Banks, EM investors take position in Nigeria’s pension industry
by Modestus Anaesoronye
October 24, 2017 | 1:31 am| | | Start Conversation
Ahead of imminent consolidation in the Nigeria’s pension industry, banks and emerging market investors are taking position and increasing existing holdings for effective competition.
Analysts say two key policy changes in regulation will cause major disruptions in the industry when implemented.
These include ‘Opening of Transfer Window’ and ‘Micro Pension Scheme’ which is expected to give pension contributors opportunity to choose Pension Fund Administrators (PFA’s) as well as unlock the informal sector potential.
According to them, weak companies that do not have the market clout, human capital, technological infrastructure and funding to undertake campaigns, provide quality service and invest in new markets would face stiff competition.
“I see some weak companies being acquired or merging with stronger ones to remain alive,” says one of the analysts.
PenCom data shows that there were 7.348 million contributors to the new pension scheme as at December 2016, while pension assets under Management (AUM) topped N7.09 trillion as at August 2017.
Latest in the move is FCMB Group Plc (FCMB) which, according to a notice sent to the Nigerian Stock Exchange (NSE), entered into agreement with other shareholders of Legacy Pension Managers Limited (Legacy), for the acquisition of an additional 60 percent stake in Legacy.
The proposed acquisition will increase FCMB’s interest in Legacy to 88.2 percent, thus making Legacy a subsidiary of FCMB. The proposed transaction, which is subject to the approval of the Central Bank of Nigeria (CBN), the National Pension Commission and the Securities and Exchange Commission (SEC), marks the second big move to strengthen position by investors into the pension industry in the last two years.
In 2015, Actis, a multi-asset emerging market investor with an established team of professionals, concluded investment for majority stakes in Nigeria’s Sigma Pensions. Actis invested $62 million dollars in the business, sharing in its vision to build a more profitable and sustainable brand.
Actis sees great scope for further growth of the business, building on its extensive experience in the asset management and distribution sector.
“In Sigma, we have identified a well-managed, solid business with ‘best in industry’ back office, IT and operational systems and excellent customer service that can leverage these underlying secular trends,” Actis had said.
Ivor Takor, director, Centre for Pension Rights Advocacy, a non-government organization told BusinessDay in a telephone interview that FCMB increasing its stake in Legacy is an indication of increased confidence, first for the PFA and secondly for the industry as a whole.
“For the Bank wanting to increase its investment means it is getting good returns on investment, and also to show the growth prospect of the industry; as the industry begins to grow, there will be some consolidations, not necessarily in terms of acquisition or merger, but in terms of increasing investment with capital injection”, Takor said.
According to him, implementation of the micro-pension scheme will increase the growth of the industry and make the sector more attractive, while for transfer window, I see increased competition among the operators. It is not going to be any negative impact, but a positive competition that will enhance consumer value, he said.
Transfer window is a provision in the Pension Reform Act which gives pension contributors the right to change their PFA at least once in a year if they have reason to do so
The implication of Transfer window is that many of the contributors who are not comfortable with their present PFA, either as a result of the quality of the service they are getting or level of returns on investment accruing to their fund under the PFAs management by this policy, when implemented, would have the choice to choose a new PFA.
On the micro Pension scheme, PenCom says it would soon launch the micro pension guidelines, which targets to take care of the interest of self-employed individuals in the country.
The Micro Pension Plan is an initiative conceived within the context of an industry-wide strategy by PenCom to bring these classes of workers under three categories including the low income earners, the high income earners and the SMEs.
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