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Business News of Monday, 2 May 2022


Operators expect tough competition, improved services after pension industry recapitalisation

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Operators in the Contributory Pension Scheme are optimistic that the Pension Fund Administrators would be more productive and serve customers better after the end of the recapitalisation in the sector.

Mergers and acquisitions were embarked upon by the operators in order to scale the recapitalisation requirements of the National Pension Commission, which ended at the end of April. The M&As led to reduction in the number of operators by two.

The Pension Fund Operators Association of Nigeria said it was important for the PFAs to leverage the recapitalisation exercise as an opportunity to restrategise and reposition their operations to compete better in a more recapitalised and competitive industry.

Speaking on recapitalisation, the Chief Executive Officer, PenOp, Oguche Agudah, said a well-capitalised industry would enable the sector to affect its various shareholders and the Nigerian economy in a positive way.

The Country Head of Equities and Fixed Income Sales in Nigeria, Absa, Simi Ojumu, said the recent cases of mergers and acquisitions by PFAs to recapitalise was a sign of growth in the industry.

“The new entities that are emerging from the merger and acquisition framework will have more resources at their disposal,” she said.

However, she cautioned that a smooth transition within the mergers and acquisition framework was necessary to ensure that the recapitalisation efforts did not harm the contributors’ assets.

“Smooth transitions are also largely dependent on the investment bank that facilitates the reorganisation and, in this case, the mergers and acquisition,” she said.

Ojumu said the pension industry had maintained an impressive growth curve since the enactment of the Pension Reform Act 2004, which made it mandatory for every employer with more than five employees to enrol each worker and make a consistent contribution to the pension fund.

She explained that the robust policy intervention in the pension sector had led to a jump in Nigeria’s net assets value of pension assets from a deficit position two decades ago to N13.6tn valuations in 2022 while scaling the sector’s overall contribution to the Gross Domestic Product from 0.9 per cent in 2004 to nine per cent in the current year.

Despite the recent growth, she admitted that the CPS continued to face some challenges.

According to her, low coverage, inadequate awareness of the scheme’s benefits and the inability to ensure strict compliance by the parties were some of the issues plaguing the sector.

She said, “The most important thing would be to ensure the sustainability of the Contributory Pension Scheme. Ensuring participant compliance by the federal, state governments and the private sector, creating awareness of the benefits, and creating an investor-friendly environment are some of the ways that policymakers can ensure that the pension sector continues to thrive and improve its contributions to the country’s GDP.”

Due to inefficiency of some PFAs, contributors have been leaving them to move to other PFAs.

Operators have said that improved capital to set up improved services would help to boost confidence in the firms’ operations.

According to PenCom, no fewer than 63,728 workers under the CPS that were displeased with their PPFAs had changed their pension companies since PenCom opened the transfer window.

Figures obtained from PenCom showed that the contributors transferred N226.98bn to new PFAs of their choice from the fourth quarter of 2020 to the end of the first quarter of 2022.

A decade ago, the commission had raised the minimum capital of the PFAs from N150m in 2011 to N1bn in 2012.

PenCom had, in a circular last year April, directed PFAs to raise their shareholders’ fund from N1bn to N5bn, giving them a 12-month transition period.

The commission argued then that its oversight function had shown that the required minimum capital was no longer adequate to meet the operational expenses of the PFA business.

The new capital base of N5bn led some PFAs to consider merger and acquisition as the April 2022 deadline approached.

Recently, PenCom said all the PFAs met the recapitalisation requirements, and that the number of PFAs reduced from 22 to 20 after mergers and acquisitions.

PenCom said the exercise became expedient as the value of pension fund assets under management and custody had grown exponentially by 244 per cent, from N3tn in 2012 (when the previous recapitalisation was done) to N12.29tn (as at December 31, 2020).

The sustained growth in assets implied greater fiduciary responsibilities that required more operational capacity by the PFAs, it added.

The urgent need to ramp up PFAs’ capacity to manage the increasing number of registered contributors and value of pension fund assets under management led to the recapitalisation exercise, it added.

PenCom said, “It is worthwhile to state that 10 PFAs had met the new regulatory capital requirement of N5bn as at 31 December 2021, while the others intensified efforts to meet the deadline of 27 April 2022.

“This resulted in some mergers and acquisitions, which led to the reduction of the number of PFAs from 22 to 20.”

It added, “The commission approved the acquisition of AIICO Pension Managers Limited by FCMB Pensions Limited; and the merger between Tangerine Pensions Limited and APT Pension Funds Managers Limited, and subsequent change of name of the merged entity to Tangerine APT Pensions Limited.

“In addition, the commission also approved Norrenberger’s acquisition of IEI-Anchor Pension Managers Limited, after its acquisition of the majority shareholder, IEI Plc.”

With the conclusion of the recapitalisation exercise, stakeholders, particularly RSA holders, should expect increased effectiveness and efficiency as well as improved service delivery from PFAs, PenCom said.

Agusto & Co forecasts that the Nigerian pension assets will hit the N20tn mark by 2023.

According to Agusto & Co’s report, with the transfer window opened by PenCom, allowing contributors to change PFAs, competition would intensify in the pension industry as PFAs began to seek new enrollees while retaining existing ones.

Going forward, Agusto & Co. said it envisaged continuous growth in pension assets supported by increased participation on the back of the country’s favourable demography of young adults and rising yields in money market instruments.

“In addition, we expect an improvement in the performance of the industry as operators compete for higher return on investments, improved customer service and use of technology for operational efficiency,” the research firm said.