Prior to the commencement of the Contributory Pension Scheme in 2004, Nigeria operated the Defined Benefit scheme which was challenged on many levels with issues such as terrible service delivery by administrators of the scheme in the form of delayed or non-payment of pension entitlements to retirees. As a result, the Contributory Pension Scheme (CPS) was introduced, to among other things, decentralize pension administration and establish an institutional framework for the safety, management and custody of pension assets in favor of all categories of workers in Nigeria.
Pension Fund Administrators (PFAs) licensed under the Pension Reform Act (PRA) have the responsibility to provide customer service support to employees, invest pension assets under their management, offer returns on the investments, and ensure prompt payment of retirement benefits to retirees, in accordance with the provisions of the Act.
The CPS introduced the concept of portability of pension assets to pension administration in Nigeria by granting to beneficiaries the statutory rights to open retirement savings accounts with PFAs of their choice and to carry along with them the account and the funds in the account from one employer to another and/or from one PFA to another. Portability is however not being fully exercised by employees, who are currently not able to carry along with them, the funds in their retirement saving accounts from one PFA to any other of their choice. This is due to operational challenges that the pension industry has struggled with since portability was introduced under the 2004 PRA. This means that currently, RSA holders, whose PFAs are underperforming in terms of return on investments, are stuck with such PFAs as they cannot move their contributions to PFAs with better history of high returns on investment or to PFAs with better history of customer service.
Against the backdrop of PenCom’s latest timeline of December 2020 for the opening of the Transfer Window this article aims at providing clarity on the key aspects of this important aspect of the CPS.
Legal Basis for Portability of Retirement Savings Accounts in Nigeria
What is commonly called ‘The Transfer Window’ means the coming into effect of section 13 of the PRA. The PRA requires every employee to maintain a Retirement Savings Account (RSA) in his name with any PFA of his choice. Section 13 of the Act stipulates that, “subject to guidelines issued by the Commission, a holder of a Retirement Savings Account maintained under this Act may, not more than once in a year, transfer his account from one Pension Fund Administrator to another”. The employee need not provide any reason for such transfer. This provision is, however, yet to become operational due to challenges associated with the requisite IT application and infrastructure, on the one hand, and management of the data of contributors and pensioners, on the other.
The RSA holder’s choice to freely open his RSA and move the funds in the RSA from one employer and or PFA to another was first introduced under section 11 of the 2004 PRA. The provision was retained under the 2014 Act and made subject to guidelines issued by the National Pension Commission (PenCom). PenCom has since issued Regulations for the Transfer of RSAs, first in 2012 and again in 2015, preparatory to the coming into effect of Section 13, even though it is yet to open ‘The Transfer Window’, which will authorise PFAs to allow RSA holders to transfer their RSAs from one PFA to another. It is unclear at this point if PenCom will revise the 2015 Regulations in view of further changes that it has introduced since then, such as the introduction of the Enhanced Contributor Registration System (ECRS) to replace the former Contributor Registration System (CRS).
There are however, a few key points worth noting about the 2015 PenCom Regulations for the Transfer of RSAs. The Regulations have four broad objectives, namely:
a. seamless transfer of RSAs from one PFA to another;
b. facilitating full and equitable pension assets portability within the pension industry;
c. enhancing ethical competition amongst the PFAs, and
d. improving service delivery to RSA holders.
The Regulations, which make the benefit of the transfer available to both employees and retirees, binds PFAs under the pain of sanctions. For instance, a sanction of N200,000.00 per RSA and additional N100,000.00 daily where the offence continues are to be imposed on any PFA/PFC that violates the transfer processes as specified in the PenCom’s sanctions regime under section 5.0 of the Regulations.
Challenges of Implementation of a Data Governance Framework for the Pension Industry
The opening of the transfer window will facilitate full and equitable pension assets portability within the pension industry, enhance ethical competition amongst the PFAs and improve service delivery to RSA holders. This is, however, not without challenges.
One of the major challenges to the opening of the Transfer Window is the quality of the data that operators have over time collected about contributors and pensioners. It is pertinent to note that at inception in 2004 contributors were added to the CPS by PFAs without their bio-data and biometrics captured as part of requirements for opening or operating an RSA. Registration of contributors was concluded under a system known as the Contributor Registration System (CRS), which was ill-equipped to ensure the integrity of the contributors’ data. This led to a situation of the pension industry’s data on contributors and pensioners being of poor quality in terms of accuracy, completeness, consistency, reliability and currency. There has therefore been the real concern that until the matter of integrity and quality of extant contributors’ data is firmly handled cases of identity theft and large-scale frauds may result from the opening of the Transfer Window.
In order to address the issues on the quality of data on contributors and pensioners, in 2019 PenCom developed and deployed the Enhanced Contributor Registration System (ECRS) to facilitate an industry-wide data recapture exercise for the over 9,039,748 RSA holders. The ECRS consists of six major functions, namely, contributor registration to generate unique pin, recapture for existing contributors, bio-data update, update of signature (and picture where applicable), temporary PIN for employer-initiated registration and RSAs verification service.
Furthermore, the ECRS, which replaces the former CRS, is integrated with the National Identity Management Commission for authentication of the uniqueness of individuals seeking to register under the CPS. This, it is hoped, will greatly enhance the integrity of contributors’ data and also facilitate the seamless operation of section 13 of the PRA. Also, integrating RSAs with NIN and BVNs will help the PFAs to clean up their databases to combat identity theft as well as prevent fraud in the pension industry.
Following the ECRS PenCom has announced the development of RSA Transfer System (RTS), an e-platform to enable seamless RSA transfers. The RTS platform is said to enable PFAs to electronically submit to receiving PFAs RSA transfer requests initiated by RSA holders to receiving PFAs. As rightly noted by PenCom, the full deployment of the RTS will, however, entail extensive training of the PFA’s relevant personnel and simulation of the associated processes, industry-wide. It should also include the plan to keep the general public sufficiently informed about it.
At the back of the data management challenges of the industry, there is also the issue of requisite IT infrastructure for the RSA transfer process. The 2015 PenCom Regulations require every PFA/PFC to deploy IT infrastructure, which must have adequate storage and retrieval capability for a period of Ten (10) years. In addition, every PFA/PFC is to achieve and maintain an IT infrastructural level to be specified by PenCom, which shall include the following:
a. Automated fingerprint capturing equipment for capturing fingerprints (for PFAs), and
b. Automated Document Management System.
It is needless to say that these infrastructural commitments will come at a huge cost to PFAs that are already struggling with increasing operational costs and dwindling returns on their investments of AuM. There is also the cost to contributors and pensioners who must now make themselves physically available for the data recapture exercise in order to continue the seamless operation of their RSAs.
In anticipation of the increase in competition among PFAs from the opening of the ‘Transfer Window’ section 2.2.38 of the Regulations provide that all personnel of PFA/PFCs shall abide by the PenCom Code of Ethics and Business Practices and respect the confidentiality of all information relating to the transfer process. PFAs with a history of poor customer service will now also have to worry about losing customers to other PFAs that the customers may prefer.
RSA Transfer Process under the 2015 PenCom Regulations for the Transfer of RSAs
It is unclear at this point if PenCom will revise the 2015 Regulations in view of further changes that it has introduced since the regulations were issued in 2015, such as the introduction last year of the Enhanced Contributor Registration System (ECRS) to replace the former Contributor Registration System (CRS) and the development of the RSA Transfer System (RTS).
In order to ensure the effective implementation of RSA transfers, the 2015 Regulations established the Pension Administration System (PAS) as an electronically driven infrastructure for handling inter-PFA RSA transfers in order to remove potential bottlenecks associated with RSA funds transfers and settlements. PAS, to be domiciled at PenCom, will warehouse all data on pension matters relating to registered contributors/members. PAS is to have an interface with all PFAs and Pension Fund Custodians (PFCs) to facilitate transfers between the PFAs.
Section 2.2.14 of the 2015 Regulations further provided that the transfer process could only be initiated by an RSA holder who has been duly registered on PAS. To be registered on PAS an RSA holder must have his/her bio-data and biometrics captured by his/her PFA and transmitted to PAS. PAS was to operate the RSA Transfer Clearing Module (RTCM) to facilitate electronic RSA balances transfers, automated direct debits and credits. The 2015 Regulations state that the “RTCM shall serve as a platform for the processing of Transfer of RSA from one PFA to another, settlement of Net Transfer balances between PFAs, reconciliation of transfer balances and monitoring of the transfer processes”. It further provided that the RTCM shall maintain an IT platform that facilitates seamless coordination of transfer processes through a link that shall be accessed by only authorised officials of the PFAs/PFCs.
The RSA holder intending to transfer his/her RSA to another PFA shall obtain a Transfer Form, complete and submit it to the Receiving PFA with a copy of certificate of registration or RSA statement of account issued by the Transferring PFA (TPFA), and valid means of identification. If the beneficiary is a retiree, he/she is also required to provide a copy of Programmed Withdrawal Agreement (PWA) with the TPFA. This is because section 2.2.4 of the 2015 Regulations provided that only retirees on PWA are eligible for transfers.
Upon the receipt of a duly completed transfer form and authentication of submitted documents, the receiving PFA shall electronically forward the RSA transfer form and captured fingerprint images of the RSA holder to RTCM to validate the form for completeness. If successful, RTCM shall forward the PIN, surname, fingerprint images and Transferring PFA Code to the Registration Module of PAS for validation.
The RTCM shall, within two working days from the date of receipt of the transfer request determine the Effective Transfer Date (ETD) and electronically communicate both the ETD and provisional approval to both Receiving and Transferring PFAs and request the TPFA to forward the transaction history. On the ETD, the Transferring PFA shall move the balance in the RSA to the TSA and determine period of outstanding contributions if any. Upon completion of the transfer process, the Receiving PFA shall notify the RSA holder of the transfer value received within two (2) working days.
It is pertinent to note that all RSA balances to be transferred by the Transferring PFA shall be in Naira value and shall be calculated based on the unit price of the Transferring PFA’s RSA Fund as at the ETD. It is to be noted further that RSA transfers under the Regulations shall attract no transfer fee.
Conclusion and Recommendations
The opening of the Transfer Window, long overdue, will facilitate full and equitable pension assets portability within the pension industry, enhance ethical competition amongst the PFAs and improve service delivery to RSA holders. There should however be extensive training of the PFA’s relevant personnel and simulation of the processes, industry-wide. RSA holders are advised to immediately approach their PFAs to provide their Bank Verification Numbers (BVNs), NIN as well as other required biodata.
The sanctions regime under section 5.0 of the Regulations is not a sufficient deterrence as the perceived gains from holding on to pension assets to be transferred may outweigh the specified penalties for non-compliance. It is suggested that penalties for non-compliance should be tied to a percentage of the pension assets that are wrongfully withheld by a defaulting PFA. This way, minor infractions will also not be over-penalised.
Also, the Regulations are silent on the procedure for establishing breach by PFAs of the Regulations. This is important in view of the sanctions regime, which is prone to abuse in the absence of a fair and transparent dispute resolution mechanism.
Finally, it cannot be over-emphasized that this exercise should be given the maximum publicity so that the general public, especially stakeholders like contributors and pensioners, are sufficiently informed on all the different aspects of the exercise and its importance to the CPS and their retirement savings.
Michael Dugeri is a Lagos-based Legal Practitioner with specialties in Energy Law, Employment and Capital Markets.