•Fola Daniel, Commissioner for Insurance Photo: Sun News Publishing

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The dream of every employee is to make a graceful exit from an active work life into the peace and tranquillity of old age. Owing to the demands of this vital phase in the life of the worker, one looks forward to a financial parting gift in lump sum or periodic payment that would enable him or her manage the stress of old age without having to beg for ones upkeep and that of the family members.

Such financial lifelines are so desirable considering that in retirement one has little or no opportunities to engage in very serious economic activity that can guarantee ones immediate financial needs.

In a broader sense, some people see retirement particularly at old age as being synonymous with sickness, and the weakening of ones physical strength, especially in Nigeria, where retirees hardly get employed after attaining certain age limits.

This is worse in Nigeria, where social security benefits for the aged and unemployed are hardly available on government list of priorities.
It is perhaps the attempt to avert some embarrassing moments in retirement that every worker sees his retirement benefit often as a priceless issue that needed to be protected and provided for while in active service.For that reason, contributing towards ones’ retirement is regarded as a responsibility that any worker would ignore to his detriment.

However the Pension systems are under increasing strain especially in a developing country like Nigeria. Recent experiences have shown that the nation’s employees neither have any meaningful retirement benefits nor earn enough during their working life to cater for their retirement.
Moreover the extended family system and other traditional ways of supporting the old are already weakened under the pressure of urbanization, industrialization and increased mobility.

Prior to the 2004 reforms its was very glaring that Pension system in Nigeria was bedeviled by a multiplicity of problems.
The Defined Benefit - Pay As You Go (PAYG) scheme in the public sector has increasingly become unsustainable and further compounded by increases in salaries and pensions as pension costs constitute a significant proportion of the personnel costs of the various tiers of government. The pension system was therefore, fiscally unsustainable.

But even if the old scheme was funded, it would have been impossible to sustain because of the declining support ratio as a result of demographic shifts due to rising life expectancies.
Pension administration had been largely weak, inefficient, less transparent and cumbersome. The private sector schemes had been characterized by very low compliance ratio largely because they were neither regulated nor supervised.

Instead, such reform strategy creates uncertainty of retirement benefits for the worker. Although majority of countries worldwide adopted minor reform through parametric reforms, Nigerian Government decided on a major reform which involved shifting from the predominantly PAYG system to a Defined Contribution System that is fully funded as well as reforming the overall pension system.
Regrettably in Nigeria, the history and commentary on pension and retirement benefits have been anything but salutary.

That was largely because prior to the 2004 Pension reforms, most retirees including those that exited from the public sector regretted ever working for the Nigerian nation in whatever capacity.
The major reason was because apart from the abysmally poor stipend that most retirees collected from their ex-employers, some of them even die waiting for it.
The situation was more agonizing for civil servants that served in the police, armed forces, teaching, railways, health sector and other government institutions.

At a recent press interview, the Chairman of the Military Pension Board, General Bitrus Kwaji, for instance, noted that before his appointment, retirees in the military services were being owed an accumulated 10 years gratuity and pensions running into billions of naira. He stated that though the bill has been paid the board still has a lot of challenges particularly that bordering on funding, as well as the incidences of fake pensioners giving the ex –service men a bad name and government a bad image.

The situation remains that many of the retired government functionaries usually wait several years for their entitlements before getting them. The situation is the same for most retired public officers.
Soldiers have regretted a scenario where after fighting for their fatherland, are now fighting the battle to collect their entitlements from the military authorities.
In one of such instances, the soldiers vowed never to leave the Federal Capital Territory until their entitlements were paid.

It was against this backdrop that Nigerians wholeheartedly welcomed the 2004 Pension reform that established a contributory pension system supervised by the National Pension Commission (PenCom).
The setting up of PenCom by the administration of former President Olusegun Obasanjo has been described by many as one of the high points of its achievement, in the Nigerian economy and particularly for the nation’s workforce .

Before its final passage, the Pension Reform Act 2004 was one of the most extensively debated bills in the National Assembly with most observers arguing that the Act benefited from the collective wisdom of many Nigerians which assisted in building wide range consensus on the key elements of the reform.
Implementation of the scheme is phased, starting with federal ministries and related agencies, which commenced in July 2004, while the private sector was allowed to commence the implementation of the scheme in January 2005 to ensure adequate planning and further sensitization.

Unlike the defined benefit contribution which restricted workers entitlement to a fixed amount of money on retirement, the new defined contribution, is a function of what the employee and his employer have contributed over the years, including the return from investment made with the fund managers.
Objectives

As indicated by the regulatory organ, the primary objectives of the scheme are to ensure that every person who worked in either the public or private sector, receives his retirement benefits as and when due. The scheme was meant to assist workers to save while working in order to cater for their livelihood at old age. The reform was also concerned with establishing a system that would ensure that workers receive benefits generated by their own savings and not dependent on government subsidies or future generations.

The reform was expected to stem the growth of outstanding pension liabilities, thereby releasing resources to support growth and development in order sectors of the country.
Under the arrangement, the Retirement Savings Account (RSA) will be administered by a licensed Pension Fund Administrator (PFA), chosen by the employee, while a licensed Pension Fund Collector (PFC) will provide custody of the pension fund assets. This shows there was a clear separation of functions of the two operators for the purpose of ensuring the safety of the pension assets.
On their part, the PFAs as institutional investors functioned to facilitate increased market integrity, transparency, and corporate governance and overall growth of the Capital Market and to guaranteed peaceful retirement and reduced poverty in retirement, considering that a secured future for workers will ensure job satisfaction and increased productivity.

Not yet a perfect scheme
However the last few years of Pencom administration shows that Nigeria is yet to have a perfect pension scheme system as stakeholders in the scheme have observed that certain issues are still not in order.
For instance, it has been noticed that many employers and employees still see contribution to the scheme as an additional burden in view of the amount of allocation going to it at the end of the month.

But just as there has been a general consensus that the National Pension Commission has recorded tremendous successes in the implementation of the Pension Reform Act 2004 since the inauguration of its Board in December 2004, there have been growing concern regarding how efficiently its huge assets are being managed by the fund managers in operation.
With 25 Pension Fund Administrators, seven closed ones and four Pension Fund Custodians, in addition to numerous approved existing schemes, there is no gainsaying that the sector is growing by all indicators.

As at end of December 2007, the number of registered contributors stood at 2.78 million while the value of pension fund assets was N815 billion as at December 31, 2007. Considering the rapid growth of accumulated funds under the new contributory pension scheme, one of the challenges being experienced is the limited number of investment windows for pension funds.

Criticisms of the scheme
Investment experts are concerned that the resulting concentration of pension funds in few asset classes and securities, without any deliberate effort to deepen the capital market through the introduction of alternative asset classes such as Infrastructure Bonds, Real Estate Investment Trusts (REITs), Asset Backed Securities (ABS), Mortgage Backed Securities (MBS) and private Equity for investing these funds, could create a unprecedented shocks in the capital market and the economy as a whole in future.
With the recent collapse of Lehman Brothers in America, what the nation’s pension funds managers need to learn with respect to management of pension fund assets in Nigeria is the fact that pension funds and their advisers need to be more circumspect in the selection of counterparties and take efforts also to diversify such counterparties and manage their collateral sufficiently tight as not to allow being owed a significant sum of money.

As it is today, the Nigerian capital market appears to be the only investment window open to the 25 PFAs for ensuring that the fund at their disposal are optimally deployed for higher returns to the workers in line with statutory mandate.
It must, however, be admitted that so far, the Nigerian government has through the reform, demonstrated strong commitment towards its implementation, in an effort to give her retirees higher hopes of reaping where they have sown while working for various institutions.

For instance, despite the protracted legislative process occasioned by the concerns raised by stakeholders in respect of the various aspects of the reform, it came as a big relief to many that the reform is being implemented voluntarily with little or no serious resistance from both the private and public sectors.
Four years down the line, the greatest concern today for the fund is whether the workers can actually look forward to a secured retirement.

An assessment of the scheme’s performance shows that the contributory system is up and running in both the private and public sectors and what one may not be very sure of is whether the collective pool is well managed by the operators in a manner that gives workers the deserved secured retirement that every one is looking forward to in future.

Put differently, can Nigerian workers go to sleep with both eyes closed knowing that the Pension Fund Administrators and other parties in the management of the fund are doing what they are licensed to do? The questions become very apt considering some of the recent shocks that investors in the Nigerian Stock market witnessed in the last few months.

Just as the case in America where millions of investors lost so much with the collapse of some of the leading investment banks, the PFAs as prominent players in the Nigerian market must have suffered some losses with the funds under their portfolio.

But the difference perhaps is that, the workers whose funds are at risk may not have a way of determining the magnitude of losses affecting them.
Director General of PenCom, Dr Mohammed Ahmad, has put the contribution so far at N871.27billion but there are fears however in some quarters that the amount may have been understated, considering reports that some employers particularly in the private sector often delay remittance of funds to the PFAs.

As an umpire, PenCom management had always insisted that employees must monitor returns on their Retirement Saving Accounts and ensure that personal profile with the PFAs are regularly up-dated. It also called on the employers to ensure that all remittances to the fund administrators are made 7 days after payment of salaries, particularly as contributions, remittance of contributions, management and custody of retirement benefit funds and assets are the critical compliance issues confronting the scheme
Insurance companies handling some of the deals have not faired any better in enhancing the transparency of the system.

Only recently the management of Femstar and Company Limited had petitioned PenCom urging it to intervene over the alleged refusal of Great Nigeria Insurance Plc to transfer its workers accrued retirement benefit fund to their respective Pension Fund Administrators’
Femstar had in a petition by its Head of Human Resources, Mr G.A Oyedeji challenged the refusal of the insurance company to transfer the entitlement of his workers to the respective PFAs managing their accounts, pointing out that it was a gross violation of the 2004 Pension Reform Act.

Realities on ground
The new pension scheme requires pension funds to be privately managed by licensed Pension Fund Administrators (PFAs). So far, about twenty five of the Pension Fund Administrators have been licensed to open Retirement Savings Accounts for Nigerians who are in active employment. They are to invest and manage the pension funds in a manner as the Pension Commission (PenCom) may from time to time prescribe, and also maintain books of accounts on all transactions relating to the pension funds managed by them.

The regulatory agency also expects these operators to provide regular information to the employers or beneficiaries and pay retirement benefits to employees in accordance with the provisions of the Pension Reform Act 2004.
To date, Pencom’s list of licensed Pension Fund Administrators include IBTC Pension Managers Limited, Premium Pension Limited, Leadway Pensure PFA Limited, Sigma Vaugh Sterling Pensions Limited, Pension Alliance Limited, First Alliance Pension and Benefits Limited, ARM Pension Managers Limited, Trustfund Pensions Plc, First Guarantee Pension Limited, Crusader Sterling Pensions Limited, NLPC Pension Fund Administrators Limited, Legacy Pension Managers Limited, AIICO Pension Managers Limited, OAK Pensions Limited and Penman Pensions Limited.

Others are Anchor Pension Managers Limited, APT Pension Fund Managers Limited, Amana Pension Managers Limited, Evergreen Pensions Limited, Royal Trust Pension Fund Administrator Limited, CRIB Pension Managers Limited, Future Unity Glanvils Pension Limited, Fidelity Pension Managers, Citi Trust Pension Managers, and Standard Alliance Pension Managers Limited.
Only recently, the Certified Pension Institute of Nigeria (CPIN) listed the factors affecting competition among the Pension Fund Administrators in Nigeria.
According to Mr. Omotayo G. Gbede, whether a company remains competitive or not, it was a function of several factors.

He listed the factors as the strength and weaknesses of a company; the type of public it has , which will determine its social responsibility, the nature of competition in the industry, whether it is mild, intense or cut throat among firms in the industry and the structure of the industry.
Mr. Gbede wondered if the issue for contention here is whether in the pensions management industry, competition is a positive factor or practice to be allowed or is it an anathema that should be disavowed.
He argued that in managing competition, the various competitors must be identified as both competitors and their products must be scrutinized from a myriad of view points.

According to him, allowing competition can help reduce the risk of antitrust activities by avoiding concentration that can turn into restriction of trade, which can short-change customers’ price discrimination, and a host of other inimical market practices.
He strongly believes that competition can help in laying down good foundation for market practices and conducts adding that "allowing market forces to define competition can improve the level of efficiency with which resources are being utilized. This means that resources will be diverted from relatively inefficient companies to efficient ones as firms vie for market dominance and a bigger slice of the societal resources pie.

He advised the Pension Fund Administrators to hinge competition on forces that would help them in identifying core competencies that can be leverage upon.
He said "Core competence exploitation can leapfrog a company over its peers, warning however that a company can only ignore it at its own peril."
But on her part, the Executive Director of FUG Pension Limited, Mrs. Folashade Olufemi Onanuga noted that Nigerians were yet to embrace the new pension scheme, pointing out there was a lackadaisical attitude on the part of both employers and employees which translated into a low compliance level.

For the new scheme to be sustained, she insisted that the government must enforce compliance as it is only by so doing that the interest of all the stakeholders will be protected.
Mrs Olufemi Onanuga said that pension funds and assets were to be invested in bonds, bills and securities issued or guaranteed by Federal Government and Central Bank of Nigeria, bonds, debentures, redeemable preference shares, and other debt instruments issued by corporate entities listed on the Stock Exchange.

"The PFA funds must invest in ordinary shares of public limited companies issued on the Stock Exchange, bank deposits and bank securities, investment certificates of closed-end instruments or hybrid funds, units sold by open-end investment funds, bonds and debt securities issued by companies and real estate investment."
Mrs Onanuga advised that PFAs were not to invest the pension funds in the shares or securities of the PFAs, as its custodian or shareholders and "foreign investment of pension funds is not permissible."
The Certified Pension Institute of Nigeria, (CPIN) Executive Secretary, Ms Odufowokan Adejoke said that the Pension Fund Administration and Pension Commission, (PenCom) should work with the Institute to create more awareness for pension fund administration (PFA) in the country.
She said that the scheme was too new and members of the public were not well aware of its relevance, hence the low patronage.

She stated that the public needed to understand what the scheme was all about, stressing that there was need for more awareness. She further explained that the elite used to come to the institute to enquire about the workings of the pension fund administration.
She argued that from the point of ignorance, the institute believes that there was need for more awareness which must be based on the benefits of the scheme to the Nigerian employees should they be properly educated about the pension fund administration.

According to her, the PFA marketers have been doing a lot of explanations, but the Nigerian employees would want to know more, especially on what the employees would get on retirement.
Ms Adejoke said that Nigerian workers have nothing to lose in the new pension scheme, because both the employers and employees contribute to the retirement savings account (RSA).
She observed that many civil servants retired from service because they felt they would lose their benefits and gratuity, but instead of losing out, such contributions are transferred into the retirement savings account and on retirement, enables one to get all his entitlements.

She stated that the objective of the fund was to empower the worker, guarantee his income which will make him comfortable at old age and encourage savings as well as protect abuse.
However, President of the Certified Pension Institute of Nigeria (CPIN ), Mr Ose Ogunkorode, urged all pension administrators in Nigeria to take advantage of the Institute’s training programmes to both equip and empower themselves to be able to face the challenges in the industry.
Mr. Ogunkorode stated that professional education and qualified professionals in the pension industry were needed to bring about the challenge and the evolution that would help in defining the industry’s future.

"A lot have happened since the passage of the 2004 Pension Reform Act, which has left mixed feelings in its wake, and thrown up new challenges that invariably led pension practitioners to face the odds staring them, assuring that it can only get better.
It was in this light that training of the Pension Administrators had become an annual permanent feature of the institutes even as he said the training was meant to redefine the role of the pension practitioners in the evolving industry as a backbone to nation’s economy.
"With the gathering clouds in the Nigerian Pension space, the key players must position themselves for change," he said.

Still on the pension scheme, he said, "we seek to address key strategies that will empower the practitioners in the highly competition workplace through skill enhancement for optimum performance."
Mr. Ogunkorode also called on all Pension Fund Administrators to embark on aggressive marketing in order to sell pension fund products, pointing out that the role of strategic marketing as the powerhouse of any thriving organisation can not be underscored, hence the marketing of pension products and other financial services can not be handled with kid gloves.
He said the CPIN desires to promote growth and expansion ratio in the industry by articulating value driven marketing policies and stimulating mechanisms to enhance demand for companies products and services.

"As pension practitioners who understand the inner workings of the industry and its metamorphosis, since the 2004 Pension Reform Act, I must say it is a new era, but we must take advantage and leverage on this ongoing revolution."
The CPIN President said the Institute works to entrench the noble ideals of training and retraining Pension Practitioners in order to foster accelerated changes which the industry requires.
The CPIN wants to give the Pension Practitioners the key insights into the creation and execution of marketing concepts and be exposed to the pivotal role which customers play in the business.

Mr. Ogunkorode encouraged pension operators in Nigeria to enlist as members of the Institute. He also advised the practitioners "to maintain a substantial market share and be able to render a superlative customer service by mastering the ground rules, so that they can do snippets of persuasive marketing to remain relevant, and also be exposed to essential tactics in the management of expansive retail marketing.

He urged all pension administrators in Nigeria to take advantage of the Institute’s training programmes to both equip and empower themselves to be able to face the challenges in the industry, and expressed the belief that qualified professionals in the pension industry were needed to bring about the challenge and the evolution that would help in defining the industry’s future.

According to him, "a lot have happened since the passage of the 2004 Pension Reform Act. It has no doubt left mixed feelings in its wake, it has thrown up new challenges which have invariably led pension practitioners to put on their thinking caps to face the odds staring them and you must be rest assured that it can only get better."

He called for regular or if possible annual training of the Pension Administrators, which he said has become an annual permanent feature of the institute. The training was meant to redefine the role of the pension practitioners in the evolving industry as a backbone to nation’s economy.
"With the gathering clouds in the Nigerian Pension space, the key players must position themselves for change. We seek to address key strategies that will empower the practitioners in the highly competition workplace through skill enhancement for optimum performance."

He said the institute designed its programmes to give clear insight on service mentally for a highly regulated business, understanding time and cost management skill in a burgeoning industry.
"Skill acquisition in building a profitable business through world marketing strategy, generating value driven plans, understanding and applying the power of transformational marketing through research and development.

The Chief Marketing Officer of First Guarantee Pension Limited, Mr Kunle Adeboye said all Pension Funds Administrators should engage themselves on correct branding of their products, by advertising correctly and to maintain relationship marketing.
Mr. Adeboye said that in marketing Pension Services, the PFAs must realize that without contributors in its fund, it has no business, so their business success, he said must attract customers, and retain them. This he called, "key role of marketing," for the PFAs.
The First Guarantee Pension Limited Chief Marketing Officer believes that for any Pension Fund Administrator’s Company to attract maximum amount of business for the minimum amount of marketing spend, it has to include management strategies, research and defining target markets, develop brand and products.

He advised the Administrators to device scientific means to determine and ensure customers’ satisfaction. "Satisfaction has little connection to connection to repurchase loyalty essential to customer equity and profitability," he said.
He called on the PFAs to "stop looking for escape goats from customers, and start looking for the definitive ways of holding them accountable for their bottom line,
saying that corporate and individual customers have different reasons for purchasing PFA products and service, he therefore recommended that measurement of satisfaction would need to take into account such differences.

"The quality of after –sales service can also be a crucial factor in purchasing decision, as more and more companies are striving also for customer delight which involves extra bit of added value that leads to increased customer loyalty," he said.

He declared that "excellent customer service combined with a proven product will lead to increased profitability," and "one way to do this is to measure customer satisfaction based on accountability."
He advised that employees of PFAs should be given "a sense of employee belonging," by involving them "in strategy development and quality improvement efforts."