The Nigerian Pension Commission (PenCom) recently announced that Pension Funds Administrators (PFAs), the managers of the various pension assets, must increase their minimum capital base to N5 billion from the present N1 billion within 12 months, starting April 12, 2021.
It has also sparked some fears about the industry’s future, particularly because the recapitalization decision comes at a time when the insurance sector’s recapitalization exercise is on hold, prompting a couple of analysts to speculate that this could have been driven by political pressures.
However, some analysts have voiced optimism in the aftermath of the directive, claiming that, despite the fact that the two industries are linked, the pension industry may not be perceived as following in the footsteps of the insurance business because the pension area has been better regulated.
In a message to Business A.M., Ekerete Ola Gam-Ikon, a management, strategy and insurance consultant, said, “The pension industry’s recapitalization effort will not go the way of the insurance business because PenCom has benefited from a superior regulatory environment than NAICOM.”
“The operators in the pension industry have been aware of their regulator’s approach for some time, so this announcement would not come as a surprise to them,” Gam-Ikon noted.
“There is no better time than now to do it because more people will need pensions in Nigeria we see in 2021 and beyond. We obviously need stronger PFAs to invest more in the technologies that will enable the on-boarding of more people, reflecting on the timing of the recapitalization process, which comes as several sectors of the economy continue to struggle to recover from the global Covid-19 outbreak.” he added.
PenCom, for example, has urged for the Pension Reform Act 2014 to be amended to address the insufficient amount for payment of retirees’ accrued pension entitlements and the late or non-release of full allotted amounts, which the industry is presently combating because it is embedded in the Act.
Gam-Ikon feels that the review is required because it has been long overdue, especially in light of the developments that have occurred since the last revision. “Because of the fast-changing and dynamic climate in which we now find ourselves, any effective and sustainable rule within the financial services industry should, in my opinion, be revisited every 3-5 years,” he said.
In the meantime, it’s worth noting that the newly authorized minimum regulatory capital requirements, which increase from N1 billion to N5 billion and take effect by April 2021 for a 12-month transition period, is driven by the need to improve PFAs’ operational efficiency and effectiveness, as well as their customer service delivery.
Source: Business AM