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CEP template 2012

National Pension Commission TEN YEARS OF THE CONTRIBUTORY PENSION SCHEME IN NIGERIA This year, the Nigerian pension industry will celebrate a decade of its establishment, which started with the enactment of the Pension Reform Act 2004 in June 2004. Since its establishment, the industry has witnessed significant growth in the number of members and the size of assets under management. The number of registered members increased to 6.02 million, as at the end of the first quarter of 2014, from 1.7 million as at 31 December 2006. Similarly, assets under management increased from ₦254.46 billion (US$1.57 billion) at the end of the fourth quarter of 2006 to ₦4,207.63 billion (US$25.85 billion) as at the end of March, 2014. History The Commission entrenched sound corporate governance in the administration of the Contributory Pension Scheme and in the investment of pension assets. Robust infrastructure has been implemented to ensure online real time reporting of the activities of the operators. In addition, the industry witnessed recapitalisation of the Pension Fund Administrators, which led to consolidation through mergers and acquisition. The Commission has continued to take an active role in building the required capacity in the industry for the effective implementation of pension reforms. As provided in the Pension Reform Act 2004 (PRA 2004), a structure has been established to ensure effective administration of the Defined Benefits Scheme. These steps provided a platform for the Commission to improve on the quality of service provided to its customers and ensure that retirement benefits are paid as and when due. Economic contribution The importance of pension funds in the Nigerian growth process is not only reflected in its continuous increase as a proportion of GDP but also in its contributions to Gross National Savings. As a proportion of GDP, pension assets successively moved from 1.43% in 2006 to 9.57% in 2013. Although most of the pension assets were fixed income securities ranging from bonds, treasury bills, corporate debts and money market instruments, the industry witnessed significant changes in the portfolio mix due to the prevailing dictates of the Nigerian financial market. Alternative investment assets such as supranational bonds and private equity funds were allowed over the years as the industry matured and operators built capacity and confidence. In addition, diversification was promoted through infrastructure bonds and funds. Future aims The recent signing into Law of the Pension Reform Act 2014 by the President will promote further growth of the industry through provisions mandating enterprises with at least three employees to implement the Contributory Pension Scheme. Special focus will be given to investments in infrastructure projects and real estate. In addition, exceptional attention will be given to the informal sector, which though unwieldy, has the potential to increase the number of registered members manyfold and facilitate the financial inclusion efforts of Government on this important segment of the Nigerian economy. The Commission is working on a corporate strategy plan that would effectively drive these processes. Conclusion The Contributory Pension Scheme has become an important component of the Nigerian financial system. It allows for the effective management of uncertainty and risk through risk pooling and risk sharing. This has facilitated the development of financial products like supranational bonds and private equity funds targeted at maximising the use of pension assets for the development of the Nigerian economy. Fixed Income Securities 84% Funds 1% Equities 15% A public institution created to regulate, supervise and ensure effective administration of pension matters in Nigeria No. 174 Adetokunbo Ademola Crescent, PMB 5170 Wuse II, Abuja, Nigeria • Telephone: +234 9 460 3930 • E-mail: info@pencom.gov.ng www.pencom.gov.ng Figure 1: Pension Fund Investment Portfolio as at March 2014


CEP template 2012
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