The Federal government was reported to have borrowed N6.16 trillion or 72.5% of the N8. 499 trillion of pension funds under the management of the National Pension Commission (PENCOM) by the end of November 2018. This it invested in government securities. Government cited the provisions of the Pension Reform Act of 2014 to justify its borrowing from the pension fund.
The Act ordinarily provides for the investment of pension funds in viable investment options that would promote the country’s economic development. By the same provisions of the Act, other pension fund managers such as Pension Fund Administrators (PFAs) and pension fund custodians invested from the PENCOM largesse N584.32 billion or 6.87% in domestic shares and N60.529 billion or 0.71% in foreign shares.
Ordinarily pension funds always provide the largest pool of idle funds in any economy since the funds so mobilised from and on behalf of individual pensioners are not disbursed immediately. They are therefore available for investment, pursuant to attracting returns in profit. But in the case of PENCOM there are serious concerns across the country over the preponderance of the government’s loan with respect to the other portfolios. This is both due to some lapses of the pension fund administration and government’s economic management culture, raising fears over the future of the borrowed funds.
For instance, in response to a welter of complaints from several stakeholders in the country’s pension sector, a Committee of the House of Representatives is presently probing PENCOM, and has invited the top management of the body along with the 21 registered Pension Fund Administrators (PFAs). The Committee which was set up by the House in December 2018, is to investigate reports of unwholesome practices by the PFAs and other pension fund custodians. The Committee whose Chairman is Johnson Abgbonayinma from Edo State, has requested for information on the net assets of the contributory funds, details of supervisors, as well as regulations of PFAs, key instructions, performance records, compliance and defaults, details of payment into the Treasury Single Account (TSA) including bank accounts maintained by PENCOM.
On the other hand, is the cloud of doubt over the management of the economy by the government especially with respect to debt management. Out of the entire spectrum of fiscal activities by Nigerian governments at every tier, debt management remains perhaps one of the most notorious with respect to tardiness. Successive governments in Nigeria often borrow without making adequate provisions for resolution of such debts. This situation is prevalent with both domestic as well as foreign debts, leaving many observers wondering if the case with pension funds will be different. The main concern here is that PENCOM shall not be compromised into insolvency as to be unable to pay pensioners their due at any time in the future.
The government is presently facing heightened public concern over its rising debt profile, which comprises both the huge sums owed foreign countries and whose repayment is beyond the legitimate tenure of the administration. However, while the resolution of failed repayment schedules for foreign debts can enjoy the benefit of rescheduling, that of debts from pension funds cannot, as the pensioners shall be paid their benefits as and when due. That is why government borrowing of pension funds in Nigeria is a high-risk affair which needs to be discouraged.
Beyond the foregoing is the issue of opportunity costs from investing valuable national financial resources as pension funds into government securities. In a developing economy with many sectors crying for investible funds for their development, tying up huge sums of funds as pension funds in treasury bills often translates into suboptimal utilization of such funds. We therefore urge PENCOM, the federal authorities and the National Assembly to take another look at the entire pension fund system with respect to the management of accumulated funds. We must put in place a structure and system that does not jeopardise the payment of due pensions in the future.
