Introduction
On the 17th
of April 2024, the firm of Anaje. Olumide. Oke. Akinkugbe (carrying on business
as AO2LAW®) held a stakeholders’ webinar with the theme: “Pension Fund
Administrators and Pension Fund Custodians: Rethinking the Strictures on Common
Control”. The webinar commenced with a keynote address delivered
by Mr. Chinedu Anaje, FCIArb, a Partner at AO2LAW. In his address, Mr.
Anaje highlighted the roles of the key players within the Nigerian pension
industry and reiterated the need for continuous stakeholder engagement to
ensure the growth and development of the pension industry in Nigeria. He
equally expressed the view that while the extant law on pensions in Nigeria,
the Pension Reform Act of 2014 (the “Act”) had been largely successful
in actualising its objectives, it was imperative for the stakeholders within
the sector to mull over a possible fine-tuning of certain provisions of the Act
to ensure alignment with economic realities and international best practices in
the administration of pensions.
The
session drew participants from players within the pension industry, the
National Assembly, and other key players of different sectors of the economy.The
webinar had a qualified panel drawn from all the stakeholders in the pension
value chain. On the panel were Mr.
A. M. Saleem; Head of the Surveillance Department at the National Pension
Commission (the “Commission”), Uloaku Ekwegh; the Company Secretary and Head
of Legal at Fidelity Pension Managers Limited, Mr. Tunde Folayan; the Chief
Compliance Officer at First Pension Custodian Limited, Mr. Oyeyemi Oke; Partner, AO2LAW, and Mr. Chinedu Anaje, FCIArb; Partner, AO2LAW. The session was
moderated by Chukwuemeka Ozuzu; Senior Associate at AO2LAW.
The Perspective of the Regulator:
In his submissions, Mr. Saleem reiterated that the Commission had been
very diligent and meticulous in the discharge of its statutory functions which
has led to the recovery of substantial unremitted contributions totalling over
12 billion Naira and the imposition of penalties on errant employers in
accordance with the extant provisions of the Act. Mr. Saleem equally posited
that the Commission had been issuing certificates of compliance to employers
who had fully complied with their remittance obligations and highlighted that
in line with the provisions of the Public Procurement Act 2007, no company
could be awarded a government contract without the presentation of a
certificate of compliance from the Commission. To galvanize more employers into
compliance, Mr. Saleem was of the view that it may be necessary to consider an
amendment of the Act to grant the Commission the powers to distrain the
premises of defaulting entities. On the issue of rethinking the structure on
common control of Pension Fund Administrators (“PFAs”) and Pension Fund
Custodians (“PFCs”), Mr Saleem expressed the view that it was essential
to maintain the bifurcation in the control of PFAs and PFCs to forestall any possible
abuse.
The Perspective of the Key Players in the Nigerian Pension Industry:
1.
Increasing Public Awareness and Participation in
Nigerian Pension Scheme:
The
stakeholders suggested a collaborative approach which will involve all the
players within the Nigerian pension industry, to sensitise the public on the
benefits of the Contributory Pension Scheme (“CPS”) and the need to plan
for retirement. Part of the strategies proposed include: (i) targeted publicity
campaigns in schools and universities; (ii) incentivising participation in the
CPS; (iii) adoption and implementation of the micro-pension scheme; and (iv)
general reforms within the pension scheme.
2.
Amendments to the Act:
The stakeholders proposed several changes to the Act, including: (i) adjusting the presumption of death timeline to align with the provisions of the Evidence Act; (ii) increasing the minimum contribution percentages; (iii) allowing retirees to assess their accrued rights before disbursement by the government; and (iv) granting beneficiaries access to portion of funds in their Retirement Savings Accounts (RSA) to address medical needs.
3.
Common Control of PFAs and PFCs:
The stakeholders discussed the restrictions on
common control of PFAs and PFCs as contained in the provisions of Section 77 of
the Act and the need for flexibility in regulation to balance business
requirements and pension funds/assets protection. While a more liberalized
approach for common control of PFAs and PFCs was suggested, the Commission’s
representative pointed out potential issues such as conflicts of interest and
improper disposal of assets.
4.
Improving Pension Fund Investments in Nigeria:
The stakeholders expressed the view that by and large, pension funds had been performing creditably well with respect to high yields for contributors. To ensure greater returns, there may be a need for the PFAs to diversify their investment portfolios into non-traditional investments and engage experts in the various target fields to provide a more nuanced approach to making investment decisions. To actualise this, it was suggested that there may be a need for a review of the Act and the investment regulations issued by the Commission to provide the PFAs with the legal framework within which to make such investment decisions.
5.
Facilitation of Offshore Investments:
In spite
of the broad investment opportunities granted to PFAs under existing
regulations ranging from instruments such as private equity, shares, commercial
papers, etc., stakeholders however, acknowledged the impact of the fluctuating inflation
rates and forex on return on pension investments. Furthermore, the
inaccessibility of forex to enable PFAs to explore offshore investments posed a
major challenge in hedging against the risk of inflation. In response, the
Commission’s representative indicated that the guidelines for offshore
investments were currently in the works to eliminate the barrier to forex. This
will consequently, hedge against inflation and guarantee higher returns on
pension investments.
Any Legislative Intervention(s) in the Works?
In his submission
in the course of the webinar, Honourable Hussaini Mohammed Jallo, the
Honourable Member representing Igabi Federal Constituency in the House of
Representatives and the Chairman of the House Committee on Pensions, commended
AO2LAW for organizing such a timely and topical webinar to deal with the front
burner issues on the management and administration of pensions in Nigeria. Honourable Jallo indicated that at present,
conversations were ongoing to possibly amend some provisions of the Act that had
become obsolete and improve
checks and balances on the Commission and other industry players. Some of the
Sections of the Act identified by Honourable
Jallo for possible amendment include (i) S.4(6);
(ii) S.19(2)(d); (iii) S.25; (iv) S.42(2); (v)S.89(1)(a)).
Honourable
Jallo applauded AO2LAW for taking the initiative to hold such a stakeholders’
engagement and sought the firm’s participation in stakeholder engagements which
would take place in the near future to give insights and share their
perspectives on pertinent issues as they relate to the industry.
Next Steps
From the
conversations had in the webinar, the following are the next steps for all
stakeholders in keeping the momentum high with due regard to the realignment of
the pension industry to resolve perceived bottlenecks and challenges in the
smooth operation of the industry:
1.
More work and collaborative efforts between the
Commission, the Legislature and other key stakeholders should be had to enhance
the operability of the Pension Reform Act, 2014. This would include a potential
amendment of certain sections of the Act including but not limited to S.77,
S.4(6), S.19(2)(d), S.25, S.42(2), S.89(1)(a)) to address issues, such as restrictions
on common control, recoveries, voluntary contributions, group life insurance,
and access to medical bills for retirees and other incidental issues.
2.
Foster collaborations between all stakeholders to
develop and implement a comprehensive sensitization plan to increase awareness
and understanding of the CPS, focusing on targeted segments of society,
especially the informal sector.
3.
It would be useful for the Commission to collaborate with
the Central Bank of Nigeria to finalize and communicate the guidelines for
offshore investments, enabling PFAs to access foreign currency for diversifying
investments and hedging against inflation.
4.
Organizing stakeholders’ engagement meetings to
discuss amendments to the Act and gather inputs from industry players and
thought leaders.
5.
A holistic review of the Micro Pension Plan framework
to introduce sweeteners and incentives that will encourage participation,
particularly from the informal sector.
All enquiries on this should please be directed at: info@ao2law.com, or specifically contact the key contacts: chinedu.anaje@ao2law.com or oyeyemi.oke@ao2law.com
