PenCom: Living up to its billing with N7.42b RSA remittances

… How Pension Reform Act has reshaped insurance sector

Going by its rising enrollees, the depth of its investments and its increasing remittances, the National Pension Commission (PenCom) is poised to transform the nation’s pension industry. Sulaimon Olanrewaju reports.

The National Pension Commission (PenCom) is living up to its billing as the vehicle for revolutionising the nation’s pension industry and making it easy for retirees to have unfettered access to their pensions as soon as the need arises. Nothing points to this fact more than PenCom’s Retirement Savings Accounts (RSA) which recorded unprecedented N7.42 billion remittances for the fourth quarter of 2018.

The essence of PenCom is to ensure effective regulation and supervision of the Nigerian pension industry for the purpose of unfettered access of retirees to their retirement benefits as and when due. According to the financial report, PenCom received a total of 3,046 applications for the issuance of Pension Compliance Certificates, out of which 2,044 were approved and issued. Also, 1,002 applications were rejected for failing to meet appropriate requirements.

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The report shows that the cumulative number of applications received during the year was 16,536 out of which 16,100 were approved and issued certificates while 436 were rejected. PenCom reiterated that it continued to apply various strategies to ensure compliance with the provisions of the Pension Reform Act of 2014.

The pension industry had achieved a 1.63 per cent growth in the scheme membership during the fourth quarter of 2018, moving from 8.34 million contributors at the end of the preceding quarter to 8.47 million.

The report showed that the growth recorded was driven by the RSA Scheme, which had an increase of 138,236 contributors representing 1.64 per cent.

The RSA registrations also grew by 0.82 per cent (29,455) in RSA membership from the public sector to stand at 3.6 million. The figure represents 42.92 per cent of the total RSA registrations.

Also, the private sector membership rose by 2.32 per cent (108,781) in the quarter under review, which brought total registrations from this sector to 4.8million representing 57.08 per cent of total RSA membership. This growth can be attributed to the increased level of compliance by the private sector.

Further analysis of the report showed that the commission received 1,282 applications for transfer of Nigeria Social Insurance Trust Fund (NSITF) applications totaling N56.78 million.

PenCom stated that all applications received were processed and transferred to the RSAs of the NSITF members. From inception to December 2018, N19.64 billion had been transferred to the RSAs of 272,463 NSITF contributors.

PenCom, under its Director-General, Mrs. Aisha Dahir-Umar, maintained that the services of Recovery Agents (RAs) for the recovery of outstanding pension contributions and penalty from defaulting employers. The RAs were mandated to review the pension records of the employers assigned by the Commission with a view to recovering outstanding pension contributions with the penalty.

Therefore, for the period under review, the sum of N365.56 million was recovered by the RAs. This brings the total recoveries made by the agents from the inception of the exercise in 2012 to date to N15.36 billion, representing the principal contribution of N7.87 billion and penalty of N7.49 billion.

The PenCom says it has enrolled no fewer than 8.5 million people into the Contributory Pension Scheme (CPS) since its inception 15 years ago.

Head of Communication Department of PenCom, Peter Aghahowa, made the disclosure at the just concluded 30th Enugu International Trade Fair.

The scheme introduced in 2004 by the federal government was a process where certain percentage of enrollees’ salaries was saved on monthly basis in a pool with the employers also contributing.

The scheme had PenCom as the regulatory body with Pension Fund Administrators (PFA) working in their behest.

Aghahowa said the scheme had made the life of retirees much easier, unlike the defined benefits scheme which it replaced.

He, however, noted that it was sad that in spite of the enormous advantages inherent in the scheme, some state governments had yet to embrace it to make life better for retirees in their respective states.

“The Federal Government went into the contributory scheme as the old scheme became unsustainable due to huge debt deposits.

“This new scheme is funded ab initio and it reduces the financial load on government,” he said.

Aghahowa said it had become imperative for every state of the federation to key into the scheme for easy pension administration.

The PenCom spokesperson, however, said in spite of current challenges facing certain pensioners under the old scheme, more funds were being released for pensioners that started under the defined benefits scheme.

PenCom has barred pension fund administrators from investing in the bonds of nine states that have yet to amend their state pension laws and join the Contributory Pension Scheme (CPS).

Findings also revealed that this restriction might be extended to 15 other states that had joined the CPS, but were not showing full commitment to funding the Retirement Savings Accounts of their workers. The CPS was established under the Pension Reform Act to replace the Defined Benefits Scheme (DBS).

This was because the DBS had huge liabilities, which were not being funded, leading to situations where retirees endured long wait to get their entitlements, while many of them died without being paid.

Unfortunately, the same scenario, which was prevalent in states operating the DBS, is now happening in the states operating the CPS due to poor funding of the scheme.

Aghahowa, said the commission could not impose the CPS on the states, but could only use moral suasion.

“The states have to enact the laws to do the CPS because they are going to operate based on the provisions of the laws. We can only encourage them because of the benefits in the scheme.”

According to him, if any state plans to raise funds through pension bonds, it must have met the CPS criteria before it could have access to such. For now, he said, those that had not enacted the laws were being encouraged to do so.

He said, “We don’t invest in  bonds  of states that have not enacted their laws. We have some that are not complying properly, some are complying partially. I believe we will review some of those things again. But for now, if you have not even enacted any law, don’t think we will start investing in your bonds.”

PenCom has deployed the Retirement Savings Account (RSA) Multi-Fund Structure conceived by the commission to align with contributors’ risk appetite with their investment horizon, at each stage of their life cycle.

The RSA Multi-Fund Structure are to achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles, provide investment portfolio choices to contributors, and enhance safety of pension assets through adequate portfolio diversification, through increased investment in equities and alternative assets, such as infrastructure and private equity.

As at December 31, 2018, the RSA Fund had been successfully split into four funds, while the sensitisation of RSA contributors is still ongoing to create awareness on the features of the RSA Multi-Fund Structure. At present, RSA contributors have the opportunity to choose a Fund that best suits their risk-return profile.

The commission, in line with the provision of the PRA 2014, has developed a Framework for Recovery of Outstanding Pension Contributions with penalty for defaulting employers.  Based on the Framework, the commission has engaged recovery agents for continuous enrollment into the CPS and recovery of un-remitted pension contributions plus penalty from defaulting employers.

The recovery, which has been largely successful, has boosted the confidence of contributors and by extension encouraged non-participating employees and employers to embrace the Scheme. Through the initiative of recovery agent, N15.31 billion representing a principal contribution of N7.85 billion and penalty of N7.46 billion have been recovered from defaulting employers.

Both the principal contributions and penalty have been credited into the workers’ RSA accounts. The penalty is meant to compensate for the income that would have been earned if the contributions were remitted as and when due. The commission is also prosecuting recalcitrant employers who fail to remit their employees’ pension contributions into their RSAs.  As at today, the commission has instituted legal actions against 167 recalcitrant employers. Of that number, 78 have opted to settle out of court, 34 judgments have been obtained and 23 are at different stages in the courts.

Besides, the commission has a fully functional Complaints Monitoring and Resolution Team, which attends to complaints on non/late/under-remittance of pension contributions into employees RSAs.

The Framework also outlines the strategies adopted to drive compliance. The strategies include the appointment of consultants to review the pension records and recover unremitted pension contributions and penalties from defaulting private sector employers. Other strategies are the issuance of Pension Clearance Certificates, Complaints Resolution and Monitoring of Compliance through onsite inspection of employers, Public Awareness, Engagement and Collaboration with social partners and relevant stakeholders.

The implementation of these strategies has improved the level of remittances of pension contributions by the private sector employers. The appointment of Recovery Agents, RAs, to recover unremitted pension contributions plus penalty has been largely successful. It has boosted the confidence of contributors and encouraged non-participating employers to embrace the scheme.

Also, the enactment of the Pension Reform Act, PRA 2014 which mandated the participation of employees of the public service of the Federal Capital Territory, states and local governments as well as the private sector in the Contributory Pension Scheme, the PenCom has consistently been engaging various state governments, trade unions, relevant stakeholders and the general public on the full benefits of the CPS with a view to bringing them to full implementation of the scheme.

Furthermore, the commission drives compliance by private sector employers through public awareness campaigns and engagement. This initiative aims at educating employees/employers and expanding the coverage of the Contributory Pension Scheme. In addition, the commission monitors compliance through onsite inspections to ensure that employees of private sector organisations open Retirement Savings Accounts, RSAs, and pension contributions are remitted as and when due.

Aftermath of the Pension Reform Act 2014

Meanwhile, the Act has changed the landscape of the sector. Major stakeholders such as Custodian and Allied Insurance Limited, AIICO Insurance Limited, Ideal Insurance Brokers Limited, Heirs Insurance, and ARM Limited saw the opportunities and positioned themselves at the forefront of a quiet transformation, one driven by innovation, strategic talent investment, and bold, forward-looking decisions.

AIICO Insurance and Ideal Insurance Brokers Limited are aligning their services with growing demands for compliance, transparency, and innovation.

Mr. Ayodapo Shoderu, President of the Nigerian Council of Registered Insurance Brokers (NCRIB), highlighted the importance of this shift:
“The welfare of workers should be a priority. The Pension Reform Act has mandated employers to provide Group Life Assurance for their employees. This step enhances the benefits available to workers upon retirement.”

He further noted: “Beyond increased employer pension contributions, the Act stipulates that an employer’s Group Life contribution must be no less than 20% of the employee’s monthly emolument. Importantly, it eliminates the need for a Letter of Administration in processing benefits, simplifying access for dependents of deceased workers.”

This “quiet revolution” has not only reshaped the insurance sector but has also marked a turning point for Nigeria’s workforce.

Ideal Insurance Brokers Limited, known for handling large-scale insurance projects, including those for NigComSat, the Presidential Air Fleet, Nigerian National Petroleum Corporation (NNPC), Central Bank of Nigeria (CBN) and the Independent National Electoral Commission (INEC), saw new growth potential in the pension administration space. In a strategic move, it acquired shares in Crusader Sterling Pensions Ltd, achieving vertical integration that expanded its role from brokerage to fund administration.
This allowed Ideal to diversify income streams and increase its influence in policy implementation and client experience. Other institutional owners of Crusader Sterling Pensions Limited are Custodian and Allied Insurance Plc, Custodian Trustees, WSTC Financial Services, Sterling Asset Management and Trust. Crusader Sterling became the first Pension Fund Administrator (PFA) to receive an “A” rating from Agusto & Co.

AIICO Pension Managers Limited, established in 2005, now manages retirement savings for both individuals and organisations. Early adoption of the PRA 2014 positioned it as a preferred provider for SMEs newly mandated to insure their workforce.

Heirs Insurance Brokers is using technology to reach previously underserved markets, particularly SMEs and informal workers impacted by the new legislation. In response to increased regulatory requirements, Heirs launched a tech-enabled platform allowing businesses to manage Group Life and health policies online. This digital infrastructure enables real-time product customization based on client data.

ARM Limited strengthened its position in the Contributory Pension Scheme by investing in high-quality, short-term instruments and government securities, ensuring stable income for its clients. Through its micro pension unit, ARM advises high-net-worth individuals and institutions on wealth management strategies. It also manages mandates for corporations, insurance firms, trusts, pension funds, and government agencies.

Ongoing Challenges

Despite these advancements, challenges remain. Compliance with the PRA 2014 is still inconsistent, especially in the private sector. Studies show that while the pension scheme has had a positive impact, its effect on insurance premium growth remains limited—largely due to employer reluctance to fully comply with the Act.