Pension Assets Are Safe

Pension administration in this country had been chaotic with pensioners protesting all over the place. People made contributions under one pension scheme or another, but were not sure where their contributions were.

schemes of their employers and many of these scheme were not funded. These and many more were the reasons the Board of Editors of THISDAY engaged Muhammad K. Ahmad, Director-General of the Pension Commission of Nigeria, as part of the THISDAY Monthly Interview Series.

The Stock market is reported to have lost some N3 trillion in the last six months. Considering that a lot of pension funds have been invested in the market, how safe are the owners of the funds and you as Pencom.

The pension funds are safe and I can tell you why. At the end of August, total pensioners funds was at N970 billion. Pension assets can be categorized into two main groups. The first is what we call Savings Account Funds. These are contributions that individual employees under the scheme have made. Those who have opened an account, as at today, are 3.4 million Nigerians. That fund is being invested by pension fund administrators, but not all the funds are invested in stocks. Under our investment regulation, the maximum that can be invested in stocks is 25 percent. In other words, about 80 percent of the funds are invested in fixed income, the money market, government securities, corporate bond and real estate. Clearly, you could say substantial part of the fund is outside the capital market. There were incentives to invest in the capital market when it was booming. Now the returns are slowing down, but they are above inflation rate. The essence of pension funds investment is that you have returns in excess of inflation.

The second group of pension assets are the ones we inherited from the old scheme. It is usually funded by the employers. I will give you an example, Shell and Mobil or Total, they have their own schemes. They were existing schemes before the reforms, which the law has allowed to continue. Now, the law also provided that in order not to administer the scheme in a distressed manner, they could continue in the same investment profile they had, which means that they could continue in the capital market. They can continue because the law allows that. The second reason they are allowed to invest in the capital market is that because it is an employer scheme, the employer has given an undertaking to the Commission that in case of losses on investment, and the employer is required to meet the short-fall. For that group percentage of their funds invested in the capital market is about 29 percent. That means about 70% is invested outside the capital market. So to answer your question, we don’t think the pension assets have been affected by the capital market.