The Nigerian Pension System

Transcription

1 The Nigerian Pension System 1

2 Group Members K. O. Adu Labi Ghana Mohamed Hussain Maniku Maldives Ahmed Shafeez Maldives AbdulQadir Mohammed Dahiru Nigeria Farouk Aminu Nigeria 2

3 Government Democracy Federal, States, Local Governments Population about 152 million (Population figures estimated in 2010) Slightly higher estimates Eighth most populous country in the world 0-14 years: 41.5% years: 55.5% 65 years and over: 3.1% Location - Western Africa, bordering the Gulf of Guinea, between Benin and Cameroon; also bordering Niger Republic Area - total: 923,768 sq km Country comparison to the world: 32 Nigeria Country Profile Land: 910,768 sq km Water: 13,000 sq km Natural Resources - natural gas, petroleum, tin, iron ore, coal, limestone, niobium, lead, zinc, arable land Natural Hazards - periodic droughts; flooding 3

4 Pension Schemes Before Reforms Public Sector Schemes Schemes: Pension ordinance 1951 Decrees 102 and 103 of 1979 Unified Pension Schemes for Parastatals Unfunded and inadequate budget allocations Unsustainable outstanding pension liabilities estimated at N2 trillion Weak administration Unsustainable due to demographic shifts and inefficient administration Accrued Benefits determined $11.13 billion Paid arrears - $529.8 million Most of the over 300 Parastatals schemes were bankrupt Working to determine arrears Coverage was 1.3% for both public and private sectors as at 1990 Pension Reform Act enacted in 2004 Schemes: Private Sector Schemes Legacy Nigeria Breweries 1954 United Africa Company 1957 NPF 1961 NSITF Decree 73 of 1993 Most workers not covered by any form of retirement benefit arrangements Pension Schemes had been largely unregulated with highly diversified arrangements Most were resignation than retirement schemes Weak and inefficient administration 4

5 The Nigerian Contributory Pension Scheme: Features Contributory Contributions by both employer and employee Voluntary contributions Legacy Schemes (later CPFA & AES) o o Cash injection by sponsors in most cases Annual actuarial valuations sponsors make up the shortfall Individual Accounts Privately Managed Life Insurance Cover 3 times employee s emoluments & Premium to be paid by employer Coverage and Exemptions Strictly Regulated and Supervised Transitional Arrangements Public and Private Other arrangements NHF, NHIS 5

6 Separation of functions of PFA and PFC Pension Assets Custodian Guarantee Risk Rating of Investment Instruments Appointment of Compliance Officers as well as Investment and Risk Management Committees Government contribution shall be a charge on Consolidated Revenue Fund of the Federation The Nigerian Contributory Pension Scheme: Safeguards Pension assets held by a Custodian shall not be used to meet the claim of any Custodian s creditors in event of liquidation of the Custodian Pension assets held by a Custodian shall not be seized or subject to execution of judgment debt or stopped from transfer to another Custodian Sale of pension assets, grant of loan or use as collateral is prohibited 6

7 The Nigerian Contributory Pension Scheme: Stakeholders in the Industry Employer PFC Employee/ Retiree PFA/CPFA PenCom National Assembly Senate Committee on Establishment House Committee on Pensions Other Major Stakeholders CBN SEC, NSE Federal Ministry of Finance Budget Office FIRS NAICOM NLC, NECA NUP 7

8 The Nigerian Contributory Pension Scheme: Industry Overview Operators in the Industry 25 PFAs 5 PFCs 7 CPFAs 19 AES Scheme Memberships as at Q2: 2010 RSA 4,540,352 CPFA 26,606 AES 41,410 8

9 Industry Overview cont d Public vs Private Memberships 3,000, % 2,500,000 2,000, % 63.55% 58.90% 41.10% 41.79% 1,500, % Public Private 1,000, % 500, Q2:2010 9

10 Industry Overview cont d Memberships by Gender 3,500, % 3,000, % 72.27% 2,500,000 2,000, % Male 1,500,000 1,000, % 27.78% 27.73% 27.95% Female 500, Q2:

11 Industry Overview cont d 6.00 Pension Fund Assets by Scheme Type 5.00 Amount ($ billion) RSA CPFA :Q1 2007:Q2 2007:Q3 2007:Q4 2008:Q1 2008:Q2 2008:Q3 2008:Q4 2009:Q1 2009:Q2 2009:Q3 2009:Q4 2010:Q1 2010:Q2 AES 11

12 Accrued Retirement Benefits (Gratuity & Pension) up to June 30, 2004 recognized Obligations backed by regular Funding by the FGN 5% of Monthly Wage Bill set aside at the Central Bank of Nigeria Types of Retirement Mandatory Retirement Retirement based on terms and conditions of service Retirement on medical grounds Option of Programmed Withdrawal and life annuity Lump sum withdrawal at exit Retirement Benefits Monthly/Quarterly Pension Payments Right to change to another PFA in case of Programmed withdrawal Right to switch to life annuity from Programmed Withdrawal For CPFA and AES, retirement benefits are according to terms and conditions of service 12

13 Coverage Lack of data on eligible employers Compliance by employers especially small and medium sized enterprises Contribution is viewed as an additional operating cost Highly increased number of over 65 year olds Lower income/wages make the contributions of some private sector employees insignificant towards provision of adequate retirement benefits Extending coverage to the informal sector, self employed and the elderly who neither worked for government nor private employer Investment of Pension Funds Assets: Limited investment instruments to optimally absorb pension fund assets & insurance assets for companies providing life annuities Many good companies not listed on the stock exchange Ensuring real return on investment No offshore investments yet Challenges Underdeveloped insurance market 13

14 Very few reliable rating agencies Corporate Governance Challenges...cont d Strict adherence to regulations & guidelines Culture of transparency /accountability Appropriate internal controls Accuracy & reliability of reports to the regulator 14

15 Increased public education and awareness Strong commitment by Government & Political will Future Outlook/Prospects Must produce evidence of compliance if company is going to do any business with government Working to review the Act to address some implementation bottlenecks Macro economic stability, strong banking reforms & capital markets reform initiatives Dynamic investment regulation being introduced Consistent and strong support of social partners, etc Implementation of the minimum guaranteed pension NSITF should come under the supervision of the Commission 15

16 Commitment to establishing strong corporate governance in the industry Recently developed a 4 year strategy plan to address some strategic concerns that border on all facets of the reform ICT, Regulation, Coverage, Research, Funding, Public Education, Databank development and management, Industry capacity building, Investment and risk management, etc Developed insurance market Development of rating agencies Future Outlook/Prospects...cont d To create more stability in the market by reducing risk in the industry 16

17 Anticipated Benefits Wider coverage especially with increased compliance by eligible employers Better risk management Deeper & robust financial market Better & robust economy Improved returns on investment resulting in better pensions Happy people, safe society and secured retirement 17

18 Thank You!!! Contacts: National Pension Commission 174 Adetokunbo Ademola Crescent Wuse II Abuja - Nigeria info@pencom.gov.ng 18