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Suleiman - Information Key for Competition in Mono-Product Pension Industry

August 12, 2014

The Managing Director of Future Unity Glanvills Pensions Limited, Mr. Usman Suleiman, spoke to Nnamdi Duru on the importance of information and awareness creation in the mono-product pension industry

Pension regulator and operators have been talking about opening the transfer window to allow contributors move their pension assets from one pension fund administrator (PFA) to another. When is this going to happen?

The issue of biometric and opening of the transfer window is really a question for the commission and not FUG but I am aware that the commission has set up a committee that has started working on it. The commission is looking at various options like partnering with bank and so on but the new board has come up with new ideas and a committee has been set up by the commission to work with operators to fast track the biometrics to enable us move forward not only on the issue of biometrics but also going back to convert all the existing data into the biometrics and then be in a position to confidently open the window without standing the risk of creating problems for contributors.

So I cannot say when the window is going to be opened but I know a lot of efforts are being put into it to ensure that it is opened as soon as possible.

The Pension Reform Act, 2014 has raised the level of monthly contribution for both employer and employees. At the old and lower rates many employers did not comply how do you expect them to comply with the new rates and what impact do you think this will have on compliance?

In reality it is a difference of 3 per cent. Only and extra 0.5 per cent will come from the employee and an additional 2.5 per cent from the employer. Of course, there are actually some employers that are actually contributing 20 per cent not even the mandatory 18 per cent; they pay the 7.5 per cent for the employee and 12.5 per cent for themselves making 20 per cent. 15 per cent is still the minimum because the Pension Reform Act, 2014 has not been gazetted and until that is done and it is published on PenCom's website and therefore made available to all of us we will know that we are reading the authentic law. So our understanding is that it is 18 per cent is the recommended minimum contribution for both employer and employee.

To your question, all those who are compliant at present, one will expect them to continue to be compliant in spite of this view. Those who are not compliant apparently are not doing so because of the differences in the percentage but for other reasons. Generally you will find some employers who fail to remit the Pay As You Earn (PAYE), tax deducted from their employees' salaries and wages and some others fail to remit Withholding Tax deducted from their suppliers and contractors invoices. It will therefore not be surprising if they also fail to remit pension. Such employers will have this increase as an excuse but it is really not an excuse. Therefore, we really don't expect a significant reaction because of this additional 3 per cent.

A new pension law has been signed into law by the President Goodluck Jonathan. How does this affect the industry and the operators?

In view of what have been achieved over the last 10 years and factoring in the effort at ensuring compliance, we expect serious enforcement because the law has now strengthened the penalty, even though I said I am not quoting the law. Our understanding is that the law has raised penalties both in terms of the regulatory power and the criminal aspect of it.

Moreover, we are now in a second phase now after 10 years. The next 10 years will be the second phase and the commission will have to ensure as much compliance as possible. So the focus in our view is achievable. However, all the stakeholders in the industry and the media also will have to really key into it to achieve it.

Pension is a mono-product industry. So what it the basis of competition among operators and what would you say it your organisation's competitive edge?

When we talk about competitive edge in this mono-product industry, we have to look at the fact that in every disadvantage there is an advantage. Even in this the mono-product regime, pension operators have a kind of monopoly because the product all of us are selling is retirement savings account (RSA) and that is why they say it is mono product. But again all employees are compelled to deal with PFAs only so they have a monopoly in terms of employee patronage.

The competition here I think is all about awareness. Awareness is in two ways; just knowing what is happening and knowing exactly what to do with what is happening and that is where I like to explain some few things that are very particular about us.

The competitiveness is only in the right awareness in terms of understanding that we are among the last PFAs to be licensed. Remember that when the industry started, the awareness was that there is going to be an indirect compulsory payment which is the contributory pension for all of them to go and cultivate and all employees are expected to go and sign onto it. It was a free market because you don't need to make so much effort for you to build it.

Now, there is wisdom in letting people know that if they are coming with us, they are coming in at N1 per account that means that our customers are buying in at N1 per unit. If a company goes into the Nigerian Stock Exchange (NSE), can it come to do a primary offer of N10 per share? It cannot do that. Now if you are coming in as a new PFA, you are going to start with N1 to one unit, so you don't have a choice. So what is it that they call awareness?

People may be aware that they need to open an RSA but they are not aware that when you are coming in as a new entrant, you will have to deal with people who have been nominated at the base some time ago. If you are contributing N2 at the time the PFA started business, you are going to get two units but if you are entering midway, they are going to break down the accumulated value which you going to buy into or better still you are going to buy at the current market value of the PFA which may be higher than N1 and that means less value for the new entrant. So the competition would be based on the right information in terms of buying into FUG as a new entrant and that is what we are trying to tell our existing and prospective RSA holders.

The competition is that for us at FUG, we will maintain the standard we chose and we will extend the information and awareness in terms of breaking this down for people to understand. We are trying to do more on awareness not just in terms of coverage but in terms of filling the knowledge gap. The knowledge gap must to be closed so that people will understand the difference between what we are doing in this industry and what is done elsewhere.

In all these, what then is the essence of coming into the market late and what is the advantage in it for FUG Pensions?

What determines return on investment has to do with how it is going to affect you when you buy into new PFAs that their prices are still low. This is the direction we are looking at because every operator in the industry will survive as long as they key into the industry standards. We are very ethical, we respect every contributor and participant and we understand that we need to first of all guarantee trust because everybody, notwithstanding who we are selling to, is interested in the safety of funds. The safety of funds and being able to pay as and when due is what is moving the industry and that safety is what every PFA is selling and that we guarantee.

FUG is well positioned and the types of people that are in FUG now are the right people, you know we don't play with training and not just training anyhow, we also train prospects. We conduct seminars for prospects, apart from the ones we do for our customers, we try to educate them on all these issues.

The World Pension Summit (WPS), 'Africa Special' has just ended, what are things that you took away from the programme?

Clearly what the summit communicated to us is that we have the opportunity of investing in much wider classes of assets than presently exists. We have to meet certain international best practices and we have to meet certain requirements. The prime thing in pension fund is safety, security and ability to pay pensioners at the end of the month. That is what that summit expected from all of us. It is in line with this that we have to work out how to be able to invest in all other classes of assets; infrastructure and housing with both having answers to the questions of mortgage.

PFAs have not started investing in mortgage other than investing in real estate trusts, they are yet to start investing directly either in real estate or mortgage. However, we have to come up with special products and packages that will not only meet our internal regulations locally but also meet international best practices in the industry. Then, we will be in a position to invest for the best return and the best security. This is at present a work in progress and the commission along with operators, consultants and interested parties are working to come up with acceptable ways and means of carrying out such investments.

This is the major take away from the forum and it is the way going forward. PFAs have not been putting funds in government fixed income securities only; pension assets have to serve to grow the economy. It has to serve pensioners in terms of being able to access it to fund housing; it has to serve the society and the economy in terms of providing funding for infrastructure, particularly given the infrastructure gaps in this country.

You have said so much about awareness, so what is the industry doing in terms of creating the much-needed awareness?

The industry is doing its best so far. At present, a committee that is working very hard with the media and creative consultants is coming up with a way of enlightening the public. You are also aware that the Association of Pension Fund Operators of Nigeria (PenOp) commenced an awareness programme during the May Day rallies this year and a lot of people would have noticed our activities in Lagos and Abuja during the rallies.

From that time we have continued to advertise in newspapers and radio in various languages and also in English. We have not commenced the Pidgin English version of it but we intend to do so and we have not got it to the outdoors because we want to see the impact of the adverts and justify further expenditure. It is something that I will appeal to all of you to fully key into; we intend to keep it but we must first of all justify the expenditure. We also look forward to getting PenCom to partner with PenOp to further expand the knowledge on how the industry operates.

You said FUG Pensions is the only PFA that has two disaster recovery sites in two locations in the country. Can you tell us more about that?

Disaster is what we pray should never happen to anyone but the key word here is recovery if you put the two words together. We are just trying to say that in case of any eventuality, insurance is there to indemnify our loss in case we suffer financial losses; it will put us back to the place where we were before the loss happened.

However, the disaster recovery site far away from our office that is replicating what we have in our head office such that in case of any eventuality, our contributors will never know that something happened to our head office. We will continue our operations seamlessly without any interruption. Simply that is the meaning of disaster recovery site.

Profile of Usman Suleiman Mr. Usman Suleiman is Managing Director of FUG Pensions Limited. He is a graduate of Business Administration from the Ahmadu Bello University, Zaria and holds a Master of Business Administration (MBA) from the same institution. The FUG Pensions boss is a Fellow of the Certified Pension Institute of Nigeria (CIPN), Association of Pension Funds of Nigeria (APFN) and Portfolio Management Institute of Nigeria (PMIN) respectively.

He is also a Member of the Nigeria Institute of Management (NIM) and a certified Treasurer/Money Market Dealer. Before now, Suleiman worked as Assistant General Manager in charge of International Operations and Corporate Banking Division at the New Africa Bank Plc at different time.

He was Chairman of the New Africa Bank Staff Pension Fund Trust Committee and former Director of the Northern Nigeria Publishing Co. and Badeggi Rice Processing Company.

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Source: AllAfrica

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