With Nigeria’s total pension assets under management growing by N1.42 trillion in two years – from N4.6trillion at the end of 2014 to N6.02trillion by November 2016 – pension funds experts have lent their support to the federal government’s plan to borrow from the funds to finance some key infrastructure projects that can boost the economy.
The increase in the pension fund was revealed in a recent analysis of data released by the National Pension Commission (PenCom) recently.
The experts told LEADERSHP yesterday that the federal government would be making a very wise decision in filling huge infrastructure funding gap in the country by thinking in the direction of borrowing from the pension fund for capital expenditure.
LEADERSHIP recalls that Vice President Yemi Osinbajo had on the sidelines of the World Economic Forum in Davos, Switzerland, last week reiterated government’s interest in the pension funds for infrastructure development.
He said the federal government was critically considering the option of tapping into the pension funds for massive investments in infrastructure, adding that to do this, the country will have to derisk such financing models.
The Director-general, National Pension Commission (PenCom), Mrs Chinelo Anohu-Amazu, had at the African Pension Awards, which was organised as part of activities for the 2016 World Pension Summit said there was a need for the government to provide adequate guarantees to secure investment of the fund in infrastructure.
She said while the commission was not opposed to the idea of deploying the pension fund for infrastructure, adequate mechanism must be put in place to ensure its safety.
Anohu-Amazu explained that pension funds alone would not be able to address the infrastructure needs of the country, adding that other sources of funding such as public-private partnership arrangements should be explored.
“Given the current global economic challenges occasioned by the drop in commodity prices, the funds generated under viable pension schemes have become veritable sources of financial intermediation.
“In order to support economic development, it is fundamental that the pension fund is diversified to include investment in identifiable infrastructure, real estate and other key aspects of the real economy.
“In achieving this, pension funds require adequate guarantees by the government, in addition to the development of the enabling vehicles through which the investments will be made,” the director-general had stated.
A finance expert, Kingsley Udoh, said that, provided there are proper regulatory frameworks in place to fashion out the modalities for borrowing and utilising the fund in enhancing both social and economic infrastructure, pension funds provide cheap sources of long-term investment portfolios for funding infrastructural development.
Responding to a question on whether it is appropriate for the federal government to borrow from the pension fund to fund the budget deficit, Bernard Okon, a pension management professional, said it would be one of the wisest decisions.
But a human resource manager, Paul Nnags, is less enthusiastic about the idea of using the pension fund to finance the budget.
He said that in a country like ours where government, on various occasions, had failed to honour its promise to the people, Nigerians would, to some extent, resist any attempt by the government to look the way of the pension fund as a way out of the economic recession.
Meanwhile, stakeholders in the country’s pension industry have expressed divergent views on the rising profile of the nation’s pension funds which is projected to hit N7.2 trillion by December 2017.
By November 2016, the funds stood at N6.2 trillion, from about N5.1 trillion it was in January 2016, gaining over N1 trillion last year.
Industry sources say the fund could increase by a minimum of N1 trillion in the current year as well, while they expect it to grow even beyond N7.2 trillion if some states, the federal government and private sector employers pay the pension arrears they owe.
Findings by LEADERSHIP revealed that the fund has been growing by an increase of at least N50 billion and, in some cases, over N150 billion on a monthly basis for the last two years.
This is despite the fact that the federal government had accumulated about N140 billion pension arrears under the Defined Benefit Scheme (DBS) and Contributory Pension Scheme (CPS), even as most states as well as some companies in the private sector are still defaulting in remittances to the Retirement Savings Accounts (RSAs) of their workers.
The reason for the constant growth in pension assets, LEADERSHIP learnt, is not unconnected to the fact that pension contributions are made on a monthly basis to the RSAs of employees, while the PFAs also make a lot of profits from investing these funds in federal government bonds, stock market and other less risky investment windows, with the profits also going into the pension funds pool.
Moreover, with some states now ready to join the contributory pension scheme, and the federal government’s readiness to settle some of its arrears, as well as the PenCom going after defaulting employers, experts said these could push the fund even beyond the aforementioned amount.
In a chat with our correspondent, managing director, AXA Mansard Pensions, Mr Dapo Akinsanya, said the fact that the contributions are made every month and new sets of people are regularly subscribing to the scheme means the funds will keep growing.
On the investment income that has further raised the volume of the pension funds to N6.2trillion, the chairman, Pension Funds Operators of Nigeria (PenOp), Mr Eguarekhide Longe, said that over N2 trillion of the pension funds is investment income, meaning that the managers (Pension Fund Administrators, PFAs) of that money have received over N3trillion pension contributions over the last 12 years and that they have added over N2.5trillion to it from investments they made.
“It shows you that the money has been active. So, the philosophy of managing this money is to add to it. It means that the money has been used profitably. “Now, if you think about how pension fund should be used and so on and its objectives, you find out that it is being used by the managers for the right objectives, so that when people retire, they earn their money seamlessly,” Longe said.
On his part, the director, Centre for Pension Rights Advocacy, Mr. Ivor Takor, concurred that most of the PFAs are making money from investing the pension funds and that some of the profits also go back into the fund, increasing the volume.
However, a pension fund administrator, who craved anonymity, has lamented the low number of people in the pension scheme in the country.
According to him, if over N6 trillion of pension fund contributed by about seven million Nigerian workers is available at the moment and needs to be invested, one can imagine the volume the country would generate from the fund if all the workers in Nigeria are in the scheme.
‘‘It will be much more money. It is very painful that we have only seven million workers contributing to the fund in a country with over N170 million population,” he said.
Meanwhile, PenCom director-general, Mrs. Chinelo Anohu-Amazu, has explained that what has kept the fund growing is the prudent way it is being managed, adding that no fraud had been recorded in the scheme.