Employers cheating workers by not remitting pension deductions – Longe

Over the years, there have continued to be a lingering misunderstanding between Pension operators and Insurance companies on the sale of Annuity and Programme Withdrawer policies for a retiree. Mr. Eguarekhide Longe, President of the Pension Fund Operators Association of Nigeria (PenOp), in this interview with KAYODE ADELOWOKAN, described the competition as unfair. He also spoke on the non-remittance and half remittance by some employers. Excerpt;

What is PenOp doing to stem the alleged demarketing by some insurers?

The competition is unfair. It is like a boxing match where you tie one man’s hand behind and the other man has two hands. That is exactly the analogy of Annuity and Programmed Withdrawal (PA). One hand of the pension fund administrators is tied behind their back and the insurance providers have two hands. You see that there is a big challenge as far as dealing with the benefit side of the business is concerned. Let me just explain how this works, the pension fund operators are supposed to offer two options to their subscribers for retirement benefits access, that is the Programmed Withdrawal and the Annuity.

Programmed Withdrawal is a product of the pension industry.

The annuity is a product of the insurance industry. There is a tendency for some operators to lean more on the programmed withdrawal side than the insurance side. I do not think operators should do that, I think they should be neutral and that is what AIICO Pension stands for. We are not really bothered which window a retiree decides to access his benefits, either programmed withdrawal or annuity.

But having said that, insurance agents have only one motivation and that motivation is commission. So they can draw blood to earn that commission. In the process, they spread a lot of false information just to be able to attract the retirees’ benefits to the insurance industry. They are only offering annuity and not programmed withdrawal, so, there is bound to be conflict. The conflict is not going to vanish with a gentle breeze, it will always be there. They want to seize, at a cost, what is in the pension industry, whereas the pension industry is supposed to offer both options to retirees to choose. What I think should be done is, that, the proprietors of insurance businesses should try and clean up the agency system.

There should be ethical marketing. That should be the key focus. Yes, you can access the retirement funds, but the rules of engagements should reflect that somebody has offered something that is true and what you can defend. By the way, while the insurance agents are moving around aggressively marketing annuity products, the underwriters are finding it a bit challenging to meet their commitments because the liability situation has changed drastically.

They are having issues with some contracts. In some cases, some insurance companies have to make capital addition. Those are the things that are playing out in the market. The long and short of it is that I do not think there is any reason to fight. Both are trying to serve the same customers and we should enlighten the customers the benefit of each option and allow them to decide. The pension industry is where the funds are incubated, so, there is a tendency for them to protect the funds. The insurance agents are motivated by commission and they go to any length to access that fund. I think there are ways as gentlemen and women, we can offer products to clients in a more decent way.

What impact is the current financial crisis in the country having on pension business?

Since benefits are paid in Naira, we do not have ostensive foreign exchange exposure. But it is also true that we have the opportunity to invest in international currency denominated assets. We could invest in foreign securities, so, with the way the Naira is going, if you invest in dollar-linked assets, you have edged your position, and you would not lose value. But with the adverse rate situation, everybody, in a way, has been affected. If you look at the aggregate fund under management in dollar terms today, it is about $22 billion whereas in 2014, it was already over $20 billion. The Naira value has grown over a billion. But if you quantify it in dollar terms, that value has been eroded. But fortunately for us, we do not have dollar exposures as such.

However, looking at the larger economy, it is affecting the retirees. Since the economy is import-driven, it has led to imported inflation and Nigerians now spend more to buy their needs. There, you find out that your retirement benefits cannot buy you as much as it used to be.

If you are buying medicine at a certain rate before and the medicine is imported, it is going to increase by that rate. So, the capacity to afford the medicine is diminished. That is a problem. I do not want to go into the issues of whether we should devalue the Naira or not, as that is not the question you asked. I think that the government has no choice, but to focus on creating alternative revenue sources away from oil as the main income driver for the country. I am fairly encouraged by what I hear from government circles. I am happy about what I heard from the tax authorities, although, it is going to impact all of us, we should be ready for more aggressive taxing.

I heard the Minister of Finance said she want to be the last Minister of Finance that would worry about price of oil that is a very positive comment. The challenge is the implementation. We should encourage and pray for them to succeed, because if this government did not succeed, it is going to be a challenge for all of us. We do not want to put our properties on our heads and start crossing oceans looking for people who would take us as migrants. We should support the government and I think the government is going in the right direction.

What is PFAs doing about non-remittance and half remittance by some employers?

For non-remittance, we sent reports to the regulatory authorities and they also follow them up with recovery agents to a certain degree. On half remittance, we sent that report as well and employees are also encouraged to use the whistle blowing channels of PenCom which is its website, to report cases where they believe their employers have collected their money and refused to remit. When we are briefed by the employees, we intimate the regulatory authorities. It is difficult for operators to enforce; we do not have such powers. We cannot enforce compliance; we can only alert the regulators to that information. You also know that it is a challenging environment; moral suasion is more effective these days than enforcement because pension is an additional benefit for the workers. Many employers, if they have their way, would pay less. So, how many of them can we chase and what length should we chase them to comply? I guess we need the combination of carrot and stick to get people to do the right thing. As people see the impact of pension fund, the compliance level will improve.

What is the place of pension in the anti-corruption war?

Pension would help eradicate the menace of ghost workers, for a ghost cannot register biometrics. That is the reason some people do not want to establish the contributory pension scheme. Once you register people for pension, and you have their biometric information, you eliminate ghost workers almost with a wave of a hand. The other indirect way is if you get adequate provision for your retirement, the incentive to steal would reduce.