Pension schemes subscribers increased by 3.6% year-on-year in 2020 – PenCom

The National Pension Commission, PenCom, has disclosed that the total membership of the pension Schemes increased by 3.6% from 8.95 million from December 2019 to 9.3 million in December 2020.

This is according to the Commission’s recently released 2020 Annual Report.

Growth in the industry is said to have been triggered by factors such as increase in the level of compliance by the public and private sectors owing to steps taken by the commission to improve compliance and coverage, as well as enhanced market penetration and strategies deployed by the PFAs.

Key highlights of the report

  • According to the report, membership of the Retirement Savings Account (RSA) dominated the total Pension Scheme memberships at 9.2 million, representing a 99.40%, while the AES and the CPFAs accounted for the balance of 0.60%; which is made up of 40,951 and 14,926 members respectively.
  • Similarly, the growing acceptance of the Micro Pension Plan by the informal sector as at year-end 2020 pushed the total membership count to 62,463.
  • The membership of the CPFA which dropped by 13.97 % from 17,349 recorded in 2019 to 14,926 as at 31 December 2020 was attributed to the high number of employees who left the employment of the Scheme sponsors and subsequently exited the Scheme.
  • The RSA registrations increased from 8,891,236 as at 31 December 2019 to 9,215,788 as at 31 December 2020, representing a growth rate of 3.65% or 324,552 in absolute terms.
  • The total pension contributions remitted into the RSAs of employees in both the Public and Private sectors in 2020 increased significantly from N700.69 billion recorded in 2019 to N908.09 billion as at 31 December 2020, which indicated a 29.60% growth over the reporting period.
  • Aggregate pension contributions revealed that the Public Sector (i.e. FGN, States and Local Governments) accounted for N536.97 billion during the year. This represented a 61.95% growth (year-on-year) when compared with the N331.56 billion recorded as at 31 December 2019.

What experts are saying

Speaking on the reason for the large imbalance seen in the membership of the three schemes, industry experts told Nairametrics that the disproportionate share of the Schemes under the CPS was bound to happen.

According to Moshood Ayeni, Founder, PensionTalk, he explained that the CPS comprises 3 different classes of Funds which are the RSA, CPFAs and AES.

Ayeni said, “The RSA schemes constitute the largest chunk of the CPS. The reason is due to the fact that majority of the contributors are enrolled in the CPS through the RSA funds. From 2004 when the CPS launched, everyone subscribing to pension scheme has done that mainly through the CPS. This has definitely contributed to the large chunk it has taken. By default, anyone joining the CPS will ordinarily approach a PFA to open an RSA. The same cannot be said of the other two categories that are restricted to specific members of their organisations.

“The CPFAs or the Closed PFAs are licensed pension fund administrators that only cater for their ‘closed members’. They do not accept members outside of the owner organisation and they are not expected to enrol new members. Rather, they are expected to allow their existing members who are willing to open an RSA with a PFA of choice do so. As it were, the membership of the CPFAs is not expected to keep growing and in fact, it will keep diminishing over time as no new entrants are allowed into them.

“The same is said to apply to the AESs or the Approved Existing Schemes. The AES and CPFA are similar in nature except that the AESs are managed by the regular PFAs on behalf of the organisations that own them. In addition, there are members in the AES that also have RSAs especially as the AES merely serves a gratuity scheme rather than a retiree scheme.”

Notably, the CPFAs operate mostly as Defined Benefits Schemes with a guarantee from the sponsor companies over any funding deficit. Companies operating under the CPFA are mostly firms operating pension schemes in the private sector existing prior to the introduction of the Contributory Pension Scheme (CPS) in June, 2004 but were able to carry on as a result of meeting the requirement of operating a fully funded existing pension scheme with assets of at least N500 million.

Source: NairaMetrics

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