National Pension Commission: Self

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National Pension Commission Self
Assessment Results Nigerias Risk-Based
Supervision SystembyMusa IbrahimNational
Pension CommissionAbuja Nigeria
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The Nigerian Contributory Pension Scheme

• Contributory
• Contributions by both employer and employee
• Individual Accounts
• Nature of the account, portability and
  withdrawals (Lump sum, Annuity Programmed
  withdrawal)
• Privately Managed
• Life Insurance Cover
• 3 times employees emoluments Premium to be
  paid by employer

Features
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Industry Overview as at Feb. 2011
Scheme Memberships
Operators in the Industry
Scheme Assets

• RSA 4,601,428
• CPFA 26,598
• AES 41,669
• 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

• RSA N1,138.00 Billion (US7.61 Billion)
• CPFA N413.33 Billion (US2.76 Billion)
• AES N530.67 Billion (US3.55 Billion)

• 24 PFAs
• 4 PFCs
• 7 CPFAs
• 19 AES

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Industry Overview contd

• Public vs. Private Memberships

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Industry Overview contd
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Industry Overview contd
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An Assessment on Compliance with IOPS
PrinciplesAs At September 2010
Principle 1 Objectives Status Suggestions Remarks
National laws should assign clear and explicit objectives to pension supervisors Fully Implemented PenComs responsibilities and duties are clearly defined in the Legislation Section 15 of the PRA 2004 maybe amended to align it closer with PenComs vision PenComs vision can be accommodated within its objective as defined by Section 15 of the PRA
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An Assessment on Compliance with IOPS Principles
Principle 2 Independence Status Suggestions Remarks
Pension supervisory authorities should have operational independence Broadly Implemented Most pre-requisites for independence are in place PenCom has an unusually large degree of freedom However, undue executive influence might potentially be applied 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 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
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An Assessment on Compliance with IOPS Principles
Principle 3 Adequate Resources Status Suggestions Remarks
Pension supervisors require adequate financial, human and other resources Broadly Implemented 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 More explicit linkage between the Corporate Strategy and the budget process, with consideration given to using a zero-based budget More effort and resource needs to be put into developing PenComs training capability Initiatives in the Strategy Plan had been included in the Commissions 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
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An Assessment on Compliance with IOPS Principles
Principle 4 Adequate Powers Status Suggestions Remarks
Pension supervisors should be endowed with the necessary investigatory and enforcement powers 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 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 All suggestions would be implemented
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An Assessment on Compliance with IOPS Principles
Principle 5 Risk Orientation Status Suggestions Remarks
Risk Orientation - Pension supervision should seek to mitigate the greatest potential risks to the pension system Broadly Implemented 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 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 Recommendations would be pursued to address the concerns expressed in the assessment
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An Assessment on Compliance with IOPS Principles
Principle 6 Proportionality Consistency Status Suggestions Remarks
Proportionality and Consistency Broadly Implemented 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 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 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
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An Assessment on Compliance with IOPS Principles
Principle 7 Consultation Co-operation Status Suggestions Remarks
Pension supervisors should consult with the bodies they are overseeing and cooperate with other supervisory authorities 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 The Commission will continue to be committed to its policy of consultation within and outside the industry
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An Assessment on Compliance with IOPS Principles
Principle 8 Confidentiality Status Suggestions Remarks
Pension supervisors should treat confidential information appropriately Partly Implemented Highly consultative approach on regulatory and supervisory matters has been established Information exchange and co-operation with other supervisors has been instituted where appropriate 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 Staff Handbook contains confidentiality clause Amending of PRA would be considered to include elaborate confidentiality provisions
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An Assessment on Compliance with IOPS Principles
Principle 9 Transparency Status Suggestions Remarks
Pension supervisors should conduct their operations in a transparent manner Broadly Implemented PenComs 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 PenComs strategy through the website Publish an abridged version of the Corporate Strategy and consider a clearer presentation within the Annual Report of the Commissions 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 The Commission had already concluded arrangements to start publishing quarterly statistics on the pension industry Website would be updated as recommended
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An Assessment on Compliance with IOPS Principles
Principle 10 Governance Status Suggestions Remarks
Governance Partly Implemented 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 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 All suggestions would be implemented
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The Assessment Matrix
Principle Assessment of implementation Assessment of implementation Assessment of implementation
Principle Fully Broadly Partly
Objectives 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 X
Total 3 5 2
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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

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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

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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

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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

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Off-Site Surveillance

• Aimed at early detection, preventing, controlling
  and mitigating risks
• Involves the following
• 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

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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
• Corrective/Remedial Actions
• Final Resolution Actions
• Enforcing Compliance with Supervisory Actions
• Monitoring Supervisory Actions
• Terminating/Modifying Supervisory Action
• Documenting Supervisory Actions

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• Thank You!!!
• National Pension Commission
• 174 Adetokunbo Ademola Crescent
• Wuse II Abuja
• 09 4138736 40
• 09 8703389 9
• info_at_pencom.gov.ng
• www.pencom.gov.ng