The Managing Director, Pension Alliance Limited Pension Fund Administrator and Chairman, Pension Fund Operators of Nigeria, Mr. Dave Uduanu, speaks on the developments in the pension scheme, in this interview with NIKE POPOOLA
How will the proposed harmonisation of the Contributory Pension Scheme with the old pension scheme affect the pension administration?
I don’t think it has any negative impact on the CPS because what they want to do is to give the National Pension Commission the regulatory oversight over the old scheme. It doesn’t mean that the director of the office that is being created will sit in PenCom. It means that he will report to PenCom just like the PFAs report to PenCom. I think it will only improve the system because we can’t run away from the fact that when you talk about pension, people talk about old scheme. Even though, we have tried to create the awareness, people still talk about the old scheme. It would improve the system. It just means that PenCom will need more capacity and more hands to work to ensure that the regulatory oversight function is performed.
How have the PFAs fared in developing the pension industry?
I think that the last one year has been a busy one for us; we have done more in the last one year than we ever did as an industry in the last six to seven years. We took up the issue of the fraud in the pension system head-on. In enlightening the people, we achieved quite a lot. We also organised, for the first time, a retreat of the whole industry and pension fund operators and PenCom. We took far reaching decisions on how to reposition the CPS. One of them obviously is the amendment of the Pension Reform Act 2004, which we have started to implement in a piece meal because some of the changes in PenCom also affected the pace of implementation.
One of the things is to institutionalise Pension Fund Operators of Nigeria, which has been run as an association from outside the offices of the managing directors, and now we have an executive secretary.
The other point we are looking at is to have a shared service platform for the industry; so, we can reduce areas of duplication, where things that can be done by a number of PFAs together; things like shared infrastructure to reduce operating cost. We have agreed to set it up.
The last one is an active engagement with listed companies because the PFAs today represent the only voice of the minority shareholders in Nigeria. We did a successful engagement with one listed company, and we are doing one at the moment.
How are the PFAs working with other investors?
We have a council of institutional investors which the PFAs will lead with other similar investors like fund managers and insurance investors so that we can speak with one voice. What you find now is that the foreign investors that come into the country still behave as if we are in the 1970s and 1980s; and they think they are doing the country a favour by coming here. There are no growth opportunities in Europe, and they are looking at the growth opportunities in Africa. Nigeria is the hottest investment destination in Africa. So, we want to make sure that people that come to do business here play by the rules and; we want to make sure that the listed companies take the issue of corporate governance and the treatment of minority investors seriously, as a way of engendering confidence in the stock market and encouraging more listing.
Finally, we want to work with the regulator, with the Security and Exchange Commission and the Nigerian Stock Exchange to get Nigerian companies listed on the exchange, so that this exchange is not just a multinational exchange but the exchange made up of Nigerian companies. If you go to South Africa, you’ll hardly see other companies being the dominant companies. The dominant companies are South African companies. These are three initiatives, which we agreed at the last meeting and we have really started working on them. We have started the work on Penop; the institutional investors’ council is being set up; and on the issue of shared services platform, we are also working on it. I think that we have made significant progress.
When will the window of transfer be opened to allow contributors to change their PFAs?
The challenge with transfer window is biometrics. Not only for pension, you need to enroll all the customers and get their biometrics so that when they transfer and they want their money, there will be no mistaken identity. Once that is done, the transfer window will be opened.
What are the opportunities for the informal sector in the CPS?
There is a proposal by PenCom we are looking at now, which is to extend the CPS to the informal sector. For the informal sector, most of them work for themselves. So, that guideline will allow them to register as individuals using a unique identification number. Again, the withdrawal method will also be flexible as there is no retirement age in the informal sector. So, that is what PenCom is looking at. In the few countries that I know, the informal sector is run outside the formal sector scheme because the scheme is more flexible and less cumbersome. Most countries have what is called the micro pension scheme that is regulated by the same PenCom but operated by a different set of operators, just like when you have the banking and the microfinance banks. I think at some point in time, we may have to design the scheme to meet the needs of the informal sector.
What has your company (PAL) put in place to improve its performance?
We work as a team in PAL. We have a young team, and we work as a group. We have an open communication approach; we have staff meetings where we discuss the business of the company. The results are not hidden, and because we work as a team, people are encouraged; they are motivated and they have easy access to everybody including the managing director. We have a strong incentive to reward good performance. And lastly, like the wave of growth going on in the industry, we ensure that we are part of any new business that opens up. We want PAL represented to get a fair share of the asset. I think that the credit for the performance will go out our staff and management because they really work tirelessly and selflessly. The efforts required to succeed in the pension industry is a lot simply because we are a new industry. We don’t have the revenue base of banks; but we demand the same level of performance from them.
What is the interest you pay on the contributors’ RSA?
We are in the first top four of the highest (interest paying) PFAs; our strategy is slightly different. We started from being very aggressive to looking at being stable. I remember in 2010, we were the second highest in terms of performing return. But we experienced a shock in 2011 when the market dipped and the return was very low. So, we changed our investment strategy to outperform inflation with at least 200 basis points above inflation. So, every year, the board’s investment committee sets a return mark based on those inflation numbers; and you find out that when we do that, we always end up in the top quarter (four) of investment returns. So, I think our RSA holders are reasonably happy. Why I say that is that their return is fairly predictable and steady.
Do you have plans to acquire other PFAs?
In the past, we acquired two PFAs; one is Standard Alliance PFA, and the other we are in the process of completing the acquisition. Let’s say we are interested in consolidation. Consolidation can come either by way of merger of like-minded and similar size firms or acquisition of smaller PFAs. So, the answer is we’ll acquire if we find the opportunity.