Many
Nigerians working or retired lack basic knowledge about Contributory
Pension Scheme. Managing Director of ARM Pension Limited, a subsidiary
of Asset & Resource Management Company, Sadiq Mohammed, spoke on the
many advantages of the scheme and other sundry issues in the pension
industry. Excerpts:-
Weekly Trust: So far, would you say the contributory pension scheme is a success in Nigeria?
Sadiq Mohammed: Definitely, it has being a phenomenal success beyond the wildest imagination of most people. I can tell you there are a lot of people at the beginning that were not sure including some multilateral institutions that have seen it in other jurisdiction of the world that were doubtful because they thought it will not be possible in Nigerian given the way things were done in the past. It is a pleasant surprise for every one because we virtually started from point zero in 2004 and today having over $26 billion in the industry which has been accumulated for the benefit of Nigerians or people that work in the country. Today, those funds are now being used for everybody. Government has also benefited through sales of treasury bills, state bonds, and corporate bonds. The pension fund has funded these instruments, which means the fund has funded the federal government of Nigeria, the various states that have issued bonds and the corporate bonds from the private sector.
On the equity side, we have a huge exposure depending on the stock you are looking at, we could have as much as 5 per cent of the stock market, which also means we have funded the capital market to some minimum percentage. Hopefully we would grow that percentage as the pension fund increases. On the fixed income side we are funding the federal states and corporate bodies. Even the International Monetary Fund (IMF) has issued a bond here that was oversubscribed. So this money goes into different developmental projects. You can measure that by what some state governments have achieved in terms of infrastructural development. Lagos state is a good example; there are others that I cannot mention.
On the corporate side, companies like Flour Mill Pls, Cadbury Plc and a host of them have raised bonds to build plants and what have you. Apart from that, within the 10 years that the scheme has been in existence, it has changed the landscape in the sense that even the ordinary man on the street can walk into their Pension Fund Administrators (PFA) office and collect their pension without hassles compare to the past where people cue endlessly.
WT: Despite the success that you claim the scheme has achieved there must be some impediments that you have faced and still facing, what are they and how can those be resolved?
Mohammed: First of all I think there are still some trust issues which is historical given the what happened in the past where people have believed in it and it failed. A lot of people were not sure if the new scheme will work. But in the last 10 years since the contributory pension scheme started, people have realised that it does work because a lot of people have retired and have collected their pension. This business is very straight forward in the sense that at the point of retirement you collect your pension. You can either go into a programme withdrawal or annuity. Every process in the scheme is automated compared to the past where you had to queue and do a lot of documentation and after that, they decide when they want to call you back for further process.
WT: At what point is one qualified to access his/her fund from an administrator?
Mohammed: Based on the current regulation, it is at the point of retirement which could start anytime from 50 years depending on your place of work. However, there are provisions within the current regulations to allow for people who are out of work to be able access their pension once they are able to show that they are out of employment for four months. It used to be six month but the new regulation has put it at four. This is to ensure that the money is useful, when one is out of employment he should be able to access it.
WT: What are the modalities for accessing contribution after retirement or exit from work?
Mohammed: There are several documentary requirements that you are expected to provide basically to prove that you are out of employment or retired. The documents is also to ascertain who you are, to show that you have not been short-changed over paid what you are entitled to. So you will be required to present your letter of disengagement or retirement. There is a checklist of all you need to provide. What we try to do in our case is to advice our clients to start early especially those who are about to retire so that it is not when you retire that you provide your documentary evidence. You should start earlier because it is when you are in the system that you are able to influence your documentation to be processed quickly than when you retire and leave the system. When this is done, we file for approval with PenCom and once it is approved, you get your pension. It is better you start one year earlier so that the process will be less stressful.
WT: Can a contributor withdraw his entire saving from his account? If not what amount of percentage is he/she entitled to on retirement?
Mohammed: No. there is what is called a lump sum and there is a process of how that is computed but the maximum is 50 per cent.
WT: There are insinuations out there that pension terminate at death; how true is this?
Mohammed: A next of kin is entitled to the funds in a situation where death occurs. People have always had that misconception that it terminates at death and that is one major problem we have with people trusting the scheme. The process in the industry ensures that we don’t pay the wrong person. So there are certain checks and balances that have been put in place to ensure that there is proper verification.
Sadiq Mohammed: Definitely, it has being a phenomenal success beyond the wildest imagination of most people. I can tell you there are a lot of people at the beginning that were not sure including some multilateral institutions that have seen it in other jurisdiction of the world that were doubtful because they thought it will not be possible in Nigerian given the way things were done in the past. It is a pleasant surprise for every one because we virtually started from point zero in 2004 and today having over $26 billion in the industry which has been accumulated for the benefit of Nigerians or people that work in the country. Today, those funds are now being used for everybody. Government has also benefited through sales of treasury bills, state bonds, and corporate bonds. The pension fund has funded these instruments, which means the fund has funded the federal government of Nigeria, the various states that have issued bonds and the corporate bonds from the private sector.
On the equity side, we have a huge exposure depending on the stock you are looking at, we could have as much as 5 per cent of the stock market, which also means we have funded the capital market to some minimum percentage. Hopefully we would grow that percentage as the pension fund increases. On the fixed income side we are funding the federal states and corporate bodies. Even the International Monetary Fund (IMF) has issued a bond here that was oversubscribed. So this money goes into different developmental projects. You can measure that by what some state governments have achieved in terms of infrastructural development. Lagos state is a good example; there are others that I cannot mention.
On the corporate side, companies like Flour Mill Pls, Cadbury Plc and a host of them have raised bonds to build plants and what have you. Apart from that, within the 10 years that the scheme has been in existence, it has changed the landscape in the sense that even the ordinary man on the street can walk into their Pension Fund Administrators (PFA) office and collect their pension without hassles compare to the past where people cue endlessly.
WT: Despite the success that you claim the scheme has achieved there must be some impediments that you have faced and still facing, what are they and how can those be resolved?
Mohammed: First of all I think there are still some trust issues which is historical given the what happened in the past where people have believed in it and it failed. A lot of people were not sure if the new scheme will work. But in the last 10 years since the contributory pension scheme started, people have realised that it does work because a lot of people have retired and have collected their pension. This business is very straight forward in the sense that at the point of retirement you collect your pension. You can either go into a programme withdrawal or annuity. Every process in the scheme is automated compared to the past where you had to queue and do a lot of documentation and after that, they decide when they want to call you back for further process.
WT: At what point is one qualified to access his/her fund from an administrator?
Mohammed: Based on the current regulation, it is at the point of retirement which could start anytime from 50 years depending on your place of work. However, there are provisions within the current regulations to allow for people who are out of work to be able access their pension once they are able to show that they are out of employment for four months. It used to be six month but the new regulation has put it at four. This is to ensure that the money is useful, when one is out of employment he should be able to access it.
WT: What are the modalities for accessing contribution after retirement or exit from work?
Mohammed: There are several documentary requirements that you are expected to provide basically to prove that you are out of employment or retired. The documents is also to ascertain who you are, to show that you have not been short-changed over paid what you are entitled to. So you will be required to present your letter of disengagement or retirement. There is a checklist of all you need to provide. What we try to do in our case is to advice our clients to start early especially those who are about to retire so that it is not when you retire that you provide your documentary evidence. You should start earlier because it is when you are in the system that you are able to influence your documentation to be processed quickly than when you retire and leave the system. When this is done, we file for approval with PenCom and once it is approved, you get your pension. It is better you start one year earlier so that the process will be less stressful.
WT: Can a contributor withdraw his entire saving from his account? If not what amount of percentage is he/she entitled to on retirement?
Mohammed: No. there is what is called a lump sum and there is a process of how that is computed but the maximum is 50 per cent.
WT: There are insinuations out there that pension terminate at death; how true is this?
Mohammed: A next of kin is entitled to the funds in a situation where death occurs. People have always had that misconception that it terminates at death and that is one major problem we have with people trusting the scheme. The process in the industry ensures that we don’t pay the wrong person. So there are certain checks and balances that have been put in place to ensure that there is proper verification.
Culled from Weekly Trust
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