Why governors cannot borrow N17trn from pension funds

Nigerian Governors
Nigerian Governors

By Maureen Chigbo

GOVERNORS in Nigeria, who are strategizing to deplete the pension funds in Nigeria through borrowing may be on a wild goose chase. The governors raised eyebrows last week when they proposed to borrow around N17 trillion from the pension funds for infrastructural projects. The governors appear to be leaving in the dark past of the country when pension funds were grossly mismanaged leading to the current trial of Abdullahi Miana, former chairman of the pension fund, who allegedly mismanaged the erstwhile contributory pension, with billions of naira siphoned from the confers of the pension.

The 36 State governors are seemingly not conversant with the workings of the pension industry specifically the Contributory Pension Scheme, CPS. The Contributory Pension Scheme, which is mandatory, compels employees and employers in the public and private sectors to collectively save a minimum of 18 per cent of an employee’s monthly emolument into the employee RSA, from where employees will be paid retirement benefits. The emphasis here is that each employee has his or her own account where money is paid into unlike what obtained in the past.  Realnews gathered that the scheme, as provided by the Pension Reform Act, does not allow for a common pool of pension funds, which can easily be siphoned as was the case previously. The funds are to be invested in money yielding ventures not for profligacy.

Realnews learnt that the governors’ wish may not materialize even if it is possible simply because the States apart from Lagos State have not complied with the remission of the pensions money deducted from their civil servants as stipulated by the law. Moreso, Realnews also gathered that the total value of the pension funds under management of National Pension Commission as at September 2020 stood at N11.56 trillion. This is not up to the N17 trillion the governors allegedly want to borrow.

This notwithstanding, pension funds are not borrowed but invested in line with the investment regulations issued by the National Pension Commission.

The investment regulations allow pension funds to be invested in asset classes such as bonds, sukuk, treasury bills, global depository notes and other securities issued by the federal government of Nigeria, provided that the securities are guaranteed by the federal government. The investable assets also include bonds and sukuk issued by eligible State and local governments provided that such securities are fully guaranteed by irrevocable standing payment orders, ISPOs, and subject to the fulfilment of the conditions set out in the commission’s Circular on “Minimum Requirements for the inclusion of State Bonds as Investible Instruments in the Pension Industry’’.

Realnews learnt that pension funds may be invested only in the bonds floated by states that have fully complied with the CPS. This, however, does not guarantee pension funds investing in the state bonds, as fund administrators are required to conduct several risk analyses to decide if investing in such bonds meets expected yields and risk appetite. Accordingly, fund administrators may wish not to subscribe to a state bond.


SERAP blows the Whistle on governors

The Socio-Economic Rights and Accountability Project, SERAP, blew the whistle on the governors’ intention on Sunday, December 6, when it urged President Muhammadu Buhari to stop the governors from borrowing from pension funds.  In an open letter to Buhari, SERAP urged him to use his “good offices and leadership position to urgently instruct the Director-General and Board of the National Pension Commission, NPC, to use their statutory powers to stop the 36 state governors from borrowing and/or withdrawing N17 trillion from the pension funds purportedly for ‘infrastructural development.”

According to SERAP, the governors last week reportedly proposed to borrow around N17 trillion from the pension funds after receiving a briefing from Nasir el-Rufai, Kaduna State Governor, who is the chairman of the National Economic Council Ad Hoc Committee on Leveraging Portion of Accumulated Pension Funds for Investment in the Nigeria Sovereign Investment Authority, NSIA.

Kolawole Oluwadare, SERAP deputy director, in the letter dated December 5, 2020, to Buhari, said: “Allowing the governors to borrow from pension funds would be detrimental to the interest of the beneficiaries of the funds, especially given the vulnerability of pension funds to corruption in Nigeria, and the transparency and accountability deficits in several states.”

SERAP said: “It is patently unjust and contrary to the letter and spirit of the Nigerian Constitution 1999 [as amended], the Pension Reform Act, and the country’s international anti-corruption and human rights obligations for the Federal Government and state governors to repeatedly target pension funds as an escape route from years of corruption and mismanagement in ministries, departments and agencies [MDAs].”

Among other things, SERAP expressed “serious concerns that the proposed borrowing by the 36 state governors from the pension funds would lead to serious losses of retirement savings of millions of Nigerians.”

However, if SERAP’s allegation is true, it shows clearly that though governors may have the intention to borrow pension funds, the realization of this objective is really not practicable.

This is because of one of the major achievements of the pension reform is the establishment of robust legal and institutional frameworks for the administration of pensions in Nigeria. In addition to the legal safeguards and institutional checks and balances, the National Pension Commission, as the regulator of all pension matters in Nigeria, has entrenched good corporate governance practices, high ethical standards instituted through rigorous supervision and regulation of the industry.

– Dec. 7, 2020 @ 18:11 |GMT |

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