Pension data 'sales' investigated by watchdog

An investigation has been launched into claims the details of millions of people's pensions are being sold to fraudsters and cold-calling firms.

Companies are selling information about people's salaries, investment values and pension size for as little as 5p without consent, the Daily Mail said.
 
It is feared it will be used to scam pensioners who can access their full pension pots under new rules in April.

Information Commissioner Christopher Graham said he was investigating.

Retirement savers lose as pension funds fail to beat inflation

Nigerian pension funds are consistently failing to deliver inflation adjusted returns to Retirement Savings Account (RSA) contributors, leaving them exposed to losses on assets accumulated over time.

On a real return basis (returns adjusted for inflation), the value of PFA returns have been declining, while Net Asset Values (NAVs) have been growing on a nominal basis.

According to a working paper received by BusinessDay, which shows the results of the performance of pension fund administrators from 2006 to 2014 and the impact of inflation on the RSA returns, RSA holders have been losing an average of  three percent on their savings every year, for the last seven years.

Equity Rebound harder as N2.8trn Pension hangs on to Bonds

Nigerian stocks which are down 14 percent this year alone will have a harder time clawing back lost ground if Pension funds operating in Africa’s largest economy continue to shun equities. Latest data from the regulator ,National Pensions Commission (PENCOM), show that  Pension Fund Administrators (PFA) hold N2.8trillion in Federal Government (FG) securities, comprising of bonds (N2.3 trillion) and treasury-bills (N497.7 billion) as at December 2014.

The PFA assets invested in domestic ordinary shares fell to 11.79 percent in December, from 12.95 percent in October, latest data from PENCOM show.

“I think the PFAs are taking a very cautious approach towards equities investment and that is why we are not seeing them increase their exposure to stocks. PFAs are cutting exposure to stocks and moving cash in treasury bills to preserve gains, ” Kayode Omosebi, an analyst with investment firm UBA Capital said.

The share of equities in PFA portfolios is capped at 25 percent by the regulator, while they are allowed to hold up to 70 percent in government fixed income securities. Pension funds could deploy an additional N607 billion into equities if they decided to meet the stock investment limits, BusinessDay calculations show.

Nigerian stocks average daily value traded N2 billion, mean PFAs would need a minimum of 303 days to fulfil trade mandates which could trigger a bullish momentum for stocks.

Pension funds are, however, deploying their burgeoning deposits into FG debt as yields on the securities rise and prices fall due to their not taking market to market losses on bonds and hold to maturity mode of investing.

Analysts say PFAs should boost stock market investments despite the current negative risks of political uncertainty, crude oil fall and naira devaluation as equities provide the best hedge against inflation.

“It is about the willingness of local investors to muster enough courage to take position in the market given the current macro-economic and socio-political backdrop, knowing fully that Nigeria as a country and an economy will survive beyond these unfriendly times,” said Abiodun Keripe, head of Research and Strategy at Elixir Investment partners limited, in a response to questions.

Total pension fund assets were equivalent to N4.6 trillion in December while Nigerian stocks had total market capitalisation of N9.9 trillion as at February 23. Yields on benchmark ten year bonds fell by ten basis points to 16.04 percent, according to Monday prices from the FMDQ.

Pension assets in Africa’s largest economy have surged twelve-fold from N265 billion or about 1.4 percent of Gross Domestic Product (GDP) in 2006 to today’s level, equivalent to 4.8 percent of GDP.

Assets are currently growing at $2.5bn a year, or roughly 0.5 percent of GDP, per annum. Nigerian stocks currently trade at a price to earnings ratio of 9.2 x, compared to 17.53x for South Africa and 17.20 for Kenya, according to Meristem securities data.

2014 Pension Act not yet Uhuru for Pensioners

The exceptional performance of pension administration in the last 10 years encouraged the hosting of the first ever World Pension Summit – Africa in Abuja last week. The event coincided with the 10th anniversary of the commencement of the Contributory Pension Scheme in Nigeria. The Pension Reform Act of 2004 was enacted during President Olusegun Obasanjo’s tenure to enhance efficiency and address the recurrent challenges confronting pension administration in the country. Indeed, before the 2004 Act, pension schemes were grossly mismanaged, such that public sensitivity was regularly assailed with the undignifying sight of distressed senior citizens and other retirees, wearily waiting endlessly, in queues to verify their identities before eventually collecting their meagre entitlements from those government agencies which were responsible for disbursement.

The unsightly juxtaposition of such horrid spectacles against the background of impunity in the misapplication of pension funds broke the hearts of many retirees while cutting short the lives of several others. Regrettably, pension fund looters often got away with a slap on the wrist as punishment despite the pathetic social damage caused.

The 2004 Act consequently created the Pension Fund Administrators to ensure judicious management of pension assets; in addition, Pension Fund Custodians were similarly established for the custody of pension funds, while the National Pension Commission was statutorily mandated to optimally, regulate the sub-sector and also ensure that pension assets are invested in safe and secure instruments.

President Goodluck Jonathan noted, at the World Pension Summit last week, that sustained policy innovations and meticulous management made possible by the 2004 Act had successfully facilitated “confidence and credibility in pension administration in Nigeria, such that the fortunes of pension institutions have transited from a deficit of about $12.9bn in 2004 to accumulated pension assets of over (N4tn) $27.2bn by March 2014”.

Consequently, Jonathan, accordingly, signed the Pension Reform Bill 2014 into law in order to build on the gains of the 2004 Act. The new Act is expected to govern and efficiently regulate the administration of the uniform pension scheme for both the public and private sectors. Thus, the 2014 Act, according to the President , “provides an enabling legal environment, which will facilitate the creation of appropriate instruments with which pension assets can be primarily invested on vital infrastructure and real estate development”.

Evidently, the estimated N4tn pension assets is a handsome nest egg of cheap funds which could be deployed to improve critical areas of infrastructure such as power, housing, education, transport and health care nationwide, particularly when domestic funds are largely inaccessible and certainly too expensive as long term loans for such projects with extended gestation.

Instructively, successful economies institutionally mobilise their pool of pension funds to address critical infrastructural deprivations while hawkish regulators watchfully restrain the deployment of such funds into volatile markets for speculation and private equity.

Nonetheless, we must be careful not to judge the yield on our pension assets with a comparison of the much higher returns from investing pension funds in risk free government securities, which inappropriately provide rates of return as high as 17 per cent! Thus, it is imperative to ring-fence pension funds from the attraction of higher returns from those government sovereign loans which have failed to impact positively on our infrastructural deficit and social welfare.

In reality, if meticulously managed and regulated in line with the spirit of the 2014 Act, pension contributions should provide a sustainable funding platform for continuous expansion and upgrading of our social infrastructure. However, the pertinent question remains, whether or not the ultimate payment of pensions to retirees would meet their lifestyle expectation of maintaining some semblance of dignity until they pass on.

In reality, if PENCOM effectively performs its functions, pension contributions would be invested in safe instruments with relatively modest but steady yields, so that inadequate funding and tortuously delayed pension payments with the collateral assault on the dignity of pensioners will become history. However, such facilitated payments system may, unfortunately, still not be adequate protection against the threat of poverty to retirees, as the discussions on pension reforms, have so far, ignored the critical issue of erosion in the value of money. Even the ubiquitous market woman, labourer or housewife, knows from experience that, a thousand naira would buy so much food items and consumables in January, but if unrestrained inflation prevails throughout the year, the same amount of money would buy less of the same basket of goods in December! Thus, in an economy where the purchasing power of incomes, for example, falls by an average of 10 per cent annually, static pension incomes will systematically command less goods and services. For example, a N1m savings in 2014 may just be worth less than the paper it is printed on in 2024, if average year-on-year inflation rates remain as high as 10 per cent!

For this reason, the rate of inflation in more successful economies is very carefully managed below three per cent with a five to 10-year benchmark, so as to protect the value of incomes, and also encourage a culture of savings. Indeed, the greater the value of savings in an economy, the greater would be the funds available for investment. Conversely, when high double-digit rate of inflation prevails in any economy, people are less inclined to save, and less funds will therefore become available for investment; such scarcity of investible funds induced by spiraling inflation would inevitably impact negatively on social and economic growth.

Thus, the retrogressive social impact of Nigeria’s year-on-year average inflation rate of about 10 per cent over the years is probably starkly reflected in the weakness of our infrastructural base. Ultimately, economic growth, employment opportunities and enhancement of social welfare and infrastructure will become seriously challenged by systemic uncaged inflationary surge.

So, even if the reforms in the 2014 Pension Act are perfectly managed, future retirees may, indeed, never suffer undue delays and pains in endless queues before collection of their pensions. Sadly, however, unless our Economic Management Team succeeds in bringing down inflation to international best practice levels of not more than three per cent, undoubtedly, pensioners will inevitably still suffer severe shocks with the realisation that their pension payments have, ultimately, unexpectedly become inadequate to cater to their basic needs, as a result of government’s failure to restrain inflation. Sadly, despite the reforms, senior citizens may consequently still not escape penury after a lifetime of service to their fatherland!

Advisedly, however, the systemic surplus cash, which primarily drives inflation (too much money chasing few goods), poisons the object of the pension scheme and impedes upgrading of social infrastructure, will become better managed when our Central Bank resists the temptation to keep substituting naira allocations for monthly distributable dollar revenue!! When the CBN refrains from this socially and economically destructive payments system, the burden of eternally surplus naira will be lifted from the economy and inflation would be tamed to best practice levels; only then can we celebrate our pension reforms as socially successful.