Pension contributions can now be made through telephone –Yusuf

Managing Director/Chief Executive Officer, UBA Pension Custodians, Mr. Bayo Yusuf

In this interview with IFEANYI ONUBA, the Managing Director/Chief Executive Officer, UBA Pension Custodians, Mr. Bayo Yusuf, speaks on the new Pension Reforms Act; prospects and challenges of the pension industry

What is your assessment of the newly amended Pension Reforms Act (2014)?

It is a welcome development in the sense that it addresses many issues from the employee to the employer and the government. The complaint from the employees has been that what they get is not commensurate and how do we increase this amount? That has been addressed by increasing what the employer puts into the account of the employee from 7.5 per cent to 10 per cent. And also on the employee side their own contribution has to go up from 7.5 per cent to eight per cent. This, for me, is a welcome development because you are running a scheme based on what you are able to accumulate over time and what returns on investment. So, this, for me, is going to improve what will be in the purse of the employee at retirement.

How will you describe the Nigerian pension industry as currently constituted?

Nigeria’s pension industry is positively growing in the sense that this is the first time we are having a well-structured, well regulated formal pension industry in the last decade. Before the 2004 Pension Act, the only seeming regulator we had was the Joint Tax Board.

The private sector had one scheme or the other and they went into it because of the tax benefits they got. Everybody tried to meet up with the requirements of the Joint Tax Board because of the tax benefit when they were rendering their accounts at the end of the year.

For the public sector, it was always Pay-As-You-Go. So the Head of Service was in charge of regulation there. So there was no formal structure or regulation.

But since the 2004 pension reform, we have a formal, well-regulated, structured pension industry and we can all see the benefit today with N4.21trn in accretion of capital to be used for the economy.

At the World Pension Summit which was recently held in Nigeria, the use of Information and Communication Technology in pension administration was a major issue discussed. What is UBA Pensions doing to integrate ICT with pension administration?

The success of this industry is hinged on ICT because it is a retail market and in the retail market, a lot of data pass from the employee to the employer and to the operators and also the regulator. So, if there is no good, robust ICT, then there will be a major challenge.

We all know the era we are in now. Take for instance, at the beginning of the 2004 pension system; the level of information technology was inadequate. We cannot have a smooth pension system without ICT but the number is growing. Right now, we are just six million and we are talking of bringing in the informal sector into it. The informal sector is another area entirely in the sense that they are not all experienced individuals and we know that.

So, we are working with the banks, specifically UBA, to come up with a product that will enable the informal sector use their phones to remit their pension contributions. They don’t need to go to the bank. So, technology is a major game changer and also it is going to be a differentiating factor in few years to come. So, we cannot do without ICT in pension landscape, especially in the area of administration.

In recent times, some people have been advocating the investment of pension fund assets in infrastructure. How can this be better achieved?

There is going to be a strategy for the people that put their money in these projects. It is not every project that is bankable and it is not every project that you should throw your money at. You should look at the project, if it is bankable, people will bring finance. So, pension fund operators will not say because they have money, they should throw it into any project; no. No Pension Fund will do that.

How much has your company paid out to retirees so far?

We are pension fund custodians and we have specific rules entrenched in the Act. Number one is collection on behalf of PFAs that sign us up. We are custodians to ten of the 27 PFAs. We have 27 PFAs and of these, 10 are our clients. On a monthly basis, we collect between N17bn and N18bn in terms of collections spread across the federation.

Two, settlement of transactions on behalf of PFA; the administrative part of investment is being handled by the custodian. So, we settle transaction on behalf of our PFAs and when we settle, we collect instrument representing investment.

Also, income collection, the income accrued in all of these investments like the dividends on equity, interest on placement. Also, the payment of benefit to retirees, every month, for those that are on programme withdrawals, we make payment on behalf of our PFAs. We have 25,000 retirees that we pay on a monthly basis and we pay in excess of N3.5bn.

These are some of the things we do aside other value added services. We are basically servicing the PFAs; we don’t have a direct relationship with the employees. We were appointed by the PFAs and that is why you cannot see us in the newspapers every day because the people we are servicing are just 27.

Recently, the Minister of Finance, Dr. Ngozi Okonjo-Iweala, hinted that the government is targeting a pension fund asset of $100bn within the next 20 years. How feasible is this projection considering the fact that many employers of labour don’t remit the pensions of their employees?

I can see it coming a lot earlier. There are 17.6 million employers in the informal sector and these employers have employed 43 million as of March 2014.

Total Retirement Savings Account opened is just 6.2 million. So, you can see the gap. Now, the new Act makes provision for a minimum of three workers and above and when you look at the figures of 17.6 million and 43 million, you can see that this is minimum employment figure by the Small and Medium Scale Enterprises.

So, it is just left for the operators to hit the market. I can assure you, in a couple of years, 20 years is very far. With the rate of growth that we have been having at 30 per cent annual growth contribution, I can assure you; in the next two years, the rate of growth will be more than this even with the fact that we have a new set of people.

The main challenge for us is to have the mechanism, the framework. We know that in whatever we do, we need to domesticate it. We know the average informal sector employer; the financial education is very limited. They believe in what they can get back in the immediate and pension is a long term thing and when you look at the demography of the majority of the people in the informal sector; secondary school leavers, ONDs; these are people in their twenties.

So, in coming up with a framework for the informal sector, there is need for us to have a portion of their accumulation that they can have access to at any point in time.

What do you mean by domestication of pension assets?

What I mean is 100 per cent of your contribution will not be locked down till retirement. A provision says you can have access to 20 per cent of your contribution at any time. That is, you are domesticating it. A fashion designer, for example; if you run into problem or see a new machine to buy, you cannot tell her that she cannot access the money; that it is tied down until retirement age. Even a professional can have access to 20 per cent of their money.

So, it is not until you get to retirement before you begin to see the benefit of your contribution. I should be able to benefit from it while I am working, not only when I retire.

  PUNCH.