Posted on August 30, 2017
The Pension Reform Act, PRA, the enabling law governing the Contributory Pension Scheme, introduced in 2004, was amended in 2014 with the aim of addressing challenges experienced by the nascent industry. In this interview with the Financial Vanguard team at the just concluded workshop for Finance, Insurance, Labour Reporters and Business Editors, President, Pension Operators of Nigeria and MD/CEO, AIICO Pension Managers Limited, Mr. Eguarekhide Alonge spoke on efforts to implement the new law, PRA 2014, and why it is difficult to use the N5.9 trillion pension contributions to finance Infrastructure development in Nigeria.
There is no over regulation. The regulation is very well in place. We are set to acquire investment that can make societal impact such as in infrastructure. However the environment is not ready. Contractual and regulatory environment does not seem ready because you need to have everybody speaking the same language because infrastructural investment takes time and a lot of planning. If you are going to take assets for that length of time, you must design them well and ensure that you deliver them on time and then you must know when the cash is going to be delivered and that people who advance you the money will be paid back on time.
Government strategy We don’t understand what government strategy is. If government strategy is clear and well focused. How many amendments in the 2014 pension act is being implemented Most of them. However there are challenges. The federal government is not yet able to comply with the 18 per cent contributions but I think they are working on that. They are still in public finances. But all the others are still being implemented. PenCom recovery agents are going to people who have three employees and above to see that they are complying. The mortgage aspect is being discussed significantly. I know that discussion with the minister has been, rather than access to 25 per cent mortgage, why don’t you initiate mortgage that can be delivered at an affordable rate by a broadly conceived housing scheme that makes houses affordable enough for people to access mortgage so they don’t need to take out of their retirement savings accounts.
They will get access to mortgage and they will get housing to be delivered to solve housing problems. So these are the changes that are being implemented. For those who lose their job, why is the delay in the process of accessing 25 per cent of the contributions as stipulated in the Act? It is not long. There are documents which the person needs to provide. Processing and approval issues If you provide those documents on time you will get your money. Sometimes there are processing and approval issues but they don’t take an inordinate length of time. In some cases people cannot provide evidence that they have left their jobs maybe those are some of the gaps.
For the documents you have to provide discharge letter from your employer that you have left the job and also an application letter and then your identification. The industry is targeting to increase pension contributors from 7.5 million to 20 million by 2019. How realistic and achievable is this? If we don’t get there we will get close. Operators believe that rather than all this focus on the states, why don’t we focus on the informal sector, develop it and then expand the coverage. In my own view, I think Nigeria is going to be an example of how the informal sector can work in pensions. What are your association doing about employers who refuse to remit pension deducted from their employees? It is criminal and I think PenCom has instructed the EFCC to go after such employers but what is also important is that the employees need to send this information.
There is a whistle blowing channel through PenCom website that you can follow. If you follow that channel you will be investigated and your employer will be brought to book. Some people have been sanctioned or brought to book through that channel. But if we don’t have information I can’t be going round all the organizations looking for who has taken money and not release it. A lot of people are afraid that if they speak too much they will lose their job but then that is why there is a whistle blowing channel. I don’t need to know who said it but if I get the information I can go and get it and then PenCom will apply the appropriate sanctions. What are other challenges confronting pension operators? The biggest challenge we face is compliance.
The average compliance rate for contribution is 60 per cent so you have 40 per cent registered but not contributing and there are so many reasons for that. Some people just register so that they can get compliance certificate and get listed for bidding for contracts and then stopped contributing. There are some people who have left. Investment challenge There are some organizations that have collapsed and there are some people who also deduct money and don’t pay. Also there are state governments that have stopped contributing, so that is why I said compliance rate is not more than 60 per cent.
At the Association level what are you doing to address this challenge? There is nothing I can do to an organization that is dead. If a state government said they cannot pay even the federal government can’t do anything to them, what can the association do? You need to fight your battles according to which are most important. We are facing an investment challenge, compliance challenge. We need to fix the investment challenge properly before we go in that direction. We work with PenCom to see how we can get the compliance level up and I think with improved macroeconomic environment all those things will begin to change and people will comply voluntarily.