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.

THE IMPACT OF QUALITY CUSTOMER SERVICE IN THE OVERALL MARKETING OF PFAS

Peter Drucker noted that “an organization has two functions, one is innovation and the other is marketing”. And whatever you are selling whether pensions, insurance, cars, hosing etc. you are selling peace of mind.

Marketing is very essential in any organization and may be regarded as the life wire of the organization, but more strategic to the concept of marketing is that of customer service. This is because customer service leads to repeat purchases, and according to Lebouef (1989:13) in his book “How to win a customer and keep him for life” he noted that “the most important job of any employee including sales people is to create and keep customers”

Many people including sales representatives and their managers believed that sales person’s primary job is to make sales and without doubt, “making sales is important but it creates short term dollar while creating and maintaining customers and offering customer satisfaction make long and medium term dollars”

The issue of quality customer service prompted Napoleon Hills to embark on a study. Napoleon Hill devoted over twenty years of his life trying to study why so few men succeed and so many failed. He went on to say that he interviewed numerous great men from all walks of life such as Andrew Carnegie, Thomas Edison, and Woodrow Wilson etc. He presented the essence of his findings in his classic bestselling “Think and Grow Rich” One of Hill’s best recommendation is to cultivate the idea and habit of rendering more and better service more than that for which you are paid, and before you realize it, the world is willingly paying you for more than you do”. Today we call that “building perceived value”, seventy years ago we called it the”Law of Increasing Returns”

But a more interesting story was that of the life of vice president Andrew Johnson. Andrew Johnson was the only United States chief of staff who never went to school not even a primary school. He was a tailor by profession and was taught how to write and do arithmetic by his wife. He carved a niche for himself first as a tailor but the success of his tailoring profession was hinged upon an excellent use of customer relations with his politician customers who are in serious desire of his well tailored suits. The relationship between him and his clients became so cordial that they encouraged him to go into politics. They provided him with both moral and financial support. He became Mayor of Glennville, member of the Tennessee house of assembly and later United States house of Representative between 1843-1853, Governor of Tennessee from 1853 to 1857 and United States Senate (1857 -1862) and following the assassination of Abraham Lincoln, he served as president from 1865 to 1869.

I am not interested in telling history of vice president Andrew Johnson but I am fascinated to bring this story to highlight on the gains of an effective customer service. It was an exciting customer relationship between clients that shot this man to limelight, customer service is essential to business concern. And according Jeff Hitchman a former managing Director of Xerox Nigeria. “People are no longer selling but building and maintaining relationships”, when a relationship is built and maintained it is like a bond. I could still remember a relationship manger in one of the new generation banks who followed a managing director of a major electronics company in 2003 to the burial ceremony of his mother and stayed for almost 5 days with him in the village, though an extreme situation but it buttressed one thing, he has built a relationship with this man.

An excellent customer service will at the long run impact positively on sales and marketing department. As Pension Fund Administrators’ positioned itself for effective customer patronage in the possibility of National Pension Commission Lifting the window of transfer, customer relationship will be the determining factor in keeping this customers and one of the effective ways of maintaining relationships is in resolving customer complaints, and according to Housley (2005:45) in his book on Marketing, “resolving customer complaints build customer loyalty” He went on to say that “it is possible to turn customer complaints into assets.

Most of the complaints among the Pension Fund Administrators’ customers are Zero balance, double registration, partial funding, change of name especially among married women failure to generate pin at the appropriate time, wrong statements, no statements etc. And according to Lebouef (1987) “a typical dissatisfied customer will tell eight to ten people about the problem. One in five will tell twenty. It takes about twelve positive service incident to make up for one negative incident”.

As the pension fund administrators embark on this onerous task of satisfying the customer, they should always bear in mind that customers are unique and different, what is applied to customer A may not apply to customer B.

PENSION FUND ADMINISTRATORS AND BRAND EXTENSION

Brand is a name ,term, sign, symbol or design or a combination of them intended to identify the goods or services of one seller or group of sellers and to differentiate them from competitors     (Kotler :1995) .But I am more interested in brand extension. Brand extension is a marketing strategy of attaching an existing name to a new product, service, organization based on the success of an old name.

Most Pension Fund Administrators in the country are the product of brand extension, and according to Adrika et al (1997:130) “brand extension strategy is an effort to use a successful brand name to launch new or modified products or line” Trustfund pensions plc is a product of brand extension. Section 42 subsection 1 of the Pension Reform Act 2004 states that “the NSITF shall establish a company to undertake the business of pension fund administration in accordance with the act and in section 42 subsection 2, “it states that the fund contributed by any person before the commencement of the act together with any attribute income thereof not reserved for the purpose of administering maximum pensions as determined by the commission shall be computed and credited into the respective retirement savings account to be open by NSITF for each contributor or beneficiary of the contributor made under the NSITF of 1993”

Therefore Trustfund becomes a brand extension in establishing Trustfund pensions and also the origin of its payoff line “pension is all about trust”, other PFAS which are product of brand extensions include

Fidelity pensions Ltd

Crusader Pension Ltd

Leadway Pensions Ltd

Sigma Vaughan sterling pensions

Stanbic IBTC Pension Managers Ltd etc

 The advantage of brand extension is that a strong brand name     gives a product

 Instant recognition Adrika et al (1997:130), it could be observed that Trustfund is a brand extension of NSITF, as Stanbic IBTC pension is to Stanbic ibtc bank, fidelity pensions an offshoot of fidelity bank, crusader pensions an offshoot of crusader insurance etc, the list could continue. But there are also disadvantages of brand extension as the failure of a brand may ultimately lead to the failure of its brand extension. But the gains far outweigh the disadvantages as most brand extension has established their feet and has even made their impact felt on a global scale.

From these extensions, it could be observed that most PFAS are collaborating for the purpose of achieving the objective of the group or the holding company.

Majero (1993:85) noted that when a good brand image is built, it can command a premium price, owing to the valuable psychological tangibles associated with its name. Such is the power of name that most women adopt their parents name before attaching their marital name. Name especially a good product name or service or organization most times becomes a sort of goodwill that becomes a great asset in balance sheet of most organization. In extreme situation branding and brand extension becomes so powerful that customers adopt the name as generic product.

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.