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Usman Suleiman is the Managing Director/CEO of Future Unity Glanvils Pensions Limited (FUG Pensions), one of the frontline Pension Fund Administrators (PFAs) in the country. A graduate of Business Administration from the Ahmadu Bello University, Zaria, Suleiman has gathered enough experiences in various spheres of life, especially in the financial industry.
A specialist in Investment Banking, Development Finance and Pension Fund Management, he is the pioneer Managing Director/CEO of FUG Pensions. He was appointed to the position after successfully leading a Technical Committee that was charged with the responsibility of setting up the company and obtaining the PFA License.
In this interview with Daily Sun, he stated that the industry has so grown that the N1 billion capitalisation is no longer adequate for operators, especially beginners. He noted that to sustain the competitive tempo in the industry and expand spheres of business, operators may likely go into self-imposed mergers and acquisitions. Reviewing government attitude towards remission of employees’ contributions, he stated, it was just a challenge that could be overcome with time.
Excerpts:
Investment of pension funds in infrastructure
As far as we are concerned, there are no contentious issues because everything there is clear. We are not project managers; we are fund managers, specifically pension funds managers. We have the funds; we are ready and willing to invest the funds. But we are actually looking for assets to invest in and infrastructure is a major and interesting asset class. However, we have to have projects that are well structured to meet all the regulatory requirements as well as our own individual internal requirements before we can invest. The structure will have to provide us with safety, security, liquidity, competitive returns and acceptable exit route. Both the operators and the regulators have been encouraging project managers, fund sponsors, investment promoters and other stakeholders to come up with vehicles that will qualify for these funds. We are anxiously looking for such vehicles.
I’m glad to say there are some of the fund managers, private equity funds, project managers and promoters who, in recent times, have been working very hard both locally and in partnership with other foreign interested parties trying to come up with various infrastructure projects that will qualify for pension funds. These are in the areas of transport, power and urban regeneration, among others. Projects such as the Oshodi Interchange Centre, trailer park on the Snake Island, East-West railway line, the fourth Mainland Bridge and various captive power plants are good candidates if well packaged.
There are various project promoters working to come up with specific projects or vehicles that will meet Securities and Exchange Commission (SEC) and the National Pension Commission (PenCom) requirements such that they will be able to access these funds. And for us, once an infrastructure project meets the regulatory requirements as well as locally and internationally accepted standards, which are common and known, we will be ready to fund it. These funds are supposed to be invested long term and serving the dual purposes of safety and security for the contributors and economic development of the country.
Regime of N1bn capitalisation and the state of the economy
First of all, the capital base you mentioned is the regulatory minimum requirement. However, in reality, virtually all the operators in this industry are operating above it. I accept that any new entrant into this business today starting from scratch will likely find N1 billion very inadequate to start up. For existing operators, however, there is no problem at all with this. This is because they have already acquired all the required regulatory assets for the business. It only becomes an issue if they want to go beyond the minimum requirement. At FUG Pensions, for instance, we want to always be at the cutting edge and that is why we always upgrade our operations. At present, we are in the process of replacing our G7 servers with G9, which is the top of the game presently. This requires resources beyond the minimum. I will expect our competitors to be working in the same line. Of course, the regulator has requirements for provision of certain IT and non-IT facilities. If N1 billion cannot provide these, then you certainly have to go beyond that.
Is CPS under threat from government?
I will not say the contributory pension scheme is under threat but I would say it’s facing some challenges. However, these challenges have actually been recognised by the regulator, the operators and government, including the National Assembly. For obvious reasons, the government may not be in a position to be funding its pension liabilities as required. We are not talking about current and the ongoing, but the accrued, which the government is expected to be funding at about 5 per cent of the budgetary provision of the current wage bill.
From the retirement bond redemption fund account, the commission will be funding the accrued right of those who are retiring. That is where the challenge is. But I believe the government recognises that and is trying to balance the various competing demands across all sectors of the economy and the public service. And it is not as if government is not funding at all but it is not funding to the extent that will meet the obligations as they arise. The key thing is that the challenge is recognised by government and I am sure they are working on how to ameliorate the situation. So I will not say the scheme is under any threat.
The private sector is not so challenging, but due to the circumstances of the economy, the private sector is facing a lot of difficulties. But as long as they are paying salaries, they will pay pension. The challenge is the delay in payment of salaries and the downturn in employment itself. The growth rate of employment has come down. Not too many firms are employing; firms employ only when it’s absolutely necessary except perhaps for the high tech firms where certain types of skills are needed. Firms are also downsizing and in such, growth in pension funds will not be at the same pace as of the earlier period.
Also, we now have a higher rate of pay-out because those who are laid off would come to ask for 25 per cent of the balances in their account if they fail to get job after four months as stipulated in the PRA. And they are not likely to get jobs within the period of four months, but for those who remain in employment and salaries are being paid, pension will be remitted.
There might be no salary increment and promotions in a lot of places, but salaries when paid remittances are made. The difference with the state government is that they don’t pay salaries regularly and when they accumulate, they find a means of support by way of bail out or some kind of support from the Federal Government before they pay. So in such a situation, remittances are affected. For the private sector, I will say that those at the first tier of the market, the multinationals and major corporates don’t fail in remittances. They have also come to understand that the CPS has lifted a huge burden off them, the burden of providing for or finding money to pay end of service benefits as used to be the case.
The recession has now bottomed out. The negative GDP growth reported in quarter four 2016 is lower than the two earlier quarters and the average for the whole year is just minus 1.2 per cent. We should therefore expect to start seeing positive GDP growth from quarter one 2017. I will say that with this expectation of stabilisation and recovery of the economy, there should be an improvement of this situation you mentioned. Even as we are talking about recession, foreign investors still have much faith and hope in this economy otherwise the $1 billion eurobond issuance by the Debt Management Office (DMO) would not have been actualised. The bond was not just fully subscribed but, in fact, eight times oversubscribed. You can’t have an expression of investor confidence in an economy more than this.
There is also stability in the political system, control of the militancy in the Niger Delta, stabilisation of the insurgency in the North East, etc. These are the things giving investors and operators hope and confidence in the economy. If local firms see that foreign investors are investing in this economy, they too will be encouraged and the economy will get back on the high growth track. For us, that will mean employment generation and business growth.
Problems of transfer window and micro pension
Basically, the issues of structuring the process such that you do not have problems down the line is the delay. On the transfer window, for instance, we want to be sure that technology is right, the process is right and all the parties involved, particularly the central clearing system, are on the same page. This is not an easy thing to do. It involves a lot of resources, but I can tell you we are aware that regulators have been working very hard on that.
In recent times, some headway is being made by PenCom in getting the technology and process in place and I strongly believe that in not too distant future, we will see the transfer window structure in place. As for the micro pension, it is very peculiar. The guidelines we have at present are all looking at a formal structure but the micro pension requires an informal structure.
The informal pension, which consists of grassroots trades and occupations such as vulcanisers, Okada riders, farmers’ cooperatives and all sorts of artisans who live on what they get on daily basis and cannot see any need for saving. On the other hand, we have the micro segments that are not necessarily micro in terms of value of resources but in terms of personnel and involvement.
For instance, you could have a blogger sitting in his living room working on his site or blog, he is a single individual operating from his own home but because what he is doing is interesting to the public, he could have a high volume of traffic to the site. That means a huge attraction to advertisers. Advertisement agents and corporate bodies will be interested in what he is doing because of the volume of viewership; hence, he will be making huge sums of money. The micro and the informal sectors actually provide between 70 and 75 per cent employment in this country. They also need to be secure in old age and as FUG would say, be assure of a brighter future. We are therefore trying to create a net that will capture all of them.
Culled from Sun
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