How Risk Management And Analysis System  Promoted Transparency In Nigeria’s Pension Industry 

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 reports.

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 who had sent their representatives to understudy the Nigerian pension model. 

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.

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