The new pension scheme, popularly known as the Contributory Pension Scheme(CPS) which commenced in 2004, now boasts of N14.5 trillion pension fund assets as at the end of August, 2022.
Though, the scheme is expected to reduce old age poverty and allows Nigerian workers enjoy their retirement, the scheme now offers better value for money with several inducement built into the scheme for Retirement Savings Account(RSA) holders.
While it guarantee better life at retirement, any workers who lost his or her job and couldn’t get any other one within four months, has the right to approach his Pension Fund Administrators(PFAs) to demand for 25 per cent of his or her pension savings.
The Pension Reforms Act(PRA) 2014 allows contributors, under the age of 50 years, who were disengaged from work and were unable to secure another job within 4 months of disengagement, to access 25 per cent of their respective Retirement Savings Accounts (RSAs).
In 2021, approvals were granted for the payment of N20.86 billion to 40,858 RSA holders in this regards, while employees of the Federal and State Governments accounted for 11,751 (2.85%) and 7,746 (1.88%) cases of those who accessed 25 per cent of RSA balances respectively. Private Sector employees accounted for 393,482 cases. Cumulatively, 412,979 RSA holders had accessed 25 per cent of their RSA balances due to temporary loss of jobs, as at 31 December 2021.
Meanwhile, a fortnight ago, PenCom commenced the implementation of guidelines on accessing Retirement Savings account (RSA) balance for payment of equity contribution for residential mortgage by pension contributors.
PenCom added that, the approval was in line with Section 89 (2) of the Pension Reform Act (PRA) 2014, which allows RSA holders to use a portion of their RSA balance towards payment of equity for residential mortgage.
In the guidelines highlighted, it said, the plan covers pension contributors in active employment, either as a salaried employee or as a self-employed person.
The pension sector regulator maintained that the maximum amount to be withdrawn shall be 25 per cent of the total mandatory RSA balance as at the date of application, irrespective of the value of equity contribution required by the mortgage lender.
Similarly, the cumulative investment returns on the nation’s N14.5trillion pension fund assets may have crossed N3 trillion, translating to about 20 per cent of the entire pension assets and better values for pension contributors across the country, NATIONAL ECONOMY can exclusively reveal.
This is a cheering news as the investment returns automatically increased the pension balance in the RSA of contributors to ensure that workers have a full basket of savings at the point of retirement.
Although, it is quite difficult to calculate and get the exacts returns on investment of pension assets, market sources put the returns above N3 trillion from 2004 till now, which they said, were largely driven by investments in bonds market, with 70 per cent of the assets invested in federal government bonds and securities.
However, bank placement seems to be the major investment window current giving higher investment returns as PFAs besieged banks for this product.
Responding to NATIONAL ECONOMY enquiry on the attraction of Pension Fund operators to bank placements in the current year, the managing director/CEO, Access Pension Fund Custodian(PFC), Mrs. Idu Okwuosa, said, the increased investment in bank placements by operators was as a result of the lull in the bond market as the process of the matured bonds find their way into this investment class.
Stating that the significant growth in pension assets was majorly from investment returns, Okwuosa, who is also the head, Branding Committee of the Pension Fund Operators Association of Nigeria(PenOp) added that, interest from bank placements contributed majorly to the investment returns.
“Because of the issues in the bond market and a lot of attention on it, operators are increasing their stake in bank placements. It’s been profitable in terms of investment returns and the turnover is good. The growth in pension assets is also attributable to this. In the end, the major beneficiaries are the contributors who will continue to witness growth on the balance in their Retirement Savings Accounts(RSAs).”
Similarly, the chief executive officer(CEO) of the Pension Fund Operators Association of Nigeria(PenOp), Mr. Oguche Agudah, said, while pension operators work assiduously to grow the pension fund assets contributed by Retirement Savings Account (RSA) holders, they are very keen in balancing between safety and returns on investments.
Reacting on the use of pension contribution for mortgage, he noted that, this policy has the potential to spur growth in other sectors of the economy, while boosting mortgage finance and home loan sector, in addition to having a positive effect on the construction value chain and building materials sector.
To this end, he said, RSA holders will now begin to plan towards a target RSA balance because they have a goal of owning a home.
“We also believe that voluntary contributions will increase because people can use the contingent portion of their voluntary contributions as part of the equity contribution for residential mortgages. In addition, more companies will now take their contributions more seriously as will staffs of these companies,” he emphasised,
Believing this policy is net positive for the pension industry and the economy as a whole, he added that, the effects are catalytic and will help to galvanise various sector of the economy.
On his part, chairman/CEO, Achor Actuarial Services Limited, Dr. Pius Apere, said, the payment of equity contribution for residential mortgage would provide a financial peace of mind to RSA holders because; the necessary funds required to buy a house are readily available and that owning a residential property would mean no payment of rent and hence an increase in disposable income to maintain a certain standard of living after retirement.
The RSA holders, he stressed, will no longer be paying off the mortgage with RSA balance at retirement.
“The residential property is a physical asset that would appreciate in value over time leading to value for money at the point of sales to RSA holder or retiree. This is particularly important for a RSA holder and/or retiree who own a residential home and need long term care immediately or in the future. Such a RSA holder or retiree can make retrospective payments of the cost of long term care by using an equity release which unlocks the value built up in the home as a tax free lump sum. The cost is usually repaid when the RSA holder or retiree moves into long term care home or dies,” he pointed out.
Earlier, the managing director/CEO of the ARM Pension, Mr. Wale Odutola noted that, the withdrawal of 25 per cent of pension contribution for job loss would go a long way to reposition the lives of benefiting contributors for the better, noting that, some have even used this proceed to start their own businesses.
He said this is one of the attraction of the new pension scheme, stressing that operators are not worried about such withdrawal as investment strategies of most PFAs has been structured to accommodate such withdrawal. He urged the contributors who may have lost jobs in the last four months and yet to get fresh one, to approach their PFAs to access part of their contributions.
The director-general, National Pension Commission(PenCom), Mrs. Aisha Dahir-Umar, had said, her commission is committed to ensuring the safety of pension funds, stating that, adequate structures have been established in this regard.
She also promised that the pension regulatory body will continue to develop and implement innovative polices to foster safety and fair returns on pension fund investment as the pension industry and financial system evolves.
“As the pension industry and financial system evolves, the Commission would also continue to develop and implement innovative policies to foster safety and fair returns on pension fund investment,” she added.
Meanwhile, Agusto & Co believes operations, activities and prosperity of the pension industry are crucially hinged on the direction of PenCom’s regulation, which the research firm expects to remain robust given the industry’s strategic importance to the Nigerian economy, and the need to more closely align the Nigerian pension scheme with international standards in the near term.
Agusto & Co. also estimates that growth in pension assets will slow from a five-year average of 19% to c10% in 2022 due to a combination of a muted interest rate environment and a slowdown in the rate of contributions which has been impacted by mass emigration and high unemployment. We, therefore, expect pension assets to reach N14.8 trillion by the end of 2022.
Aside the aforementioned positives of the nation’s pension fund assets, it has also been invested in construction of roads and several social amenities across the country to make life and living easier for Nigerians, it pointed out.
