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Protect pension funds from reckless borrowers – Stakeholders tell PenCom

The National Pension Commission has been told to protect the Pension Fund Assets which stands at about ₦11.56trn from being borrowed by state governors under the guise that the fund would be invested in infrastructure development.

The experts who spoke during an interview with THE WHISTLER in reaction to proposal by the State Governors to borrow about ₦17trn of the fund, called on the Federal Government not to consider such proposal as it was inimical to the safety and security of the fund.

The 36 State Governors had under the aegis of Nigerian Governors’ Forum endorsed the proposals to borrow about ₦17trn from the Nigeria Sovereign Investment Authority and the Accumulated Pension Funds.

The endorsement was part of resolutions at the end of the 22nd NGF meeting which was contained in a communiqué personally signed by Dr. Kayode Fayemi, the Chairman of NGF and the Ekiti State governor.But reacting to the development, a Developmental Economist, Dr Odilim Enwegbara said rather than focusing on the pension fund for infrastructure development, there are other funding models such as the Public Private Partnership, and Concessions that State Governors could leverage to fund capital projects.He said, “Is the Pension Fund not a product of the Pension Act?

Since it does, does it allow government to recklessly borrow from the fund without guaranteeing repayment? Have the states given how they’ll repay? If they have, let’s see each state’s repayment plan.

“If it’s for infrastructure as they are claiming, then, where is the so-called infrastructure return on investment as a justification and a demonstration of their repayment?

“If private sector cannot be courted by these states to invest in the so-called state infrastructure, why not PPP?”

He called on stakeholders in the pension industry such as pensioners and other pension operators to resist the move by engaging the National Assembly in blocking such borrowing request whenever it is presented to the lawmakers for parliamentary approvals.

He added, “Either that stakeholder such as pensioners cry out to the National Assembly block this financial borrowing recklessness or they head for the court to block the taking away this pension life blood.

“For this endless borrowing to stop there’s the need to amend the Fiscal Responsibility Act of 2007 in a way to make it extremely impossible for any government to touch the Pension Fund.

“Either the governors aggressively pursue IGR or they continue to go to the debt market where they have been conniving with bankers to borrow at such ridiculous rates without any known repayment plans that have turned their states into economic deserts.”

Also speaking on the development, an expert in pension matters told THE WHISTLER that it is not practically possible to borrow N17trn from the pension fund based on the operations of the Contributory Pension Scheme.

The expert, who did not want his name mentioned, explained that the total value of the pension funds under management as of September 2020 stood at N11.56trn, noting that pension funds are not borrowed but rather invested in line with the investment regulations issued by the National Pension Commission.

The expert, who is also the chief economist of a financial organisation, explained further that the investment regulations allow pension funds to be invested in asset classes such as Bonds, Sukuk, Treasury Bills, Global Depository Notes and other securities issued by the Federal Government of Nigeria, provided that the securities are guaranteed by the Federal Government of Nigeria.

The investable assets also include Bonds and Sukuk issued by eligible State and Local Governments provided that such securities are fully guaranteed by Irrevocable Standing Payment Orders and subject to the fulfilment of the conditions set out in the Commission’s Circular on ‘Minimum Requirements for the inclusion of State Bonds as Investible Instruments in the Pension Industry.’

He said further that the Commission had deemed it necessary to prescribe that pension funds may be invested only in the Bonds floated by states that have fully complied with the CPS.

This, according to him, does not guarantee the investment of pension funds in the state bonds, as the Fund Administrators are required to conduct several risk analyses to decide if investing in such bonds meets expected yields and risk appetite.

Accordingly, he said Fund Administrators may wish not to subscribe to a state bond.

He added, “From the foregoing, it is clear that though governors may have the intention to borrow pension funds and SERAP had raised the alarm, the realization of this intention is really not practicable.

“It is noteworthy that one of the major achievements of the Pension Reform is the establishment of robust legal and institutional frameworks for the administration of pensions in Nigeria.

“In addition to the legal safeguards and institutional checks and balances, the Commission, as the regulator of all pension matters in Nigeria, has entrenched good corporate governance practices, high ethical standards instituted through rigorous supervision and regulation of the industry.”

Source: The Whistler

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