There are still many skeptics when
it comes to embracing the Pension Reform Act and the Contributory
Pension Scheme (CPS) in Nigeria. While the regulators – National Pension
Commission (PenCom) and the operators – Pension Fund Administrators
(PFAs) and Pension Fund Custodians (PFCs) have done very well in
birthing the new scheme and operating it efficiently and effectively, a
number of potential contributors and some employees have concerns about
the efficacy of the scheme relying on their past experiences with
pension schemes and other government sponsored initiatives. To allay
their fears and concerns, it is useful to discuss some of the safeguards
inherent in the CPS in Nigeria.
Separation of Custody from Administration
One of the major risks associated with
pension schemes is co-mingling of funds whereby pension assets are
managed within the same pool of resources as other funds belonging to
the organization (sponsor) or the fund manager or even other non-pension
clients. In Nigeria prior to the PRA 2004 and its successor PRA 2014,
virement of pension funds occurred wherein organizations used pension
funds to settle other liabilities, obligations and operational expenses
with the hope that such funds will be returned. In many cases the funds
were not returned, and pensioners suffered. In other cases, fund
managers and insurance companies did not separate pension funds from
other funds that they managed and where investment losses occurred,
pension funds suffered.
Under this new scheme pension assets are
completely separated from the organizations in the first instance, and
there is also a separation of the responsibilities of pension fund
management and payment (PFA) and pension fund custody (PFC) with strict
guidelines about the conduct and relationship between these entities
that protect the pension funds and the retirement benefits ultimately.
Also, where PFAs or PFCs may be mismanaged and fail, the separation of
custody and management and the prudent investment guidelines that we
will discuss shortly sterilize your pension funds and protect them from
distress. If and when PFAs or PFCs are distressed, PenCom will take over
the sterilized assets and account information and transfer to another
licensed and sound PFA and/or PFC.
