The Pension Fund Administrators (PFAs) are rational investors that have, for years, allocated assets to securities that are considered attractive relative to the risks of their investments. Chief Executive Officer, Stanbic IBTC Pension Managers, Olumide Oyetan, in this interview with The Nation Newspaper says the macroeconomic environment has led to a situation where risk-adjusted returns are higher on sovereign debt notes (bonds and treasury bills) than from the more volatile assets like equities. He also speaks on the transfer window as a positive development for the industry, Contributory Pension Scheme as well as data protection for customers.
Many have argued that Pension Fund Administrators (PFAs) have opportunity to increase their investment in equities within the regulatory limit. Are we likely to see a change in Stanbic IBTC Pension’s investment strategy to take advantage of these new securities?
While it is true that there is a significant room for Pension Fund Administrators (PFAs) to increase allocation to equities, the absolute investment in equities by PFAs was in excess of N850 billion as at December 31, 2020, which is an all-time high.
This confirms that pension funds will continue to be major players in this market as we continue to seek opportunities to enhance investment returns. I would like to also highlight that in spite of the challenged macroeconomic landscape, Stanbic IBTC Pensions has maintained a positive disposition towards equities as we have remained above the industry average due to the diversification benefits.
We are equally at the forefront of collaborating with relevant stakeholders to drive appropriate initiatives that would improve the depth and efficiency of the capital market as we recognise this is in our best interest of stakeholders. Therefore, as a responsible fiduciary, we are keen to participate in appropriately structured opportunities that are in line with the risk profile of our funds as well as the defined regulatory provisions.
Over the past couple of years, PFAs seemed to have streamlined their investments in the capital market to other securities and instruments, especially in the money market. What is responsible for this?
The PFAs are rational investors and will allocate assets to securities that are considered attractive relative to the inherent risk of the investment.
Due to the macroeconomic environment, we have in recent times witnessed a situation where risk-adjusted returns have been higher on sovereign debt notes (bonds and treasury bills) than from the more volatile assets like equities.
For context, the yearly performance of the equity market has been positive only four times out of the last 10 years while the 10-year Compound Annual Growth Rate (CAGR) is 9.65 per cent, following the 50 per cent return recorded in 2020.Thus, one can understand the natural preference for safer instruments with higher returns potential. Furthermore, pension funds have grown at an average annual rate of 18 per cent over the last seven years whereas there has been only a handful of new listings on the Nigerian Stock Exchange over the same period. This disproportionate growth has significantly constrained the ability of pension funds to increase allocation to the equities markets whereas the issuance of sovereign and corporate debt instruments continues to grow steadily.
What impact has the transfer window had on your company and the industry as a whole?
The transfer window is a positive development for the industry; as finally, Retirement Savings Account holders can exercise the option to change their initial selection of a PFA to their preferred service provider based on attributes that are important to them. For us, as a company, the transfer window has given us the opportunity to welcome new sets of clients and continually improve our technology and services to meet not only their needs, but the needs of our existing clients as well at every point in time.
What does the transfer window represent for Stanbic IBTC Pension Managers?
The transfer window gives us an opportunity to serve the over nine million pension contributors in the market as well as provide them comfort at retirement. Leveraging our various educative programmes, the transfer window also gives us the opportunity to enlighten a wider audience, thereby boosting confidence in the industry.
How well are you prepared to take advantage of these opportunities?
In preparation for these opportunities, we’ve carried out a significant number of upgrades across our digital self-service channels as well as online platforms to provide transactional ease and a personalised experience for both existing clients and new joiners. Within the organisation, we have also conducted in-house evaluations and re-training for staff to equip them with the required skills to take on the opportunities presented by the transfer window
Last year, PenCom and NAICOM issued several regulations to clarify the controversy between PFAs and life insurance companies over-programmed withdrawal and annuity. Can you shed more light on this?
Specifically, in September 2020, the National Pension Commission (PenCom) and the National Insurance Commission (NAICOM) issued three documents to address the lingering questions regarding the management of pension benefits and other ancillary benefits in Nigeria. They are: Revised Regulation on Retiree Life Annuity (RLA): This regulation specifies the modalities for the administration of Annuity benefits under the Contributory Pension Scheme (CPS) as provided by the Pension Reform Act (PRA) 2014.The document also covers the eligibility of insurance firms (life insurance companies and insurance brokers) to participate in the administration of retirement benefits under the CPS.
Guide for retirees under the CPS (Retiree Pack): The Retiree Pack addresses the frequently asked questions in relation to programmed withdrawal (PW) and retiree life annuity (RLA) while providing the list of things to be done by a prospective retiree. It also specifies the features of PW and RLA under the CPS.
Revised Guidelines on Group Life insurance Policy for Employees: this document seeks to establish a uniform set of rules and standards in relation to the procurement and maintenance of Group Life Insurance Policy in favour of employees under the Contributory Pension Scheme (CPS).
Stanbic IBTC Pensions is, no doubt, the largest PFA in the industry. You have close to two million RSA holders. What percentage of your customers are pensioners and what percentage have signed on for programmed withdrawals?
We have about 1.8 million RSA holders registered with Stanbic IBTC Pensions. However, eight per cent (representing 147,929 clients) of the population of RSA Holders in Stanbic IBTC Pensions are retirees. Currently, a total of 33 per cent (55,225 clients) of the retirees signed for the Programmed Withdrawal
How well informed are your retirement savings account holders on the choices open to them between programmed withdrawal and annuity when they retire?
We engage our clients who are due to retire via our pre-retirement sessions and pre-retirement email notifications, which provide them with details on the available options to access their retirement benefits and what is expected of them. Our website also provides information on the withdrawal options for retirees and when they visit any of our offices nationwide, they are advised on the differences between programmed withdrawal and annuity.
Information management is critical to any business’ success. What processes are in place at Stanbic IBTC Pension Managers to manage information such that account holders’ fears are allayed?
Information and data protection is one of the critical areas within the business that we pay attention to closely. We have a robust information security department that reviews the formation of policies, standards and frameworks in alignment with global best practice. We have in place technology and measures to safeguard client’s data and information by ensuring that the three pillars of information security which are Confidentiality, Integrity and Availability are upheld always while processing or storing Clients’ data. We have also enabled our staff and clients via various information security awareness sessions on how to identify and prevent phishing attacks. To further improve our information security management system, we have embarked on achieving a global standard certification on ISO/IEC27001:2013 which will provide additional comfort to our clients’ on information management.
What other ways do you engage your market to ensure people have the relevant information and knowledge?
We hold regular engagements with employers and individuals to provide clarity on areas of concern with regards to the CPS. We also publish quarterly pension notes on our website which seeks to address specific topics around the CPS. In addition, our online series called “Blue Talks” serves as a platform to educate our online community on the contributory pension scheme.
How effective will you say the voluntary contributory scheme has been in boosting the informal sector participation in the pension scheme since its commencement?
The micro pension scheme is a voluntary financial plan for workers in the informal sector so that they can also participate and benefit from the scheme towards a blissful retirement. With over 50,000 registered contributors under the micro pension scheme and a total asset of over N60 million from inception, we can confidently say that the scheme is gradually gaining acceptance within the informal sector. Nonetheless, there is still a lot of work to do to structure an incentive for people in the informal sector to join so that the pension industry becomes more inclusive.
Many states have yet to fully adopt the CPS, in terms of domesticating the Pension Act, establishing pension bureaux or boards as required by law, remittances, pension payments, etc. PenCom’s report on full compliance showed that only seven of 36 states are fully compliant with the CPS laws. This situation puts state workers at a disadvantage in terms of retirement benefits and pensions. What is responsible for this abysmal response at the state level?
Some state governments struggle to meet their expenditure needs in comparison to their internally generated revenue. This causes financial constraints for them and, therefore, limits their ability to participate in the contributory pension scheme. Despite these limitations, significant progress has been made so far on the adoption of the CPS laws by state governments. As at December 2020, 25 states had enacted pension laws on the CPS while seven states were still at the Bill stage. Five states were operating other pension schemes with four of them adopting the Contributory Defined Benefits Scheme (CDBS) while one state operated the Defined Benefits Scheme (DBS).
I know that Stanbic IBTC Pension Managers continues to push for state adoption of the CPS through regular engagements with state governments. Can you highlight some of your efforts to encourage states to join in the scheme?
Despite some of the challenges we encounter from time to time, we continuously engage state stakeholders and employees to reiterate the benefits of the contributory pension scheme through targeted seminars and workshops. In addition to efforts made by PenCom to ensure that states comply, we also send detailed proposals to state governments on the benefits of the CPS and provide guidance to states that have indicated interest in the scheme. We also participate actively in state-held financial forums to lend a voice and provide perspective.