NGF’s Plan to ‘Borrow’ From Pension Funds: Between Rumours, Facts and the Law

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THE Pension Reform Act (PRA) 2014 has inbuilt provisions aimed at safeguarding pension funds accumulated under the Contributory Pension Scheme (CPS). The funds are credited into Retirement Savings Accounts (RSAs) opened with Pension Fund Administrators (PFAs) by employees who are the owners of the funds.

PFAs manage and invest the funds in accordance with guidelines issued by the National Pension Commission (PenCom), the regulator of all pension schemes in the country. The funds are warehoused with Pension Fund Custodians (PFCs) who receive contributions on behalf of PFAs. The pension industry, no doubt, is a highly regulated.

Hajia Aisha Umar-Dahiru, DG PenCom

Attempts aimed at discrediting the CPS
Since the inception of the CPS in 2004, there have been, and there continues to be, attempts by certain individuals who have taken it upon themselves to discredit the scheme. The grouse of the first set of these individuals is understandable. There used to be pension fund managers and insurance companies that were managing pension funds from private sector organisations and government parastatals prior to the pension reform in of 2004 and were not able to meet the requirements for registration as PFAs post 2004.

While some members of this group went to the extent of instigating and sponsoring some private sector unions to file a suit against the CPS, others went to the extent of instigating staff of federal government parastatals and agencies to opt out of the CPS, and mounted pressure for by sponsoring bills for alternative pension system to the National Assembly. Yet, others went to further extent to discredit the activities of emergent PFAs, the PenCom as a regulator and some of its senior officials.

The current misrepresentation of what transpired in the meeting of the Nigeria Governors Forum held on Wednesday 2nd December 2020 may just be part of a broader plot from the past to discredit the CPS.

However, there are several state governments that have not keyed into the CPS. Some that have keyed into it are in default of their own laws. These state governments should stay away from anything that has to do with investment of pension funds. They should put their mouths were their pockets are. They have no business with pension funds accumulated under the CPS.

NGF’s communiqué after its meeting
I have read the communiqué of Nigeria Governors Forum (NGF) that is at the root of the current rage, issued at the end of NGF’s 22nd meeting held on Wednesday, 2nd December 2020. There is nowhere in the communiqué where the borrowing of N17 trillion pension fund by the NGF for infrastructure development was mentioned.

Governor Nasir el-Rufai

What I read in the communiqué was that Governor Nasir el-Rufai, Chairman of the National Economic Council (NEC’s) ad hoc Committee on Leveraging Portion of Accumulated Pension Funds for Investment in Nigeria’s Sovereign Investment Authority (NSIA), briefed the meeting on the proposal. The proposal is to create a National Infrastructure Investment Fund (NIIF) under the auspices of the NSIA.

The amount proposed to be accessed from pension fund is N2 trillion. The CBN has a similar proposal to access N15 trillion for National Infrastructure funding through INFRACREDIT at a lower interest rate of 5%. The communiqué said the meeting endorsed the two proposals, noting that both were not mutually exclusive and could be adopted simultaneously with one streaming into the other.

Position of the Pension Reform Act 2014
In addressing the question of what is the position of the law with regards to the proposal or intent of the NGF and CBN, I wish to state what many in and out of the industry already know, which is that, pension funds are long term investable funds that can be leveraged for economic development, given the right institutional as well as legal framework and economic conditions. Improvement in the liquidity and efficiency of the stock market provides incentives for long-term investments and hence economic growth. This is what gave rise to the provisions in Section 86 of the PRA 2014.

Section 86 of the PRA 2014 provides that subject to guidelines issued by the Commission, pension funds and assets shall be invested in any of the following instruments. The instruments are listed from paragraphs (a) to (i) of the Section. Paragraph (i) provides for investment on “specialist investment funds and such other financial instruments as the Commission may, from time to time, approve.” What is being proposed is covered by this provision of the law.

As one who represented Nigerian workers in the Pension Reform Committee, whose work gave rise to the CPS, first under PRA 2004 and later PRA 2014; becoming a member of the pioneer Board of PenCom representing workers and now a retiree under the CPS, I wish to advice workers and the general public to have faith in the CPS.

Section 115 (1) of PRA 2014 also provides that: “The Commission may make regulations, rules or guidelines as it deems necessary or expedient for giving full effect to the provisions of this Act”. In line with the spirit of this provision, PenCom had issued guidelines for investment of pension funds, which are subject to reviews from time to time.

The implication of the proposal to contributors
The short and long term implications of the proposal to the contributors of the funds, who are the primary beneficiaries, are intertwined. Legally, pension funds, composed of contributions of employers, employees and return on investments, which are in the Retirement Savings Accounts of workers, are to be invested. The more the funds are invested, the more money it generates for contributors in the short term and the higher pension benefits that will accrue to the employees on retirement.

As pension funds grow, the challenge to get safer and more profitable financial instruments for the investment of the funds becomes obvious and pronounced. In the absence of such instruments, the funds will lie idle in the RSAs of contributors without yielding sufficient investment income for sufficient retirement benefits upon retirement. The proposal is therefore a welcome development for the owners of the fund, the workers and the investing institution for the development of the economy.

Some of the infrastructure to be invested upon will be social infrastructure whose development will impact positively in the welfare of citizens including the owners of the invested fund, the workers.

Those who must not benefit from pension funds
Pension funds have a strong social connection apart from its economic connection. Pension is an old age social security. The CPS that accumulated the funds we are discussing is a product of pension reform in the country, with PRA 2014 being the most recently updated law.

However, there are several state governments that have not keyed into the CPS. Some that have keyed into it are in default of their own laws. These state governments should stay away from anything that has to do with investment of pension funds. They should put their mouths were their pockets are. They have no business with pension funds accumulated under the CPS.

Conclusion
Most people did not give the CPS any chance of survival, let alone it coming into being. A pension industry that evolved through the CPS, which has become a fast growing industry that has accumulated long term investable funds, which is now being considered to leverage for economic development of the nation. The industry is creating jobs for our teaming unemployed youth with diverse professional backgrounds and a value chain in the financial sector of the economy.

As one who represented Nigerian workers in the Pension Reform Committee, whose work gave rise to the CPS, first under PRA 2004 and later PRA 2014; becoming a member of the pioneer Board of PenCom representing workers and now a retiree under the CPS, I wish to advice workers and the general public to have faith in the CPS.

PenCom has competent, dedicated professionals in diverse fields, which include but not limited to lawyers, investment managers, risk management officers, finance administrators, IT specialists as staff, who daily monitor activities of pension operators with the aim of ensuring that they operate within the confines of the law.

From 2004 to date, sixteen years down the line, no government has tampered with the funds even if they wished. Pension funds are invested not borrowed.

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