Analysts offer mixed responses to new N5bn recapitalisation for PFAs

• New capital seen to improve operational efficiency, effectiveness

Zainab Iwayemi

Industry reactions have continued to trail the recent announcement by the Nigerian Pension Commission (PenCom) that pension funds administrators (PFAs), managers of the different pots of pension assets that run into over N12 trillion, shore up their minimum capital base to N5 billion from the current N1 billion, within 12 months effective April 12, 2021. It has also raised some concerns about where the industry is headed especially as the recapitalisation order is coming at a time when the recapitalisation exercise in the insurance sector is in a hiatus; leading a couple of analysts to suggest that this could have been triggered by political exigencies, but they refused to elaborate.

With a belief that the insurance industry is run by invisible hands behind the curtain, who move and shake the industry, stakeholders in the pension industry have put on a sceptical hat with regards to the possible outcome of the recapitalization process as many predict that the exercise may well reproduce the imprints of its sister sector.

However, some analysts have expressed optimism in the wake of the directive saying that notwithstanding the connection shared by both industries, the pension industry may not be seen threading the path of the insurance industry because the pension space has enjoyed better regulation.

The insurance industry has witnessed series of procrastinations, shifts and suspensions since the issue of recapitalization was canvassed. The last straw that broke the camel’s back was the recent suspension of the first tranche (31st December 2020) of the exercise which was to equip insurers to meet at least 50 per cent of the new capital base against the period of the second tranche (30th September 2021).

Analysts offering diverse views on the matter have purported that the major setback causing the industry to circumnavigate around a point without moving forward may not be unconnected to the fear of godfathers in an industry that needs urgent reforms.

“NAICOM leadership may be avoiding dealing headlong with the unpaid claim issue because they are afraid that ‘those involved’ may work to remove them from office,” was how an analyst put it.

Meanwhile, Ekerete Ola Gam-Ikon, a management, strategy and insurance consultant, in a note to Business A.M., said, “The recapitalization exercise of the pension industry will not go the way of the insurance industry because PenCom has enjoyed a better regulatory framework than NAICOM”

He further explained that the development would allow PFAs to seek the opportunities ahead of them to justify further investments, especially with several initiatives from PenCom, including the micro-pensions for the informal sector.

“The operators in the pension industry have been conversant with the approach of their regulator, so even this announcement would not come to them as anything to shock their business,” Gam-Ikon added.

“There is no better time to do it than now because more people need pension for the picture we see of Nigeria in 2021 and beyond. We certainly need stronger PFAs to invest more in the technology that will enable the on boarding of more people,” he explained while commenting on the timeliness of the recapitalization exercise that’s coming at a time when many sectors of the economy are still struggling to rebound owing to the global Covid-19 pandemic.

Notably, PenCom, in a bid to improve the workings of the industry has called for the amendment of the Pension Reform Act 2014., the insufficient amount for payment of accrued pension rights of retirees and the late or non-release of full appropriated amounts, which the industry is currently battling as it is found rooted in the act.

Gam-Ikon agrees that the review is necessary as it is long overdue, especially considering the changes that have taken place since the last amendment.

He said: “Any effective and sustainable law within the financial services industry should, in my view, be reviewed every 3-5 years because of the fast-changing and dynamic environment we have found ourselves. So, indeed, the Pension Reforms Act 2014 is overdue for amendment.

“Remember too that certain court judgements have necessitated such amendments, especially what persons that qualify for pay-outs are given. If National Housing Fund pays contributors 100 per cent, how come pensioners cannot get their full contributions? The amendment will address this for pensioners while it is also expected to improve the pension regulatory environment,” he also noted.

In the meantime, it is pertinent to note that the newly approved minimum regulatory capital requirements for these firms, from the initial N1 billion to N5 billion, which becomes effective April 21 for a 12 months transition period, and unimpaired by losses, is thus, necessitated by the urge to improve the capacity of PFAs in terms of their operational efficiency and effectiveness, as well as their service delivery to customers.