www.pwc.

com/ng

The Nigerian
Pension Industry
Securing the Future

September 2015
Table of Contents
Introduction 4
The review of the Pension Reform 6
Act 2004
The Nigerian pension industry 8
dynamic levers
The future pension industry 12
landscape
Taking hold of the advantage 13

PwC in action 14
Contacts 19
 Introduction
Nigerias pension legal framework has undergone multiple changes since the first legislative act on
pension in 1951 called the Pension Ordinance, which had retroactive effect from 01 January 1946.
The last major change was in 2004 with the enactment of the Pensions Reform Act (PRA 2004),
which introduced the Contributory Pension Scheme (CPS) and made it mandatory for employers
and employees in both the public and private sectors to contribute towards the retirement benefits
of employees.
The current pension regime has been designed to maximise the potential of the Contributory
Pension Scheme, making provision for the establishment of the National Pension Commission and
establishing guidelines for the activities of key players within the Pension Industry.
However, in order to further secure pension fund assets and drive industry growth, a review was
made and passed into law in July 2014.

First private sector 1954 Pension ordinance with

pension scheme set up by 1951 retroactive effect from
Nigerian Breweries January 1946

1961
National Provident Fund 1979
(NPF) set up for non-
The Basic Pension Decree
pensionable private sector
102 establishing the Civil
employees
Service Pension Scheme

2009 1993
Registered RSA holders of
Establishment of the Nigeria
4.01million and Pension
Social Insurance Trust Fund
Fund Assets of
(NSITF) to replace the NPF
N1.5trillion
scheme
2004
National pension deficit of about N2.3trillion
2012 The Pension
Reform Act
Establishment of the National Pension Commission
2004 to regulate, supervise and ensure the effective
Pension Fund
administration of pension matters in Nigeria
Assets of
N2.9trillion Establishment of Trust Fund Pensions Plc by NSITF
as a PFA and to manage the accumulated funds of
current NSITF contributors

2013

A joint public hearing on the bill

PenCom registers for an act to repeal the Pension
5.92million contributors and Reform Act 2004 and enact the
generates N3.82trillion Pension Reform Act 2014
investible fund assets
2014

Current pension reform events The Pension Reform Act 2014

Key pension industry events

The Nigerian Pension Industry Timelines

The Nigerian Pension Industry

PwC 4
 The review of the
Pension Reform Act
2004

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 The review of the Pension Reform Act 2004
The review of the Pension Reform Act 2004 introduced several
changes within the pension industry which have
key implications for industry stakeholders:

Employers with less than 3 employees and self employed

persons entitled to participate under the scheme
Lower Employer
Eligibility Increased contributor enrolment and pension compliance
Requirements
Increased assets under management

Establishment of a Pension Protection Fund to serve as a

hedge for the funding of minimum pension guarantee

Setup of Pension Pool of funds to provide eligible retirees with a minimum

Protection Fund monthly pension

Increased cost of operations for key players due to the

introduction of an annual pension protection levy

Increase in contributions rate from 15% to 18%.

A minimum of 10% and 8% for employer and
Increase in employee respectively. However, employers who choose
Contribution to bear the full contributions are required to make a
Rates minimum contribution of 20%
Increased contributions and assets under management

Increased staff cost resulting in loss of employment for

employees whose employers cannot bear the additional cost

Reduction in disposable income plummeting consumption levels

and impacting the consumer goods industry

Reduced consumption resulting in reduced taxable income for

government further impacting the provision of infrastructure

Fewer funds available to engage the informal sector in gainful

employment

Stiffer penalties for the contraventions of the Pension

Reform Act
Stiffer Penalties Curbing of unethical practices and the diversion of pension
for Pension
funds
Fraud
Protection against loss of pension funds

The Nigerian Pension Industry

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 The review of the Pension Reform Act 2004

PFAs can now invest pension funds in foreign

investments albeit within the confines of PenCom
Foreign guidelines
Investment of
Pension Funds Several investment options available for PFAs

Introduction of tax exempt status for pension fund

investment income
Tax Exemption
of Investment Increased voluntary contributions
Income
Increased assets under management

Retirement savings account holders can now withdraw a

maximum of 25% of their pension assets as equity
Withdrawals from contribution towards payment of a residential mortgage
RSAs for Mortgage Reduced assets under management
Contributions
Increased voluntary contributions

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 The Nigerian pension
industry dynamic levers

The Nigerian Pension Industry

8
The Nigerian pension industry dynamic levers

Amidst fears that Government may

nationalise pension assets to fund budget
deficits, and trade unions clamouring for New
additional pension contributor protection Entrants
laws, PwC believes that several
competitive and dynamic levers will
further shape the formation of the Industry Operator
Nigerian Pension Industry. Rivalry Dynamics
Levers
Pension Fund Operators who understand
these levers can take advantage of the
many growth opportunities that abound
within the industry and introduce various Alternatives Contributor
innovative products and services to Dynamics
increase their market shares.

The impact of these levers are analysed

below:

New
Entrants

Globalisation
Industry Operator
Rivalry Dynamics Entry of foreign players and large
Levers financial services organisations due to the
industrys high returns on investment
Employment of expatriates to
Alternatives Contributor bridge the professional skills gap
Dynamics

Positive impact
Negative impact

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 The Nigerian pension industry dynamic levers

New Market coverage

Entrants PFAs adopting new strategies to engage the
underserved formal sector market
Industry Operator Specific products and services targeting the
Rivalry Dynamics unreached informal sector to cater to its
Levers unique needs
Wider market coverage triggered by the
introduction of digital technologies
Alternatives Contributor
Dynamics PenCom introducing several policies and
guidelines to provide the enabling regulatory
environment to accelerate market coverage

Contributor behaviour
New Increase in voluntary contributions due to
Entrants rising trust in the Contributory Pension Scheme

Contributors brand consciousness impacting

Industry Operator choice of PFA
Rivalry Dynamics
Levers Increased financial literacy leading to demand
for better service quality

Alternatives Contributor Use of social media platforms; influencing and

Dynamics shifting balance of power to contributors

Demography
Large labour force accounting for 54% of
Nigerias population who require pension
products and services tailored to their age
profiles and risk appetites

Nigerias young which are 44% of total

population driving the future demand for
long term financial planning, savings and
investment products

Positive impact
Negative impact

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 The Nigerian pension industry dynamic levers

New Insurance
Entrants
Reduction in assets under
management due to retirees opting for
Industry Operator
annuity as opposed to programmed
Rivalry Dynamics withdrawal
Levers
Industrialisation
Pollution as a result of industrialization
Contributor creating health risks leading to increased
Alternatives
Dynamics demand for life and health insurance type
products linked to pension contributions

Consolidation
New Mergers and acquisitions within the
Entrants industry to take advantage of economies of
scale
Industry
Operator Competitive rivalry
Rivalry
Dynamics
Levers PFAs developing clear client value
propositions and targeting specific
contributor market segments as the race
for leading market share intensifies
Contributor
Alternatives
Dynamics
Technology
Technological advancements
bringing in several non-traditional
players who will provide platforms
for pension products and services

Application of analytic tools allowing

the industry better understand
contributor trends, a prerequisite for
the multi-fund structure regime

Positive impact
Negative impact

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 The future pension industry landscape

Fierce competition with brand

The opening of the transfer window quality, innovation and quality
allowing contributors to move their service delivery being critical
retirement savings accounts between for the survival of most PFAs
PFAs
The introduction of a social
welfare element in the current
pension regime
The advent of personalised
pension advisory services, a
Mergers and
precursor of Defined
acquisitions with many
Ambition Pension Schemes
foreign players seeking to
invest in the industry

The creation of shared

service centres to handle
back office operations The introduction of biometric
technology to register
contributors and update
current records
Retirement savings used as
equity for mortgages

The development of
Trade unions clamouring guidelines by the Regulator
for pension contributor on the creation of the
protection laws Pension Protection Fund
which would either adopt
or create a Pension
The introduction of a multi-fund Protection Fund Manager
structure regime allowing the
investment of pension funds based
on contributors risk and age
profile The introduction of a multi-pillar pension scheme
which would include the mandatory contributory
pension scheme, supplementary industry-wide
pension schemes, voluntary pension schemes and
additional corporate pension schemes for
independent professionals such as medical
specialists

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 Taking hold of the advantage
Securing the future will require PFOs taking advantage of the opportunities that abound
within the industry.

PwC can assist in the 5 key areas that PFOs will need to address, which are: creating insight, growing
revenue, improving efficiency, integrating successfully, and removing complexity.

Area of concern Why is it an issue now? How we can assist

The dearth of accurate analysis of past We deliver diagnostic results to

performance and the inability to make support integration, target setting,
Create predicted view of future outcomes integrated business planning,
insight prevents PFOs from making the right performance reporting and
decisions to improve business analytics
performance

Consumer demographics, innovative We assist Pension Fund Operators

new technologies, digital capabilities to :
and business models have opened up Develop growth strategies and
Grow
revenue new opportunities within the pension implementation plans
industry market. Converting these
opportunities will increase RSA Select vehicles to deliver
numbers growth strategies
Support functions are critical in We work with clients in a number
ensuring that organisations realise of ways, depending on the nature
value from operations. Symptoms of of their issues and the degree to
inefficient operations include: which they have already
Improve undertaken some internal
Inability to respond promptly to
efficiency diagnosis or solution development
contributor enquiries and
regulatory requirements
Cumbersome retiree payment
processes
Inconsistent RSA statement
delivery dates
Overlapping departmental
functions
The race for leading market share will We assess the synergies, costs and
result in mergers and acquisitions with risks of a merger or acquisition.
the key focus on raising value We then develop its business case
Integrate
successfully and provide implementation
support

Removing complexity creates a Pension We help by identifying areas of

Fund Operator that is agile. Thus it can complexity in processes, people
respond effectively to market and and culture, structures and
Remove regulatory changes operating models, as well as
complexity technology and data. We also help
develop customer-focused process
The Nigerian Pension Industry models to improve ways of
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PwC working
 PwC in action

August 2015
PwC
The Nigerian Pension Industry
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 PwC in action - Nigeria

Development of a 5-year Corporate and Financial Plan

The client wished to develop a 5-year corporate strategic plan to replace its
Client need
plan which had lapsed.
PwC reviewed the expired strategic plan and measured the organisations
performance against its set goals and objectives, identifying areas where
performance was below expectations whilst proffering solutions. An
environmental situational analysis was also done in order to provide the client
with a better understanding of the macro-economic environment within which
it operated.
What we
We conducted employee surveys and had interviews with management staff to
delivered
determine the PFAs corporate culture and proffer solutions on improvement
of the culture to drive organisational performance.

PwC planned and facilitated a strategic management retreat where the outcome
of its analysis was presented and the organisations strategic focus was
revalidated. The new Plan was developed with input from the retreat and
detailed analysis.
Through the analysis of the market opportunities, PwC formed a view around
Outcomes & the scale of potential opportunities for the PFA within Nigeria and developed
benefits strategies on how best to tailor services and products to its customers as well as
the factors to consider when offering such services.

We identified and mapped out upcoming commercial areas that would best
benefit the growth of the PFA and the competitive advantage measures to
adopt.

Set up of a Pension Fund Administrator

The client required professional assistance to set up a Pension Fund
Client need
Administrator.
PwC provided guidance to the client through the organisation setup phase and
assisted in the development of all documents necessary to obtain an Approval-
In-Principle (AIP) and subsequently an operating licence from the National
Pensions Commission (PenCom).

These documents included

5-year business plan: This involved a comprehensive pension industry
analysis and market assessment
What we
Branch expansion policy
delivered
Enterprise-wide Risk Management and Internal Controls Framework
Organisation structure report
IT systems strategy
Succession plan for key officers of the company
Organisation-wide Policy and Procedure Manuals

PwC was also involved in coordinating the recruitment process for key
management staff as well as designing the staff compensation structure.
Outcomes The client met PenComs requirements for obtaining both its AIP and the
& benefits
The Nigerian operating license necessary to conduct pension fund administration in Nigeria. 14
Pension Industry
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 PwC in action - Nigeria

Review of an Approved Existing Scheme

The client required a diagnostic review of its existing defined benefit pension
Client need scheme to ascertain its sustainability and determine key areas for pension fund
performance improvement.

PwC performed the diagnostic review and proffered advise on its target
operational framework.

Key activities undertaken included:

Reviewed and evaluated the DB pension scheme as currently operated and

identified areas for improvement in compliance with the Pension Reform Act
2014 and PenCom guidelines and regulations;

Reviewed the governance risk & compliance framework and identified

What we improvement opportunities;
delivered
Advised on the modalities for the implementation of the Contributory
Pension Scheme (CPS) for employees that will be migrated to the CPS;

Provided case studies from other jurisdictions to guide and address the
issues arising from the administration and management of the Defined
Benefits Scheme;

Advised on appropriate investment strategies for the organisations pension

fund assets, including its real estate assets within the provisions of the PRA
2014 and PenCom guidelines and regulations.

Outcomes PwC identified the key areas for improvement and assisted the client in
& benefits designing a transformation pathway required to achieve operational excellence.

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 PwC in action - Regional

Investment Strategies Impact Assessment

The client required an impact assessment of their investment strategies on

Client need
potential retirees pension assets.

PwC conducted an investigation into the current investment strategies

employed by the South African Pension Fund and the impact that these
investment strategies (and other associated factors such as contributions rates)
would have on the expected replacement ratio (RR) of members when they
retire.

The analysis was performed by constructing a suitable model to project the

investment return on the underlying assets. The models took into account the
expected return on the main asset classes, the volatility of the asset classes and
the correlation between the returns on various asset classes.
What we
delivered The Model allowed for calculation of:

The expected net replacement ratio (NRR) at retirement, based on the

current retirement age and contribution rate;

The sensitivity of the NRR to various factors;

The probability distribution of the NRR (i.e. the range of values that the
NRR can take on and its associated probabilities of occurrence).

Outcomes & PwC presented the client with a robust model which clearly revealed the
benefits impact of the clients investment strategies. We advised on how to improve the
existing investment strategies in order to obtain optimal yields on investment.

Asset Liability Modelling

The public sector organisation sought a review of its asset liability

Client need
management strategies.

PwC advised on the organisation's asset liability management strategies,

reviewed the cash flow schedules for the strategy and the asset valuations for a
large South African citys liability redemption funds.
What we
delivered
These funds were set up to manage assets and cash flows so as to ensure that
the citys liabilities with regards to bonds issued (COJ04, COJ05 , etc.) were
met as and when due on the South African Bond Exchange.
Outcomes PwC produced an asset liability model which showed the cash flows of a range
& benefits of assets and derivatives to meet the citys needs.

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 PwC in action - Global

Design of a Target Operating Model

The organisation needed to modernise its delivery model at the same time as
delivering a range of other mandated change activity. The client wanted to
ensure that any new operating model would balance the needs of the members
/ customers, whilst also offering the tax payer best value for money.
Client need
PwC was engaged to define a Target Operating Model which would deliver
against the clients requirements whilst also taking account of the existing
change programme and operating model constraints.

PwC worked with the senior management team to design a new Target
Operating Model around an agreed set of principles, which included how to
place members at the centre of the service, how to achieve cost savings, how to
encourage members to channel shift to promote self-service, etc.

Once the Target Operating Model was accepted, three Interim Operating
Models were produced to assist the client on its journey. These were designed
to make the transition to the Target Operating Model both manageable and
easy to understand by those affected by the change.

The Interim Operating Models were:

What we
delivered
Re-Organise: This stage focused on putting in place the right structure,
moving people into newly created roles, retraining staff and performing a
number of quick win changes to deliver immediate benefits and thus free
up staff to help with the latter changes.

Re-Tool: This model delivered better systems (greater calculation

automation, enhanced system integration, reduced manual hand-offs, etc.)
to staff delivering the service

Re-Cast: This model recast the service for members by delivering the
capability for them to largely self-serve

PwC presented the client with a tangible, well structured and ambitious Target
Outcomes & Operating Model upon which to transform its business. All staff, from the
benefits senior team to those administering the scheme were bought on-board and are
now actively working towards achieving the first Interim Operating Model. The
model once implemented will deliver significant cost savings, reduce risk and
errors and enhance the members experience of the service.

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PwC
 Contact us
Dr Bert Odiaka Dr Andrew S Nevin
Partner Partner
Nigeria Advisory Leader
dl: +234 1 271 1700
dl: +234 9 291 9302-4
m: +234 806 059 3528
m: +234 803 471 8674
e: andrew.x.nevin@ng.pwc.com
e: bert.i.odiaka@ng.pwc.com

Mary Iwelumo Femi Tairu

Partner Associate Director

dl: +234 1 271 1700 dl: +234 1 271 1700

m: +234 803 301 3035 m: +234 816 051 4460

e: mary.iwelumo@ng.pwc.com e: olufemi.tairu@ng.pwc.com

Tobi Olanipekun
Manager Creating the value
dl: +234 9 291 9302-4 that matters to you
m: +234 803 425 9297

e: tobi.olanipekun@ng.pwc.com

PwC offices in Nigeria

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