The National Pension Commission (PENCOM) seems to have taken a tough regulatory stance as it has fined several Pension Fund Administrators (PFAs) for having sub-optimal returns on their portfolios. The fines are reported to run into billions of Naira.
Why are the PFAs being fined?
Guidelines set by PENCOM state that any firm that delivers sub-par performance will be queried.
Why where the returns sub-par?
Though PENCOM has not officially confirmed the fine, sources familiar with the workings of the pension industry suggest officers in some of the affected firms may have been involved in some underhand dealings. Bond purchases and fixed deposit rates were way below market prices.
PENCOM assets in the country largely comprise treasury bills and bonds issued by the Federal Government. A report by the National Bureau of Statistics on pension assets and membership class states that Federal Government Securities (made up of treasury bills and bonds) amounted to ₦5.2 trillion of the ₦7.5 trillion in Total Pension Fund Assets.
Returns on bonds and treausry bills spiked last year due to the massive increase in borrowing by the Federal Government.
Implications of the fine
The penalties by PENCOM could lead to some of the affected PFAs recording losses. Industry sources say most PFAs typically make between ₦800 million and ₦3 billion as profits.
Are pension account holders affected ?
Pension account holders will not be affected by the fine. Rather the Assets Under Management will be credited, and the Company Funds debited.
PENCOM needs to do more
While the fine is a step in the right direction, the commission can and should do more. Most PFAs do not publish their audited financial statements on time. Where available, it is usually a one-page summary. Porting from one PFA to another is not yet a reality.
The National Pension Commission (PENCOM) came into being in 2004 with the passage of the Pension Reform Act of 2004. PENCOM regulates, supervises and ensures effective performance of the pension industry and its operators.