30 July 2012

Nigeria: Need for Speedy Amendments to Pencom Investment Regulations

World over, pension funds have played significant roles in the overall development and growth of capital markets. The Nigerian capital market however is not left out as one investment outlets for these funds but the existing statutes in the country limit pension fund administrators (PFA) equity holdings to 25 per cent of each portfolio.

This cap therefore holds back the extent to which the activity of PFAs on the market could drive growth.

According to reports, the latest available numbers for the pension industry indicates that PFAs have 9 per cent of assets invested in equities, 51 per cent in government securities and 26 per cent in money market instruments.

On the other hand, the sector's total assets amounted to N2.45trillion (US$15.6billion) as at the end of 2011, and are growing roughly by 20 per cent annually.

Despite these impressive results, only about five million workers in Nigeria are registered in contributory pension schemes, basically because most informal sector operators have not keyed into the programme and the enabling laws have not enforced compliance to adequately harness the large potential for the growth of the economy.

The National Pension Commission (PenCom) had said that to further enhance the effectiveness of the Contributory Pension Scheme (CPS), the commission was proposing the amendment of the PRA 2004 to review the rate of pension contributions.

The review would also cover the definition of total emoluments, provision for funding of the minimum pension guarantee and provision for contributors to use part of their Retirement Saving Account (RSA) balance to secure mortgage amongst others.

At a one-day interactive session with leaders and affiliates of Nigeria Labour Congress(NLC), in Benin City, Edo State, Director-General of PenCom, Mr. Mohammed Ahmad, explained that the Commission had been making efforts with a view to ensuring a vibrant and sustainable pension industry that positively impacts on the welfare of the worker, particularly at retirement, while providing the much needed funds for economic development of the nation.

Meanwhile, one of the major objectives of the proposed amendments to the PFAs' investment rules is to deepen and widen eligible assets into which PFAs could put this huge pool of cash.

The amendments propose different fund structures, which are distinguished by the exposure to variable income instruments. Depending on the fund, the ceiling for equities would range from 10 per cent to 50 per cent of the total.

In addition, the draft would permit investment for the first time, inter alia, in interest free (Sharia compliant) products, infrastructure funds, private equity funds, and asset and mortgage backed securities.

Some stakeholders in the capital market had at various fora urged the National Assembly to ensure the speedy amendment to National Pension Commission(NPC) guidelines.

They said that the urgent attention became imperative because of the interest of Nigerians in the conclusive resolution of all capital market issues.

They noted that the PenCom laws should be reviewed to ensure maximum participation of PFAs in the Nigerian stock market.

Chairman of Association of Stockbroking Houses of Nigeria (ASHN), Mr. Emeka Madubuike, said that the proposed new legal framework would make PFAs to be active stakeholders in the market.

Madubuike said that PFAs have shied away from the market since 2008 because of what they termed the risky and turbulent character of the market.

He said that PFAs before the crash were investing between 11 and 14 per cent of pension funds in the market against the stipulated 25 per cent, adding that, they should be the largest local investor.

The Managing Director of APT Securities and Funds Limited, Mallam Garba Kurfi, said that the enforcement of the 10 per cent minimum investment would enhance PFAs participation in the market.

Kurfi said that inactive participation of PFAs contributed to market illiquidity, as most them invested less than 5 per cent of pension funds in the market.

He said that the new guideline requiring a minimum of 10 per cent investment in equities would bring succour to the market.

The Managing Director of Pac Securities Limited, Mr. Eugene Ezenwa, said that a lot of pension funds had found their way out of the market since the market crashed in 2008.

Ezenwa also called on PenCom to ensure prompt review of its investing rules, stressing that a healthy capital market would impact positively the nation's economy.

On the whole, then, there is a strong incentive to expedite action on the enactment of the necessary statutes to have these changes in place in the near term so as to provide much needed tonic to the growth of the local bourse.

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