National Pension Commission A developing economy perspective on Pension Fund Reforms and liberalisation of the domestic economy: Nigeria Presentation by

National Pension CommissionNational Pension Commission

A developing economy perspective on Pension Fund Reforms and liberalisation of

the domestic economy Nigeria

Presentation by M K Ahmad

Director-General National Pension Commission

August 2007 helliphellipensuring your comfort after retirement

National Pension National Pension CommissionCommission2222

Presentation Outline

Rationale for ReformRationale for Reform Objectives of the Reform Objectives of the Reform Key features of the schemeKey features of the scheme Implementation BreakthroughImplementation Breakthrough Pension reform and the economy Pension reform and the economy Key success factors Key success factors Pension fund investmentsPension fund investments Lessons and policy implicationsLessons and policy implications


RationaleGoals of the Reform

Pensions Pensions ReformsReforms

Most schemes were under or unfundedUnsustainable outstanding pension liabilitiesWeak and inefficient pensions administration Defined Benefit SchemePAYG was unsustainableMost workers in the Private Sector not covered by any form of retirement benefit arrangements

Ensure that every worker receives his retirement benefits as and when due

Empower the workers amp assist them to save in order to cater for their livelihood during old age

Establish uniform rules regulations and standards for administration of pension matters

Secure compliance amp promote wider coverage

Primary objectives of Reform Primary objectives of Reform

Rationale for ReformsRationale for Reforms


Secondary objectives of Reform An integral part of government medium term development agenda An integral part of government medium term development agenda

ndash National Economic Empowerment and Development Strategy ndash National Economic Empowerment and Development Strategy (NEEDS)(NEEDS)

To reduce the fiscal cost of pension to the government To reduce the fiscal cost of pension to the government Stem the growth of outstanding pension liability Stem the growth of outstanding pension liability Mobilise long term savings Mobilise long term savings Stimulate the development of an efficient capital marketStimulate the development of an efficient capital market Provide long term finance for the real sector Provide long term finance for the real sector Promote GDP growth Promote GDP growth

National Pension National Pension CommissionCommission55 5

Key features of the schemeKey features of the scheme

The Key Elements of the Pension Reform

The Establishment of Contributory Pension Scheme for both Public and Private Sectors

The Establishment of Transitional Provisions for both the Public and Private Sectors

The establishment of PenCom as a single Supervisor amp Regulator of all pension matters in the Country


Key features of the scheme hellip contrsquod

Old System New System

Type Largely Defined Benefit

Defined Contribution

Funding Mostly unfunded amp PAYGO

Contributory amp Fully Funded

Membership

Coverage

Voluntary in private sector

Mandatory for all employees

Pension Portability Not Portable Personalised amp Very Portable

Management Largely State amp Management amp Union Influence

Private Sector amp Individual Choice




Retirement

Benefits

Discriminatory Uniform Application

Supervision Fragmented amp Unregulated (SEC NAICOM JTB)

Strictly regulated by PenCom

Pension Liabilities

Implicit amp not transparent

Explicit through Retirement Bond amp Capped

Tax exemption

Limited Contribution amp Retirement Benefits

Insurance Policy

Voluntary amp mostly in private sector

Mandatory for all employers


Implementation Breakthrough

Establishment of Supervisory and Regulatory FrameworkRegulationsGuidelines Issued (Transitional arrangements Licensing Investments valuation of investments Fees Structure Life Policy and Operational Guidelines)

Reporting requirements for operators amp Daily monitoring

Consultative process in rule - making

Licensing of Operators23 PFAs 4 PFCs 6 CPFAs

Registration of ContributorsRegistered a total of 245 million RSAs as at the end of July 07

Public sector ndash 7316

Private sector ndash 26841048766


Accumulation of Pension Funds Generated pool of long term investible funds for the first time in

Nigeria Estimated size of pension fund is N655 billion (USD 512 billion) as

at end of July 2007 amp Normal monthly accumulation of about N6billion (USD 005 billion)

Out of the assets N1902 billion (USD 149 billion) are new contributions while N4648 billion (USD 363 billion) are transferred by legacy funds

Public Sector Accrued Pension Rights being covered by Retirement Benefits Bond About N16 trillion (USD 125 billion) for over 800000 employees

Public education amp enlightenment SeminarsWorkshops Website FAQs also in local languages Strong partnership with key social partners- labouremployer

Unions General acceptance of the Scheme by employees amp key Unions

Implementation BreakthroughhellipContrsquod


Impact of the Reform on the economy

Social ImpactSocial Impact

Sustainable Economic GrowthSustainable Economic Growth

bull Promotion of Employment Generation Activities

bull Improves living Improves living standards of the standards of the elderlyelderly

bull Secures financial Secures financial autonomy amp autonomy amp independence of independence of retireesretirees

bull Improves Labour Improves Labour marketmarket

Buoyant Buoyant Capital MarketCapital Market

bull Increased market integritytransparency

bull Innovative productsbull Improved regulationsupervisionbull Creation of domestic institutional

investorsbull Vibrant and competitive securities

marketbull Lower transaction costsbull Improved integritycorporate

governancebull Avenue for long term borrowing


Key Success FactorsKey Success Factors

Political will and policy consistency and continuity are essential Political will and policy consistency and continuity are essential Macro economic stability and low inflation to protect pension Macro economic stability and low inflation to protect pension

assets (single digit inflation achieved and lowerstable exchange assets (single digit inflation achieved and lowerstable exchange rate) rate)

Effective regulation and supervision Effective regulation and supervision Commitment create an effective agency- licensing inspectionCommitment create an effective agency- licensing inspection

Level of development of the financial market is criticalLevel of development of the financial market is critical Determine the type of pension reform (multi-pillar not appropriate with Determine the type of pension reform (multi-pillar not appropriate with

underdeveloped financial market)underdeveloped financial market) Number and diversity of financial instrumentsNumber and diversity of financial instruments Liquidity and valuation of assets Liquidity and valuation of assets Transparency and efficient settlement system is keyTransparency and efficient settlement system is key

Sound banking and insurance companies due to banking and Sound banking and insurance companies due to banking and insurance reforms insurance reforms Contributions and payments Contributions and payments Insurance and annuity contracts Insurance and annuity contracts Custodial servicesCustodial services


Pension Fund Investment Management Key Objectives

Secure safety amp security of funds Ensure adequate affordable and sustainable

benefits Link between contribution and benefits Ensure diversification amp acceptable risk levels Safeguard conflict of interest Promote amp sustain public confidence


Pre-requisites for Pension Fund Investments in Nigeria

Authorised Markets for Trading Primary - new issues Secondary ndash Floors of recognised Stock Exchange

Quality of Instruments InstrumentsIssuers must be rated Records of past profitability andor dividends payouts Instruments must be readily marketable

Foreign investments and derivatives are future possibilities

Regulated investment limits (asset classinstruments) amp performance benchmarks


Direct real estate private equitiesventure capital and unlisted securities ndash not allowed due to Valuation and reporting issues Liquidityexit Transparency and disclosure requirements Specialized expertise and the need for capacity

building Need to build contributorsrsquo confidence

Un-authorised investmentsfuture possibilities


Indirect promotion of other businessesinstitutional operators Sales agents Stock brokers Rating agencies Insurance companies and brokers Mutual funds Mortgage finance institutions ndash through mortgage

bonds or mortgage securitization Factoring and Leasing

Opportunities for entrepreneurs


Pension reform should not be an isolated policy Pension reform should not be an isolated policy decision but complimentary to other reformsdecision but complimentary to other reforms Financial sector reform etcFinancial sector reform etc

Political will and policy consistencycontinuity are Political will and policy consistencycontinuity are essential essential

Adequate and timely delivery of data are essential for Adequate and timely delivery of data are essential for planning planning

Conducive investment climate that would create Conducive investment climate that would create avenues to invest the pool of pension fundsavenues to invest the pool of pension funds

Lessons and policy implications Lessons and policy implications


Challenges of expanding coverage of the informal Challenges of expanding coverage of the informal sector problem of identification securing buy-in sector problem of identification securing buy-in irregular income basis for contribution mode of irregular income basis for contribution mode of collectioncollection

Challenges of enforcement compliance and evasionChallenges of enforcement compliance and evasion Inter-regulatory agenciesrsquo co-operation is essential Inter-regulatory agenciesrsquo co-operation is essential Awareness and sensitization programmes Awareness and sensitization programmes Need for skill development and capacity building Need for skill development and capacity building

Lesson for developinghellipContrsquodLesson for developinghellipContrsquod


SEC- Securities amp Exchange CommissionSEC- Securities amp Exchange CommissionPenCom- National Pension CommissionPenCom- National Pension CommissionNAICOM ndash National Insurance CommissionNAICOM ndash National Insurance CommissionJTB ndash Joint Tax BoardJTB ndash Joint Tax BoardPFA ndash Pension Fund AdministratorPFA ndash Pension Fund AdministratorPFC ndash Pension Fund CustodianPFC ndash Pension Fund CustodianCPFA ndash Closed Pension Fund AdministratorCPFA ndash Closed Pension Fund AdministratorRSA ndash Retirement Savings AccountRSA ndash Retirement Savings AccountABS ndash Asset backed Securities ABS ndash Asset backed Securities MBS ndash Mortgage Backed SecuritiesMBS ndash Mortgage Backed SecuritiesREITs- Real Estate Investment TrustsREITs- Real Estate Investment Trusts

Abbreviations Abbreviations


Thank You

National Pension Commission

Plot 174 Adetokunbo Ademola Crescent

Wuse II Abuja - Nigeria

234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng


Presentation Outline

Rationale for ReformRationale for Reform Objectives of the Reform Objectives of the Reform Key features of the schemeKey features of the scheme Implementation BreakthroughImplementation Breakthrough Pension reform and the economy Pension reform and the economy Key success factors Key success factors Pension fund investmentsPension fund investments Lessons and policy implicationsLessons and policy implications




























Membership

Coverage









Retirement

Benefits




Pension Liabilities



Tax exemption


Insurance Policy











































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng




























Membership

Coverage









Retirement

Benefits




Pension Liabilities



Tax exemption


Insurance Policy











































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng


















Membership

Coverage









Retirement

Benefits




Pension Liabilities



Tax exemption


Insurance Policy











































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng














Membership

Coverage









Retirement

Benefits




Pension Liabilities



Tax exemption


Insurance Policy











































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng








Membership

Coverage









Retirement

Benefits




Pension Liabilities



Tax exemption


Insurance Policy











































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng




Retirement

Benefits




Pension Liabilities



Tax exemption


Insurance Policy











































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng









































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng
































































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng























































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng









































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng

































Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng





























Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng























Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng



















Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng















Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng









Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng





Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng


Thank You




234 (9) 413 8736 ndash 40

infopencomgovng

wwwpencomgovng

Documents

National Pension Commission A developing economy perspective on Pension Fund Reforms and liberalisation of the domestic economy: Nigeria Presentation by