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World Bank Core Course on Pension
November 2010
The Nigerian Pension System
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World Bank Core Course on Pension
November 2010
K. O. Adu Labi GhanaMohamed Hussain Maniku MaldivesAhmed ShafeezMaldivesAbdulQadir Mohammed Dahiru NigeriaFarouk Aminu Nigeria
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Group Members
World Bank Core Course on Pension
November 2010
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% 15-64 years: 55.5% 65 years and over: 3.1%
Location - Western Africa, bordering the Gulf of Guinea, betweenBenin and Cameroon; also bordering Niger RepublicArea - total: 923,768 sq km Country comparison to the world: 32 Land: 910,768 sq km Water: 13,000 sq km
Natural Resources - natural gas, petroleum, tin, iron ore, coal,limestone, niobium, lead, zinc, arable landNatural Hazards - periodic droughts; flooding
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Nigeria – Country Profile
World Bank Core Course on Pension
November 2010
Public Sector Schemes Private Sector Schemes Schemes: Pension ordinance 1951 Decrees 102 and 103 of 1979 Unified Pension Schemes for
Parastatals - 1997 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 Parastatalsschemes were bankrupt Working to determine arrears
Coverage was 1.3% for both publicand private sectors as at 1990
Pension Reform Act enacted in 2004
Schemes: Legacy Nigeria Breweries – 1954 United Africa Company – 1957
NPF – 1961 NSITF – Decree 73 of 1993
Most workers not covered by anyform of retirement benefitarrangements
Pension Schemes had been largelyunregulated with highly diversifiedarrangements
Most were “resignation” thanretirement schemes
Weak and inefficient administration
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Pension Schemes Before Reforms
World Bank Core Course on Pension
November 2010
The Nigerian Contributory Pension Scheme: Features
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Contributory Contributions by both employer and employee Voluntary contributions Legacy Schemes (later CPFA & AES)
o Cash injection by sponsors in most caseso Annual actuarial valuations – sponsors make up the shortfall
Individual AccountsPrivately ManagedLife Insurance Cover 3 times employee’s emoluments & Premium to be paid by employer
Coverage and ExemptionsStrictly Regulated and SupervisedTransitional Arrangements – Public and PrivateOther arrangements – NHF, NHIS
World Bank Core Course on Pension
November 2010
Separation of functions of PFA and PFCPension Assets Custodian GuaranteeRisk Rating of Investment InstrumentsAppointment of Compliance Officers as well asInvestment and Risk Management CommitteesGovernment contribution shall be a charge onConsolidated Revenue Fund of the Federation Pension assets held by a Custodian shall not be used to
meet the claim of any Custodian’s creditors in event ofliquidation of the Custodian
Pension assets held by a Custodian shall not be seized orsubject to execution of judgment debt or stopped fromtransfer to another Custodian
Sale of pension assets, grant of loan or use as collateral isprohibited
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The Nigerian Contributory Pension Scheme: Safeguards
World Bank Core Course on Pension
November 2010
The Nigerian Contributory Pension Scheme: Stakeholders in the Industry
Employee/Retiree
Employer
PFA/CPFAPFC
PenCom
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Other Major StakeholdersNational Assembly •Senate Committee on Establishment•House Committee on Pensions
CBN SEC, NSE
Federal Ministry of Finance – Budget Office FIRS NAICOMNLC, NECA NUP
World Bank Core Course on Pension
November 2010 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
World Bank Core Course on Pension
November 2010 9
Public vs Private Memberships
Industry Overview … cont’d
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2007 2008 2009 Q2:2010
PublicPrivate
68.97%
31.03%
63.55%
36.45%
58.90%
41.10%
58.21%
41.79%
World Bank Core Course on Pension
November 2010 10
Industry Overview …cont’d
Memberships by Gender
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2007 2008 2009 Q2:2010
MaleFemale
70.48%
29.52%
72.22%
27.78%
72.27%
27.73%
72.05%
27.95%
World Bank Core Course on Pension
November 2010 11
Industry Overview …cont’d
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2007
: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
Am
ount
($ b
illio
n)
Pension Fund Assets by Scheme Type
RSACPFAAES
World Bank Core Course on Pension
November 2010
Accrued Retirement Benefits (Gratuity & Pension) up to June 30, 2004recognizedObligations 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 annuityLump sum withdrawal at exitMonthly/Quarterly Pension PaymentsRight to change to another PFA in case of Programmed withdrawalRight to switch to life annuity from Programmed WithdrawalFor CPFA and AES, retirement benefits are according to terms andconditions of service
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Retirement Benefits
World Bank Core Course on Pension
November 2010
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 sectoremployees insignificant towards provision of adequate retirementbenefitsExtending coverage to the informal sector, self employed and theelderly who neither worked for government nor private employerInvestment 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
Underdeveloped insurance market13
Challenges
World Bank Core Course on Pension
November 2010
Very few reliable rating agenciesCorporate Governance Strict adherence to regulations & guidelines Culture of transparency /accountability Appropriate internal controls Accuracy & reliability of reports to the regulator
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Challenges...cont’d
World Bank Core Course on Pension
November 2010
Increased public education and awarenessStrong commitment by Government & Political will Must produce evidence of compliance if company is going to do
any business with government Working to review the Act to address some implementation
bottlenecksMacro economic stability, strong banking reforms &capital markets reform initiativesDynamic investment regulation being introducedConsistent and strong support of social partners, etcImplementation of the minimum guaranteed pensionNSITF should come under the supervision of theCommission
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Future Outlook/Prospects
World Bank Core Course on Pension
November 2010
Commitment to establishing strong corporate governancein the industryRecently developed a 4 year strategy plan to addresssome strategic concerns that border on all facets of thereform – ICT, Regulation, Coverage, Research, Funding,Public Education, Databank development andmanagement, Industry capacity building, Investment andrisk management, etcDeveloped insurance marketDevelopment of rating agencies To create more stability in the market by reducing risk in the
industry
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Future Outlook/Prospects...cont’d
World Bank Core Course on Pension
November 2010
Wider coverage especially with increasedcompliance by eligible employersBetter risk managementDeeper & robust financial marketBetter & robust economyImproved returns on investment resulting inbetter pensionsHappy people, safe society and securedretirement
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Anticipated Benefits
World Bank Core Course on Pension
November 2010
Thank You!!!
Contacts: National Pension Commission174 Adetokunbo Ademola Crescent
Wuse II – Abuja - Nigeria09 4138736 – 40
09 8703389
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