Nigerian pensions chief signals new era
The head of the Nigerian public pension fund commission reveals governance and diversification reforms, amid a bull market for savings in Africa's largest economy.
Chinelo Anohu-Amazu, the director-general of Nigeria's National Pension Commission, says the regulator has rooted out fraudulent behaviour after a slew of reforms in 2014.
“Nigeria’s pension system is now clean and transparent, and there has been no pension-related fraud since reforms were implemented in 2014,” she says.
There has been no
pension-related fraud since reforms in 2014
“Our biometric evaluation systems have all been cleaned up to ensure that we run a transparent business now and ghost employees have all been eradicated. Moreover, all contributors to a Nigerian pension fund receive quarterly updates regarding their contributions and know exactly how much is in the pot. There is no room for error anymore.”
The comments come three weeks after Stephen Oronsaye, the former head of the Nigerian civil service between 2009 and 2010, was taken to court for siphoning money from Nigerian pension funds.
In December 2013, Nigeria’s economic and financial crime commission concluded Oronsaye and other directors in the service worked together to siphon off around N6 billion of savings from Nigeria’s pension funds.
In total, Oronsaye was accused of unlawfully taking N123 billion through fake contracts, false transactions and fabricated running costs.
“Currently we have N4.6 trillion, around $25 billion, in pension funds in Nigeria and all of it can be accounted for,” says Anohu-Amazu.
In 2004, the first set of reforms on Nigeria’s pension system were rolled out, formalizing the pension scheme whereby employers and employees were both mandated to make a contribution of 15% of salaries to the fund.
In 2014, further reform was implemented, including increasing the minimum contributions into the scheme to 18%, and introducing fines and penalties for funds that fail to meet their obligations to contributors, as well as increasing transparency.
As well as tackling corruption, the allocation of funds was one of the main points to come out of Nigeria’s pension reform in 2014. Currently, pension funds are mandated to allocate a large proportion of their holdings – up to 80% – to government bonds. Allocation to infrastructure is limited to 20%, corporate debt securities to 30% and private equity 5%.
However, the director-general signals public pension fund managers will soon be permitted to diversify their allocations.
“Pensions funds are not only disposed to put their money in government bonds because they are safer but also because current mandates limit their exposure to other asset classes,” says Anohu-Amazu.
“Following reform in 2014, we are now coming to the end of the discussion process with pension fund managers and ministers to decide on new ceilings, which will allow funds to increase allocations to things such as infrastructure and private equity. New quotas will be announced soon, but I am not willing to speculate at this time.”
Nevertheless, the lack of investable assets – such as well-designed infrastructure projects – will inevitably inhibit any diversification push, says the director-general.
“A complaint we hear time and time again from fund managers is that while they would like to invest more in alternatives, there just aren’t that many viable investments out there,” she says. “This is something we need to change, by educating state government and encouraging them to introduce infrastructure projects that will appeal to fund managers. This is a work in progress.”
In addition, it's not clear if pension fund managers have the technical skills, experience or fund infrastructure to invest in a broad array of non-government holdings.
In any case, given Nigeria's young population and untapped pool of informalized savings, the outlook for the public pension fund market is bullish.
“Since 2004, the size of the pot has increased exponentially from barely anything to N4.6 trillion with 6.5 million contributors,” says Anohu-Amazu.
“But from research we have carried out, there are about 30 million to 40 million individuals who qualify for the scheme but are excluded and we are working on bringing them formally into the scheme. We have a conservative estimate that by 2019, around 20 million people will actively participating.”
One main hindrance to pension contribution is education, explains Anohu-Amazu, with some businesses and Nigerian states overlooking opportunities to implement public pension schemes at the federal level.
“We are actively engaging with governors and officials at the state level so that they come to understand the purpose of the scheme – to create a safety net for the population in retirement – and luckily, more and more are coming around to the idea,” she says.
Lagos and Jigawa state – the northern-most state in the country – are at the forefront of the development. Adamawa state, situated in the east of the country and bordering Cameroon, is one of the states that has furthest to go to implement the scheme, according to Anohu-Amazu.
Some have argued there has been a slowdown in policy implementation and reforms since the election of Muhammadu Buhari, leader of the All Progressives Congress, who came into power after a close – yet free and fair election – in March. However, Anohu-Amazu insists this is not the case for pension reform.
“The Pension Commission, which came into being under Olusegun Obasanjo [president from 1999 to 2007] has continued to maintain momentum under each president we have had since,” she says. “And the case can be especially said for Buhari, whose drive for clean government is truly felt within the commission.
“Not only do we feel supported by him but we continue to work alongside reform implemented in 2014, which hasn’t come to a standstill since his election. Things are running smoothly for us.”