pension scheme.

“An age distributional analysis of the RSA holders revealed that the largest proportion of the RSA holders is very young as almost 80 per cent of the members are below 50 years, and 51 per cent of the members are below the age of 40 years,” PenCom stated.

The commission said the demography of the scheme favoured putting pension funds in long-term investible instruments like infrastructure products, which could be used to bridge the yawning gaps in the nation’s infrastructural development.

In its report on the CPS, PenCom disclosed that 761,436 workers, or 11. 69 per cent of the contributors were less than 30 years.

It also revealed that 39.41 per cent or 2.5 million contributors were within the age bracket of 30 and 39 years.

According to the PenCom data, 1.7 million contributors (26.4 per cent) are between the ages of 40 and 49, while 1.2 million contributors (17.2 per cent) are between the ages of 50 and 59.

The data also showed that about 264,839 contributors (four per cent) were between the age bracket of 60 and 65, while 72,937 contributors (1.2 per cent) fell into the category of 65 years and above.

Under the guideline on investment, PenCom stated that pension fund assets could be invested in infrastructure through infrastructure bonds or infrastructure funds. It added that both outlets must meet the conditions for the investment of pension funds in infrastructure before the Pension Fund Administators could channel pension fund assets into such investments.

The commission noted that section 5.2.3 of the draft regulation on investment of pension fund assets provided that pension assets could be invested in infrastructure projects through eligible bonds, subject to two major conditions.

“The infrastructure project shall be not less than N5bn in value and awarded to a concessionaire with good track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission Act and any regulation made pursuant thereto, and certified by the Infrastructure Concession and Regulatory Commission and approved by the Federal Executive Council,” it stated.

Another condition for the investment of pension assets in infrastructure is that the projects must have business plans and financial projections that indicate they are viable as well as economically and financially rewarding for investment by pension funds.

According to the statement, the bonds or Sukuks issued to finance the infrastructure project shall have robust credit enhancements including guarantees by the Federal Government or eligible bank/development finance institution or MDFOs and a maturity date that precedes the expiration of the concession.

It said it should also have a feasible and enforceable redemption procedure in the event of project suspension, cancellation or, in the case of regulated sectors, when changes in regulatory or policy decisions make the project to differ significantly from its original financial projections.

“Where infrastructure projects are financed through infrastructure funds, the value of the infrastructure fund shall not be less than N5bn and the infrastructure fund must have a well defined and publicised investment objectives and strategy as well as disclosures of pricing of underlying assets, including any other necessary information,” it stated.