Plan by state governors in the country to borrow N17 trillion from pension fund to develop infrastructure in their respective states is dead on arrival.
The reported proposal by the governors to borrow about N17 trillion from the pension funds is an indication that most of those in authority are not conversant with the workings of the pension industry, specifically the Contributory Pension scheme (CPS).
Besides, it would interest you to know that the total value of the pension funds under management as at September 2020 stood at N11.56 trillion. So, from where do the governors intend to borrow the short fall?
Interestingly, pension funds are not borrowed but rather invested in line with the investment regulations issued by the National Pension Commission (PenCom).
The investment regulations allow pension funds to be invested in asset classes such as Bonds, Sukuk, Treasury Bills, Global Depository Notes and other securities issued by the Federal Government of Nigeria, provided that the securities are guaranteed by the Federal Government of Nigeria.
The investable assets also include Bonds and Sukuk issued by eligible State and Local Governments provided that such securities are fully guaranteed by Irrevocable Standing Payment Orders (ISPOs) and subject to the fulfilment of the conditions set out in the Commission’s Circular on “Minimum Requirements for the inclusion of State Bonds as Investible Instruments in the Pension Industry’’.
Although the Commission had deemed it necessary to prescribe that pension funds may be invested only in the Bonds floated by states that have fully complied with the CPS, this however, does not guarantee that pension funds would be invested in the state bonds, as Fund Administrators are required to conduct several risk analyses to decide if investing in such bonds meets expected yields and risk appetite. Accordingly, Fund Administrators may wish not to subscribe to a state bond.
From the fore going, it is clear that though the governors may have the intention to borrow pension funds and the Socio-Economic Rights and Accountability Project (SERAP) had raised the alarm, the realisation of this intention is really not practicable.
It is noteworthy that one of the major achievements of the Pension Reform is the establishment of robust legal and institutional frameworks for the administration of pensions in Nigeria.
In addition to the legal safeguards and institutional checks and balances, the Commission, as the regulator of all pension matters in Nigeria, has entrenched good corporate governance practices, high ethical standards instituted through rigorous supervision and regulation of the industry.
It is therefore not practically possible for the state governors to borrow N17 trillion Pension Funds as being speculated.
