1. April 10, 20151Interaction with Nigerian Governors Forum

2. Outline  Rationale for the Reform  Objectives of the Reform  Nature of the Scheme  Safeguards of the Scheme  Implementation by State Governments  Pension Liabilities  Opportunities for Economic Growth  Challenges  Next Steps April 10, 2015Interaction with Nigerian Governors Forum2

3. Rationale for the Reform  Most public sector schemes were unfunded  Unsustainable pension liabilities  Weak and inefficient administration of schemes in both public and private sectors  Demographic shifts and ageing make defined benefits schemes unsustainable  Many workers in the private sector were not covered by any form of retirement benefits arrangement  Existence of diversified arrangements which were largely unregulated in the private sector April 10, 2015Interaction with Nigerian Governors Forum3

4. April 10, 20154 Objectives of the Pension Reform  Ensure that every worker receives his retirement benefits as and when due  Empower the worker  Assist workers to save in order to cater for their livelihood during old age  Establish uniform rules, regulations and standards for administration of pension matters  Establish strong regulatory & supervisory framework

5. Nature of the Scheme  Mandatory Defined Contribution Scheme  Coverage Covers the public service of the Federation and Federal Capital Territory and employers of 5 or more employees in the private sector  Contributory Both employer & employee to each contribute 7.5% of employee’s monthly emoluments (basic salary, transport and housing allowances) Contributors are allowed to make additional voluntary contributions  Based on Individual Retirement Savings Accounts (RSAs) Personalized & portable  RSAs are privately managed by PFAs and PFCs  Life insurance cover April 10, 2015Interaction with Nigerian Governors Forum5

6.  Coverage and exemptions  Scheme not mandatory on informal sector Policy being drafted for informal sector voluntary buy- in into the scheme  Lump sum withdrawal at exit  Monthly/Quarterly pension payments  Option of Programmed Withdrawal or Annuity purchase  Right to change to another PFA in case of Programmed Withdrawal  Right to switch to Annuity from Programmed Withdrawal  Benefits to be paid to beneficiaries of deceased contributor (including life insurance benefits) April 10, 2015Interaction with Nigerian Governors Forum6 Nature of the Scheme … cont’d

7. Safeguards of the Scheme  Access to RSA allowed only on retirement  Separation of the functions of pension operators  Pension Fund Custodian Guarantee  Pension funds held by custodians in the name of the Contributors  Pension assets cannot: be used to meet the claim of creditors of pension operators be seized or subject to execution of judgment debt or stopped from transfer to another Custodian be sold, or granted as loan or used as collateral  Government contribution shall be a charge on Consolidated Revenue Fund of the Federation  Scheme is strictly regulated and supervised April 10, 2015

8. 8 Comparing the old and the new schemes Old System New System Type Largely Defined Benefit Defined Contribution Funding Mostly unfunded & PAYG Contributory & Fully Funded Membership/Coverage Voluntary in private sector Mandatory for all employees Pension Portability Not Portable Personalised & Very Portable Management Largely State & Management & Union Influence Private Sector & Individual Choice

9. April 10, 20159 Comparing the old and the new schemes Old System New System RetirementBenefitsDiscriminatory Uniform Application Claiming Retirement Benefits Cumbersome Straight forward Supervision Fragmented & Unregulated (SEC, NAICOM, JTB) Strictly regulated by PenCom Pension Liabilities Implicit & not transparent Explicit through Retirement Bond & Capped Tax exemption Limited Contribution & Retirement Benefits Insurance Policy Voluntary & mostly in private sector Mandatory for all employers

10. Comparing the old and the new schemes Old System New System Dismissal from Service No Pension Benefits Full Pension Rights Collateral for Loans Benefits could be used as collateral Benefits cannot be used as collateral Deductions from Benefits Benefits can be subject to deductions especially by employers on any outstanding financial obligations on the employee Contents of RSA can be used for payment of retirement benefits only Minimum Service Years 5 years for gratuity 10 years for pensions Month 1 of employment for all benefits Gratuity Provided to those qualified Provisions for Lump sum withdrawal

11. Implementation by State Governments  Adoption of the scheme for all states and local governments by the National Council of States in its meeting of August 2006  Model State Pension Law was developed for the state governments to adopt and modify based on their peculiarities  PenCom reviews draft state Pension Laws and offer support in their implementation  Registration of contributors About 2.6 million Nigerians have opened RSAs 68% are from the Public Sector, of which  48% are FGN employees  20% are state & local government employees 32% are from the Private Sector April 10, 2015Interaction with Nigerian Governors Forum11

12.  21 state governments are at various levels of implementation  Six States comprising Kano, Ondo, Bauchi, Delta, Kogi, and Jigwawa have responded to our request for up-dates April 10, 2015Interaction with Nigerian Governors Forum12 Implementation by State Governments … cont’d S/NIMPLEMENTATION STAGESTATESREMARKS 1Pension Law Passed Lagos, Niger, Ogun, Kaduna, Zamfara, Kebbi, Kano, Nasarawa, Jigawa 9 States 2Bill Passed by House of Assembly Awaiting AccentKastina, Kogi,Gombe3 States 3Bill at House of Assembly Level Ebonyi, Bauchi, Ondo, Bayelsa, Delta, Rivers, Sokoto. 7 States 4At the Head of Service/Attorney General Enugu, Imo, Taraba, Yobe, Osun 5 States 5Sensitised Civil ServantsBenue, Anambra2 States 6 Conducting Actuarial Valuation to Determine Total Pension Liabilities Cross Rivers1 State 7Yet to take definite actionBorno, Ekiti, Kwara, Plateau, Adamawa, Akwa Ibom, Edo, Oyo, Abia 9 States

13. April 10, 201513 Implementation: Role of Employee & Employer  Employee: PFA Selection Movement of RSA once a year Appointment of next of kin Demand for customer support from PFA Lodgment of complaints with PenCom Demand payment of employer and employee contributions into RSA  Employer (State Government): Provision of Legal framework Preparation of contribution schedule to PFCs Deduction of both employee and employer contributions Remittance of contributions to PFCs Computation and payment of accrued pension rights of employees Computation and payment of pension arrears

14. April 10, 201514 Implementation: RSA Opening  RSA Opening Every employee is required by law to open an RSA It is ILLEGAL for employers to coerce employees to open RSAs with specified PFA(s) Registration procedure with selected PFA  Completion of registration form  Personal Data  Thump Print issues  Employment Records PenCom to issue PIN to employees through PFA Inform employer of PFA PFA gives letter to employer with details of where money will be paid

15. Pension Liabilities  Pension liabilities are debt obligations of the employer  There are two forms of pension liabilities: Accrued pension benefits earned by employees for past service Outstanding pension arrears  For FGN employees, the former liabilities were determined actuarially in accordance with the existing contract of service while the latter liabilities were determined through pensioner verification  Retirement bonds will be issued to each employee acknowledging his/her accrued benefits  Bonds will be redeemed into individual RSAs upon retirement  FGN has been setting aside 5% of its total wage bill to redeem the bonds  A total of N86 billion has been paid by FGN to its existing pensioners as pension arrears April 10, 2015Interaction with Nigerian Governors Forum15

16. Pension Liability Controls  Employer is responsible only for making specific contributions on behalf of qualified participants  The employer does not guarantee any certain amount in retirement  Pension contributions to be charged on the States’ statutory allocation?  Thus, the Scheme will stem further growth of pension liabilities and provides a platform for addressing them  It will also impose fiscal discipline in the budgetary process because pension obligations would be accurately determined  Assets are available at exit for payment of pension benefits as and when due, thus, no accumulation of pension arrears April 10, 2015Interaction with Nigerian Governors Forum16

17. Opportunities/Prospects of the Scheme  Pension Fund Assets: Generate long term savings (compulsory savings, tax incentives & desire for increased retirement benefits) Promote bond and equity markets Raise productive capital formation that positively impacts on GDP growth Provide cheaper source of finance, lead to reduced interest rate and promote the growth of the real sector  Creation of domestic institutional investors (PFAs/CPFAs), with long term focus, would moderate stock market and price volatility  Triggers Positive Qualitative factors Privatisation Modernisation of capital market infrastructure (trading, settlement systems)  More efficient avenue for financing Government(s) long term borrowing needs – infrastructural bonds  Growth in FDI as counterpart funding to infrastructural finance deficits April 10, 2015Interaction with Nigerian Governors Forum17

18.  Development of annuity and Bond markets  Development of life insurance business  Development of other institutional operators: Enhance skills of Rating Agencies Development of Mortgage Industry Development of the capital market Enhancement of asset management competence Improvement of corporate finance skills April 10, 2015Interaction with Nigerian Governors Forum18 Opportunities/Prospects of the Scheme

19. Challenges  Misconceptions and apprehensions about the scheme  General knowledge gap, especially on pension administration  Coverage would have to be expanded – how to cover the informal sector that has over 40% of total labour force  Capacity building in the industry to address the general knowledge gap, especially on pension administration  Encouraging State and Local Governments to adopt the Contributory Pension Scheme  Inadequate investment outlets to absorb growth of savings  Inflation should be lower in order to ensure positive real return on savings and other investment April 10, 2015Interaction with Nigerian Governors Forum19

20. April 10, 201520 Next Steps  Intensive sensitisation campaigns to create awareness to stakeholders on their rights and obligations  Secure full compliance of the private sector and encourage the participation of the informal sector  Strengthen Inter-Agency co-operation with CBN, SEC, NSE, NAICOM, e.t.c To avoid regulatory overlap and policy inconsistencies To facilitate reduction in capital market transaction costs  Encourage other State Governments to implement the contributory pension scheme  Encourage unlisted good companies to seek NSE quotation

21. Thank You! National Pension Commission Plot 174, Adetokunbo Ademola Crescent Wuse II, Abuja – Nigeria 09 – 4138736 – 40 info@pencom.gov.ng www.pencom.gov.ng April 10, 2015