Pension Fund Administrators and the One Billion Naira Minimum Share Capital Requirement

Schwartz: 1988 in his two monumental books, the magic of thinking big and the magic of getting what you want, opined that there are three most important things in life, Women, Money and Religion, he went on saying that with women, you create life, with money, you maintain the life you created and with religion you still have hope that you are going to have life after death. Schwartz was so philosophical about this that analysts were not happy with him, but he was not deterred by that, he went on to observe that money has three derivatives, they are work ,savings and financial knowledge. I am more interested in his theory about savings. He observed that people save for two basic reasons, first for retirement and secondly to make lot of money, this is in agreement with Kiyosaki.

According to Robert Kiyosaki (1999) in his book ‘Cash flow quadrant, the Rich dad guide to financial freedom’ he noted that people invest for two basic reasons,

·         To save for retirement

·         To make lot of money

The first one underscores the importance of pension schemes, which is the more reason National Pension Commission directed PFAs to beef up their capital base. Starting from June 30^th 2012 PFAs are required to have a minimum share capital of one billion naira.

To this end, Pension Fund administrators will on the first and second quarter of 2012 embark on stringent financial strategies to raise fund so as to avert National Pensions Commission hammer on the minimum share capital requirement. They will also be doing themselves good, as failure may lead to so many things.

The commission according to the Head Surveillance M. Y. Datti stated that as part of its oversight function observed that “the minimum share capital of 150 million naira was no longer adequate to meet the operation expenses of PFA business, given its intensive IT nature and average gestation period of 5 years

“And after due consultations with the pension industry, “a minimum shareholders fund of one billion naira unimpaired by losses was approved, the amount is intended to absorb unforeseen losses and improve the financial condition as well as business process of the PFAs given current market situation” as noted by National Pensions Commission.

In the course of raising fund there may be mergers and acquisition which National Pensions Commission observe that one billion naira will “encourage healthy mergers or acquisition and also promote stability in the industry”

In the course of trying to raise fund through any means that is deemed fit for the organization, there may be whole lots of issues, Friedman in his book Lexus and the olive tree noted that “buying investment is often like getting married, in the beginning it is exciting and fun, but if things do not go well, the divorce can be much painful than all the marital excitement and fun, because getting in is a lot easier than getting out”  Therefore in investment, one of the important strategies is the exit strategy, according to Friedman.

But with careful business analysis and strategies, acquisition and merger will be  lot more exciting and rewarding in raising the needed fund, this is because they involved the pooling together of resources both human and material resources. And as PFAs embark on this important directive they should bear one thing in mind that there may be losers or gainers on individual bases among investors but the overall gain will be imparted on the industry, the pensioners and above all the economy.

National Pensions Commission noted this when they stated that the improved financial condition will lead to the following:

·         Improved service delivery and products development resulting from automation (timely payments)

·         Improved capacity building and employment of qualified personnel

·         Deployment of adequate IT infrastructure for improved business process

·         Creation of more business outlets for increased presence nationwide

·         Stronger and more efficient research unit for optimum investment decision

·         Improved data management and record keeping

This overall development will be imparted positively on the economy and the PFAs in particular and as they do this, they should bear in mind that investors are looking forward for this development bearing in mind that in an “economic bonanza, there are three kinds of people, those make things happen, those who watch things happen and those who say what happened”. Kiyosaki (1999:398)

As PFAs embark on directive and great task of raising fund, observers, analyst, industry watchers and the entire citizenry are waiting to know the fate of the pension fund administrators.