The deployment and implementation of a Risk Management and Analysis System (RMAS), by the National Pension Commission, PENCOM, provided security to the Contributory Pension Scheme, CPS, and by extension opening opportunities to Infrastructure funding, writes Yemisi Izuora
One of the instruments deployed by Pension Industry regulator in Nigeria, the National Pension Commission, PENCOM, was the Implementation of a Risk Management and Analysis System, RMAS.
The commission continued in the direction of continuous fine tuning of its risk-based supervisory approach in the discharge of its supervisory and regulatory functions with the deployment of RMAS, which allows off-site examination of pension operators as well as generate timely industry
The commission developed such clairvoyance ostensibly to deal with unpleasant occurrences that was largely systemic in the industry.
Under its immediate past Director General, DG, Chinelo Anohu-Amazu, the agency employed a dynamic investment monitoring procedures that focus on risk issues as they affect the investment portfolios of pension funds.
This was backed by support activities toward the development of new financial instruments and deepening the financial market.
The commission under Anohu-Amazu consistently pursued the introduction of multi-funds, investment in infrastructure fund and bond as well as real estate.
In order to ensure successful implementation of these programmers, she integrated research instruments that enhanced investment and risk management.
Evidently under her leadership, the Nigerian pension reform became a model for many countries on the continent as the commission played host to countries like Malawi, Tanzania and Ghana
One of the key challenges of the sector was the issue of compliance among ·the small sized private sector employers because these organizations see the CPS as additional cost to their operations and are not willing to implement the scheme.
She indeed experienced the difficulties extending coverage to the informal sector and self employed persons due largely to their lack a coherent structure and renders their integration into the new scheme a difficult task. Policy issues like contribution rate, mode of collection and enforcement in the informal sector are still being addressed by the commission.
Similarly she realized the need to broaden the universe of investible instruments for pension fund investment in the presence of the continuous growth of pension funds. She also considered the drive for tax efficient laws that would promote the introduction of alternative assets as being critical in the commission’s effort to ensure the safety and sustainability of pension funds and assets.
As part of the efforts to enhance compliance with PRA 2014 and to ensure that stakeholders understand the workings of the CPS, the commission the. scaled up its enlightenment campaigns across different segments of the country, which include participation in workshops, seminars, and advocacy programmes to address identified challenges in the implementation of the CPS.
Anohu-Amazu made some concerted efforts while trying to grow the scheme to get government introduce a stable and predictable macroeconomic environment that is considered germane sustainability and continuous contribution to the scheme for the overall benefit of the Nigerian workers and the economy.
The commission systematically leveraged on collaboration with sister regulatory agencies in order to achieve a strong and virile pension industry and to improve its service delivery standards and framework, intensify public education as well as promote compliance and capacity building in the industry.
During that period the commission designed and implemented a long term strategic plan to cope with the current and perceived challenges of the industry in terms of efficiency of service delivery and effectiveness in the regulation and supervision of the industry.
The commission also showed much concern to use the pensions fund to support and facilitate government’s infrastructure deployment initiatives.
Thus at different fora the DG highlighted Section 5.2.3 of the Regulation on Investment of Pension Fund Assets which outlines the investment criteria for pension fund investments in Infrastructure.
The Section says that the Infrastructure project shall be, Not less than N5billion in value and must be awarded to a concessionaire with a good track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission (ICRC), Act and any regulation made pursuant thereto and certified by the Infrastructure Concession and Regulatory Commission (ICRC) and approved by the Federal Executive Council (FEC).
It also include core infrastructure projects, whose business plans and financial projections indicate that they are viable as well as economically and financially rewarding for investment by pension funds.
The bonds or debt instruments issued to finance the infrastructure project shall in addition, have robust credit enhancements for example, Guarantees by the Federal Government or eligible bank Development finance institution or MDFOs; Multilateral Development Finance Organisation for example, International Finance Corporation (IFC), African Development Bank (AfDB) and so on.
The value of the Infrastructure Fund shall not be less than N5billion, while the Infrastructure Fund shall have well defined and publicized investment objectives and strategy as well as disclosures of pricing of underlying assets, including any other necessary information.
All annual financial statements of the Fund shall be audited by reputable firms of chartered accountants.
Also, the Infrastructure Fund shall have satisfactory pre-defined liquidity/exit routes, and be managed by experienced Fund managers, versed in infrastructure financing and registered with the SEC as Fund Managers.
A minimum of the 75 per cent of the Infrastructure Fund shall be invested in projects within Nigeria. The National Pension Commission and the licensed PFAs would ensure that the pension funds are only deployed into infrastructure projects that are safe and generate stable streams of revenue to adequately repay institutional investors, such as PFAs.