National Pension Commission: Self – Assessment
Results & Nigeria’s Risk-Based Supervision
System
by
Musa Ibrahim
National Pension Commission
Abuja – Nigeria
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
1
The Nigerian Contributory Pension Scheme
 Contributory

Contributions by both employer and employee
 Individual Accounts
Features
 Nature of the account, portability and
withdrawals (Lump sum, Annuity &
Programmed withdrawal)
 Privately Managed
 Life Insurance Cover
 3 times employee’s emoluments & Premium to
be paid by employer
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
2
Industry Overview as at Feb. 2011
Scheme Memberships
Operators in the Industry

24 PFAs

RSA – 4,601,428

4 PFCs

CPFA – 26,598

7 CPFAs

AES – 41,669

19 AES
May 2011
Note: 4,799,189 was recorded
for RSA registration as
at the end of Feb. 2011,
but due to data clean
up, multiple PINs were
removed and number
dropped
IOPS Supervisory Reform Workshop – Abuja 2011
Scheme Assets

RSA – N1,138.00
Billion (US$7.61
Billion)

CPFA – N413.33
Billion (US$2.76
Billion)

AES – N530.67
Billion (US$3.55
Billion)
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Industry Overview … cont’d
Public vs. Private Memberships
3,000,000
57.73%
56.27%
58.90%
2,500,000
63.55%
42.27%
2,000,000
68.97%
43.73%
41.10%
Public
1,500,000
36.45%
Private
68.93%
1,000,000
31.03%
31.07%
500,000
0
2006
May 2011
2007
2008
2009
2010
IOPS Supervisory Reform Workshop – Abuja 2011
Feb. 2011
4
Industry Overview …cont’d
RSA memebrship by Gender
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
Female
1,000,000
Male
500,000
0
2007
Male
2008
Female
2009
2010
Feb. 2011
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
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Industry Overview …cont’d
Pension Fund Assets - Growth
8.00
7.00
Amount ($ billion)
6.00
5.00
4.00
RSA
CPFA
3.00
AES
2.00
1.00
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
Feb:2011
2010:Q4
2010:Q3
2010:Q2
2010:Q1
2009:Q4
2009:Q3
2009:Q2
2009:Q1
2008:Q4
2008:Q3
2008:Q2
2008:Q1
2007:Q4
2007:Q3
2007:Q2
2007:Q1
0.00
6
An Assessment on Compliance with IOPS Principles
As At September 2010
Principle 1:
Objectives
Status
National
laws
should
assign
clear and explicit
objectives
to
pension
supervisors
May 2011
Fully
Implemented

PenCom’s
responsibilities
and duties are
clearly defined in
the Legislation
Suggestions
Section 15 of the
PRA 2004 maybe
amended to align
it
closer
with
PenCom’s vision
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
PenCom’s vision
can
be
accommodated
within
its
objective
as
defined
by
Section 15 of the
PRA
7
An Assessment on Compliance with IOPS Principles
Principle 2:
Independence
Status
Pension
supervisory
authorities should
have operational
independence
Broadly
Implemented



May 2011
Most
prerequisites
for
independence
are in place
PenCom has an
unusually
large
degree
of
freedom
However, undue
executive
influence might
potentially
be
applied
Suggestions
Executive power to
remove
the
Chairman
and
Executives could be
abused
Legislation
should
have provided for
phasing in executive
appointments
to
provide some level
of continuity
Government should
indemnify PenCom
against fines, etc,
from litigation
A
policy
on
information sharing
with
other
Government
Agencies should be
developed
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
First
three
suggestions would
take long period as it
involves legislative
processes
PenCom has already
established working
relationships with all
regulatory agencies
and is working on
signing MOUs with
some of them
8
An Assessment on Compliance with IOPS Principles
Principle 3: Adequate
Resources
Status
Pension
supervisors
require adequate
financial, human
and
other
resources
Broadly
Implemented



May 2011
Appropriate
budgeting
processes are in
place
There
are
processes
to
ensure that staff
are of the right
calibre
There is scope for
budgeting to link
more closely to the
Strategy Plan and
a tighter focus on
high profile areas
Suggestions
More explicit linkage
between
the
Corporate Strategy
and
the
budget
process,
with
consideration given
to using a zerobased budget
More
effort
and
resource needs to
be
put
into
developing
PenCom’s
training
capability
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
Initiatives
in
the
Strategy Plan
had
been included in the
Commission’s budget
based
on
commencement
dates
PenCom has been
collaborating
with
other agencies on
capacity building
Every staff attends at
least a local course in
a year
PenCom & Operators
are
developing
a
Industry
Training
Institute
9
An Assessment on Compliance with IOPS Principles
Principle 4: Adequate
Powers
Status
Pension
supervisors should
be endowed with
the
necessary
investigatory and
enforcement
powers
May 2011
Fully Implemented
 Wide
range
of
powers in relation to
licensed operators
 Responsibilities
of
operators are well
established
in
legislation and have
been
amplified
through regulations,
standards
and
guidelines
 PenCom
has
adequate powers in
relation to employers
but enforcing them
can be challenging
Suggestions
Use the PFA statutory
reserve fund to reduce
risks to contributors
Introduce a requirement
for annual investment
strategy as well as
provide guideline on its
preparation and content
Introduce
regulation
covering
actuarial
valuations in the industry
Leverage on establishing
relationships to establish
a database of eligible
employers to facilitate
employer compliance
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
All
suggestions
would
be
implemented
10
An Assessment on Compliance with IOPS Principles
Principle 5: Risk
Orientation
Risk Orientation
- Pension
supervision
should seek to
mitigate the
greatest
potential risks to
the pension
system
Status
Broadly
Implemented




May 2011
There is significant risk
orientation to many
activities, notably the
operator
risk
management, on-site
and off-site inspection
and risk assessments
Most of the major risks
are being addressed
and
PenCom
has
responded proactively
to identified risks
Strategy
plan
establishes objectives
that reflect major risks
Some objectives lack
rigour and formality,
with no documented
perspective on risk to
enable prioritisation of
initiatives
Suggestions
Consider phrasing
departmental
objectives in risk
terms
Undertake
an
assessment of the
impact
and
probability of risks in
the
pensions
landscape
and
develop metrics for
ongoing assessment
of these risks - some
of the new KPIs
being implemented
will suffice for this
purpose
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
Recommendations
would be pursued to
address
the
concerns expressed
in the assessment
11
An Assessment on Compliance with IOPS Principles
Principle 6:
Proportionality &
Consistency
Proportionality
and Consistency
Status
Broadly
Implemented



May 2011
Proportionate
in
varying the depth of
on-site
inspections
according to assessed
risks and in published
sanctions framework
Availability of practical
procedures that should
help
ensure
consistency
of
decision making
More to be done to
ensure proportionality
of data collection and
interventions and to
document processes
needed
to
ensure
consistency
Suggestions
On-site
inspections
could be undertaken
less than annually, or at
least restrict annual
inspections of lower
risk operators in most
years
Consider
whether
tougher
action
is
needed on persistently
non-compliant
employers and PFAs
taking into account the
risk they pose
Establish a corporate
policy for all data
collection
so
that
consistent data can be
readily
accessed
across PenCom
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
RBS would address
the
intensity
of
supervision
Stiffer
sanctions
would be imposed on
non-compliant
employers
The Commission has
commenced
the
development of a
supervisory
application,
which
would
allow
consolidation of data
returns by operators
12
An Assessment on Compliance with IOPS Principles
Principle 7:
Consultation & Cooperation
Status
Pension
supervisors
should consult
with the bodies
they
are
overseeing and
cooperate with
other
supervisory
authorities
May 2011
Suggestions
Fully Implemented


A highly consultative
approach
on
regulatory
and
supervisory matters
has been established
Information exchange
and co-operation with
other supervisors has
been instituted where
appropriate
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
The Commission will
continue
to
be
committed to its
policy
of
consultation within
and
outside
the
industry
13
An Assessment on Compliance with IOPS Principles
Principle 8:
Confidentiality
Pension
supervisors
should
treat
confidential
information
appropriately
Status
Partly Implemented


May 2011
Highly
consultative
approach
on
regulatory
and
supervisory matters
has been established
Information exchange
and co-operation with
other supervisors has
been instituted where
appropriate
Suggestions
A corporate policy
should be in place
on
confidentiality
including within the
Staff Handbook to
prevent disclosure
of
confidential
information
PRA
should
be
amended to specify
what information is
confidential and to
whom it can be
disclosed and in
what circumstances
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
Staff
Handbook
contains
confidentiality
clause
Amending of PRA
would be considered
to include elaborate
confidentiality
provisions
14
An Assessment on Compliance with IOPS Principles
Principle 9:
Transparency
Status
Pension
supervisors
should conduct
their operations
in a transparent
manner
Broadly
Implemented



May 2011
PenCom’s website is
attractive, easy to
use and includes
much of the expected
information
Further transparency
is provided by the
Consultative Forum
and a very open
approach associated
with
on-site
inspections
More could be done
to explain PenCom’s
strategy through the
website
Suggestions
Publish an abridged
version
of
the
Corporate Strategy
and
consider
a
clearer presentation
within the Annual
Report
of
the
Commission’s
objectives and how
they are being met
Publish
statistical
information on the
industry
on
the
website
Consider
establishing special
areas for employers
and contributors on
the website
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
The Commission had
already concluded
arrangements
to
start
publishing
quarterly statistics
on
the
pension
industry
Website would be
updated
as
recommended
15
An Assessment on Compliance with IOPS Principles
Principle 10:
Governance
Governance
Status
Partly Implemented




May 2011
Procedures for corporate
governance are in place,
along with internal controls,
service
standards,
reporting to the National
Assembly
and
undocumented
review
processes
There
is
no
written
procedures
on
staff
conduct and conflicts of
interest
Informality
of
accountability
to
the
President may be a longer
term risk
Development
of
performance measures is in
its infancy, while greater
oversight of and precision
in key service standards
would be desirable
Suggestions
Procedures
covering
staff
conduct
and
managing
potential
conflicts of interest
should be documented
The procedures for
taking,
reviewing
recording
and
disseminating
decisions
within
PenCom
should
be
documented
There
should
be
independent
review
within
PenCom
of
decisions
affecting
supervised entities
Processes
for
capturing information
for the KPIs should be
developed
IOPS Supervisory Reform Workshop – Abuja 2011
Remarks
All suggestions
would
be
implemented
16
The Assessment Matrix
Principle
Assessment of implementation
Fully
Objectives
Broadly
X
Independence
X
Adequate Resources
X
Adequate Powers
X
Risk Orientation
X
Proportionality and Consistency
X
Consultation and Cooperation
X
Confidentiality
X
Transparency
X
Governance
Total
May 2011
Partly
X
3
5
IOPS Supervisory Reform Workshop – Abuja 2011
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Key Risks to the Pension Industry in Nigeria
Coverage



Lack of data on eligible employers
Compliance by employers especially small and medium sized enterprises
Participation by the Informal Sector
Corporate Governance




Strict adherence to regulations & guidelines
Culture of transparency /accountability
Appropriate internal controls
Accuracy & reliability of reports to the regulator
Investment of Pension Funds Assets



Limited investment instruments to optimally absorb pension fund assets &
insurance assets for companies providing life annuities
Many good companies not listed on the stock exchange
Ensuring real return on investment
Pension reform is reliant on the successes of other
reforms in the financial sector
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
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Risk Based Supervision System
Supervisory Objectives
Ensure safety and security of the pension assets; and
Create an environment to obtain the best returns at an acceptable
level of risks


Licensing






Evaluation of Business Plan
Evaluation of Ownership, Board and Top Management
Technical Partnership Arrangement
Fit and Proper Persons Test
Compliance with PRA 2004
Interview with promoters
Adopted Risk Based Supervisory Approach




Off-Site Review and Risk Profiling
On-Site Supervision
Off-Site Surveillance
Resolution
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
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Off-Site Review and Risk Profiling
Evaluation of the financial condition and performance of both
the Company and the Fund
Evaluation of size of funds under Management
Review of Compliance with Rules & Regulation
Review of Board and Top Management, Shareholding Structure,
Adverts, etc.
Off-site risk profiling – Categorizing operators into high, medium
and low risk operators
Drawing a risk matrix for each operator covering the major risks
it poses to the pension system
Preparation of off-site report which serves as input to the on-site
exam
Allocation of resources and team formation
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
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On-Site Supervision
Developed a Uniform Pension Fund Rating System (UPFRS) as
an internal supervisory tool for evaluating the activities of
operators on a uniform basis
Composite ratings are assigned to operators based evaluation
of their activities and rating of the following:
the capacity and effectiveness of Board and Management

robustness of ICT infrastructure and personnel

controls and audits

the quality of service; operational capabilities

compliance with applicable laws and guidelines

adherence to sound principles and good corporate governance
Composite and component ratings are assigned based on a 1 to 5
numerical scale, where 1 is the highest rating and 5 the lowest

May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
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Off-Site Surveillance
Aimed at early detection, preventing, controlling and mitigating
risks
Involves the following:








May 2011
Risk identification and assessment
Implementing and monitoring on-going corrective actions
Gathering intelligence reports and monitoring developments in the
industry
Reviewing audited accounts & External Auditors Management reports
Reviewing Corporate Governance & Risk Management reports
Reviewing Board & Top Management, Shareholding , Adverts etc
Discussing with senior management and/or external auditors, where
necessary
Identifying high risk areas for On-site examination
IOPS Supervisory Reform Workshop – Abuja 2011
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Resolution
It involves the application of certain measures/actions directed
at diagnosing and addressing a weakness, problem, dispute
and/or crisis
Action Steps in Resolving Risk Issues in the Industry


Early Warning Signs
Types of Supervisory Actions
o
o




May 2011
Corrective/Remedial Actions
Final Resolution Actions
Enforcing Compliance with Supervisory Actions
Monitoring Supervisory Actions
Terminating/Modifying Supervisory Action
Documenting Supervisory Actions
IOPS Supervisory Reform Workshop – Abuja 2011
23
Thank You!!!
National Pension Commission
174 Adetokunbo Ademola Crescent
Wuse II – Abuja
09 4138736 – 40
09 8703389 – 9
info@pencom.gov.ng
www.pencom.gov.ng
May 2011
IOPS Supervisory Reform Workshop – Abuja 2011
24