The Task of managing and safeguarding the pension fund

In this period of global financial crises ravaging the world with more and more economies failing around the globe. Can Nigeria’s financial system vis-à-vis the Nigeria pension industry be insulated from such crises?

With the increasing financial crises in America and Europe especially Greece and other European countries being hit by the world recessions, and subsequent slump in our stock markets and the recent failure of some banks in Nigeria leading to full takeover of these banks by the government through the Central Bank of Nigeria floated company AMCON.

One will be quick to ask what happens if this crises hit the pension industry? What will the pensioners and their beneficiaries do? What will be the effect of this failure on the economy?  Will it return us to the vicious circle of poverty as a result of pension failures? The failure of the National Provident Fund and the Nigeria Social Insurance Trust Fund are still fresh in our memories. With the call in Europe and America for an extension of the retirement age due to the failure of the pension schemes as a result of the global financial crises, it becomes pertinent for the pension fund administrators, the pension fund custodian and the National pension commission pencom to embark on a stringent financial and investment strategies to put the schemes on a sound footings. This becomes necessary to safeguard the pension fund.

The world is a global village and the business environment is becoming more and more complicated. We have moved from the period of globalization which according to Robert Kiyosaki is” based on the speed of modems and no one is in charge” to a period of hyper globalization and as such the success or failure of one economy may subsequently lead to the success and failure of the other if not checked; though Penkaj Ghemawat of the Harvard business school and the author of  “World 3.0” tend “to distance itself from the hype surrounding  hyper -globalization by recognizing the barriers between countries and the bridges between them” in his article on the “World 3.0 Mindset “ of the Harvard Business Review 2011.

Notwithstanding the views of Ghemawat, other writers still recognize the idea of hyper globalization as Ken Courtis an economist warns in the Time magazine of September 2011 “that Europe is on crab walk to disaster, should recession slides in, that would make it difficult for United States to restart its recovery or reduce joblessness and should that happen there would be few place to hide for anyone”. In a similar remark Michael Schuman in an article captioned “why Germany can’t save Europe much less the world” of the Time magazine September 2011 stated that “ the worse Europe debt crises deepens, it may be tipping the world into recession”  , should this occur what will be the effect on the Nigeria financial industry and especially the pension industry.

The views of Schuman and Courtis all posited that that the success or failure of one economy will ultimately lead to the success or failure of the others. But the views of Ghemawat show that notwithstanding globalization there may be bridges and differences but “working out how you can address these differences to the best interest of the organization is the view of world 3.0”.  This may be in agreement with the recent development in China and Germany where they seem not to be affected by the financial crises. With that in mind it may signal that the stringent management and investment strategies deployed by both pension fund administrators and National Pension Commission will insulate the pension industry from such crises.

The recent guidelines on investment which stipulates that 40 percent be invested in corporate and infrastructure bond and 5 percent in private equity fund unlike the existing regulation where  pension fund administrators invest 25 percent in equity , 35 percent on money market and the rest in government bond is step in the right direction. Also with effect from 30^th June 2012, the new minimum share capital will be one billion naira, (=N=I Billion). And according to M. Y. Datti, Head surveillance of National Pension Commission, “the minimum share capital of =N=150 Million was no longer adequate to meet the intensive IT nature of the PFA business given its gestation period of 5 years” . The proposed one billion in my view will lead to mergers and acquisition and at the end of the day ensure the safety of the pension fund and the availability of these funds to the pensioners and their beneficiaries at the point of retirement with a return on investment as the pension fund assets hit 2.3 trillion naira.

The bulk of this job lies on the PFA and their ability of the fund managers to invest wisely and this will to a larger extent safeguard the pension fund. This can be achieved through the roles of a knowledgeable risk and investment committees while at the same time guarding against corruption.