FREQUENTLY ASKED QUESTIONS
COVID-19 AND THE IMPACT ON INVESTMENT RETURNS
Covid-19 and the impact on Investment Returns
After a strong start to the year, the global economic environment deteriorated sharply in March following the outbreak of the novel Corona virus (COVID-19) which hit economic activities as countries shut down cities to cope with infections. Following the outbreak, the IMF estimates that the world economy entered a recession in the ﬁrst quarter of the year and global ﬁnancial markets lost billions of dollars in value. In terms of market performance, after a rally in January, the deterioration in oil prices and the COVID-19 outbreak induced a sell-off in Nigerian capital markets. The NSE All Share Index (which measures stock performance) fell by 20.7 percent in Q1 2020 with deep declines across all sectors while in the bond space prices fell sharply as foreign investors exited the markets. Given that these are amongst the traditional investment instruments in Nigeria, the declines had a big impact on the investment returns across the pension industry.
As you are aware, the COVID-19 pandemic which has swept through the entire world over the past month has also driven losses in ﬁnancial markets globally. Nigeria is not immune from the fall-out of COVID-19 as the bond and stock markets have recorded declines.
The impact is on everyone one! However, some PFAs have been more signiﬁcantly hit than others, and this is due to the level of the exposure within their portfolios.
Each beneﬁciary’s funds are pooled together with others and invested in various asset classes with different investment horizons and maturities. As such, it would be impossible to suspend any one beneﬁciary’s portion of an entire investment. PenCom regulation provides that PFAs are not allowed to suspend investment activity on funds being managed except in the event of a complete shutdown of all ﬁnancial markets.
So far, the decline in the fund value has only slightly reduced the returns/interest component on your 2020 RSA balance. Not all of the interest that has accrued to your RSA account since inception has been eroded from this. As of today, your principal remains intact and we are putting measures in place to reduce the volatility in the fund value. 05
According to the IMF, the global economy is likely to have gone into recession in the ﬁrst quarter of 2020. The difference between now and the 2008 crisis is that the ongoing slow down in economic activities is due to an unprecedented pandemic as opposed to the former which was a global ﬁnancial weakness. Thus, from an impact perspective, we expect that as the COVID-19 situation improves, economic activities would resume which raises prospect for ﬁnancial markets to recover.
Due to the absence of a cure/vaccine for the rapidly spreading pandemic which could imply lingering downward pressure to returns, Sigma Pensions is currently reducing fund exposure to variable income assets such as stocks, while at the same time building exposure in relatively more secure asset classes such as ﬁxed income securities.
While we cannot forecast how soon the pandemic will fade nor can we suspend investments until the tide passes, what we can do is position our portfolios in a way that will minimize losses borne by the fund beneﬁciaries as we weather this unforeseen and unusual terrain. While the current situation may appear gloomy as ﬁnancial markets have nose-dived locally and globally, we want to reassure you that the we are looking out for your best interest and that the optimal performance of our funds and protection of your contributions remain our priority. 08
While you are free to move from one fund to another, the proﬁle of Fund I ﬁts with a young person or someone who still has a lot of years to work before retiring. Since you would not be retiring soon, it is advised that you remain in Fund I. Given that markets move in cycles, opportunities to recover whatever declines you may have witnessed will present themselves. With the proﬁle of the funds, Fund I is likely to recover faster. Pensions is a long-term play; we advise our customers to focus on the long term and not on short term market ﬂuctuations. According to PenCom regulation, after the initial movement, any subsequent movement between funds under a 12-month period attracts a fee of N1,000 but comes at no cost after 12 months.
We do not advise that contributors who are close to retirement choose to move to Fund II which has a longer-term proﬁle than Fund III. We advise you remain in Fund III if you are close (2 to 3 years) to retirement or if your risk appetite cannot handle some degree of ﬂuctuation in investment returns. Customers with a longer time to retirement are free to move from Fund III to Fund II.
The current market decline will not affect your Programmed Withdrawal (PW) payments. Inﬂation can lead to value erosion. That is why our investment strategy seeks to target instruments that can provide a return over and above inﬂation. Though still little, we are also introducing investment options that provide a hedge (protects the funds from the impact).against inﬂation
REGISTRATION, CONTRIBUTION, AND ACCOUNT ACCESS
REGISTRATION, CONTRIBUTION, AND ACCOUNT ACCESS
After registration, you’ll get your Personal Identification Number (PIN) which you must give to your employer for remittance.
If you work in the Public sector and your RSA is self-funded, go to the pension desk officer at your employers and make sure your name is on the nominal roll sent to PENCOM. However, If you work in the private sector, inform the officer in charge of payroll and your pension account officer to follow up.
If you change your job, you should give your PIN to your new employer. (Note: that the PIN is mobile and valid for life)
Go back to your previous employer’s pension desk officer and ensure that your name and details were correctly placed in the nominal roll or schedule respectively or send an email to email@example.com for your relationship manager to follow up.
Call our Automated Voice Response System 09-4613333 and follow the voice instructions or visit our website www.sigmapensions.com – Simply enter your username and password and click the Login button. If logging in for the first time, click the New User Sign-on link.
You can only have access to the value of your Voluntary Contributions (VC) subject to the AVC guidelines according on PRA 2014. However, before retirement, you can have access to 25% of Retirement Savings Account (RSA) balance if you have been out of a job for a period of 4 months and more.
You can make Voluntary Contributions (VC) alongside your statutory contributions to your Retirement Savings Account. Remittance of VC must come through your employer.
MANAGEMENT OF THE NEW PENSION SCHEME
MANAGEMENT OF THE NEW PENSION SCHEME
The total contributions will be paid out by the employer directly to a Pension Fund Custodian and will be managed and invested by the Pension Fund Administrator (PFA) of the employee’s choice.
The National Pension Commission is empowered by the Pension Reform Act 2004 to supervise and regulate new pension scheme.
A subsidiary of any company may apply for license to operate as a Closed PFA provided it satisfies the requirements of the Pension Reform Act 2004.
In accordance with the provisions of the Pension Reform Act 2004, only an employer with a pension scheme existing before the commencement of the Act can apply to be licensed as a closed PFA.
A Pension Fund Custodian (PFC) is a company licensed by the National Pension Commission to keep pension money and assets in the RSA in trust for the employee on behalf of the PFA.
The PFA manages and invests the pension funds while the PFC keeps the pension funds and assets in safe custody and carries out transactions on behalf of the PFA.
An applicant PFA must have a minimum paid up share capital of N150,000,000 while an applicant PFC must have a minimum paid up capital of N2,000,000,000 and shall be a licensed financial institution with a minimum net worth of N5,000,000,000 unimpaired by losses and has total assets of N125,000,000,000 or is wholly owned by a licensed financial institution with similar financial resources.
An employee or contributor has the freedom to move his account, once a year, from one PFA to another without giving any reason(s).
The PFA will charge fees for the services being rendered on the RSA subject to such guidelines as may be issued by the National Pension Commission from time to time.
In order to ensure the safety of pension funds and to avoid mixing pension business and other businesses, it is desirable that the operators deal with pension funds only. This will enhance effective regulation and supervision.
The National Pension Commission issues licenses to PFAs and Custodians, regulates their activities and generally formulates, directs and oversees the overall policy guidelines on pension matters in Nigeria.
A Pension Fund Administrator (PFA) is a company licensed by the National Pension Commission to manage and invest the pension funds in the employee’s Retirement Savings Account (RSA).
The National Pension Commission will publish a list of all licensed PFAs and make it available to the public.
The Pension Fund Administrator cannot collect or spend the pension money in the RSA.
Any employer managing its existing pension scheme before the enactment of the Pension Reform Act 2004 may apply to the National Pension Commission to be licensed as a Closed Pension Fund Administrator to continue to manage such pension scheme. A closed PFA cannot open or manage RSA for employees other than its employees or employees of its parent company if it is a subsidiary.
Any employer having existing pension fund assets worth N500,000,000 or more who also meets the requirements of the Pension Reform Act 2004may apply to the National Pension Commission for a closed PFA license to enable it to manage the pension funds of its employees directly or through its subsidiary.
Any employer with existing scheme of less that N500,000,000 can still maintain the scheme but the scheme will have to be administered by a PFA separate from the organization.
Every employee may decide to join the contributory pension scheme or move his RSA from a closed PFA to a PFA of his choice subject to such rules and regulations as may be issued by the National Pension Commission.
THE INTRODUCTION OF THE NEW PENSION SCHEME
THE INTRODUCTION OF THE NEW PENSION SCHEME
The new pension scheme covers all employees in the public service of the Federation, the Federal Capital Territory and the private sector of the economy.
The employer shall contribute a minimum of 10% of the employee`s monthly emoluments towards the retirement benefits of the employee.
An employer can make all the contributions on behalf of the employee without making any deduction from the employee`s salary except that such contribution by the employer shall not be less than 18% of the monthly emoluments of the employee.
Your contributions are just savings out of your emoluments towards your old age and the employer`s contribution will only increase such savings.
Pension contributions are paid directly to the PFC to be held on the order of the PFA.
A fully funded pension scheme exists where pension funds and assets match pension liabilities at any given time.
Every employee or contributor under the new pension scheme is expected to open RSA in his/her name with a PFA of his/her choice into which all his/her contributions and returns on investment are paid.
The RSA is similar to a bank account except that no contributor can withdraw money from the RSA before his/her retirement. The PFA is required to invest the money and issue statements of account at least once every quarter to the contributor.
Movement from one employment to another does not affect pension under the new scheme. The reform has removed the bottleneck associated with transfer of service from one organisation or sector to another, especially with regard to qualification for pension and the sharing formula for payment of pension as between employers.
The existing pensioners, employees who have 3 years or less to retire and the categories of persons covered by the provisions of section 291 of the Constitution of Federal Republic of Nigeria 1999 are exempted from the new pension scheme.
Any employee with more than 3 years to retire comes under the new pension scheme.
The new pension scheme is mandatory for all categories of employers and employees covered under the Pension Reform Act.
There is no merger of private sector pension with that of the public sector pension since the sources of funding are not the same. However, both are now being regulated under the same rules and regulations.
One of the main objectives of the pension reform is to ensure that every person that worked in either the public or private sector in Nigeria receives his/her retirement benefits as and when due.
Most of the old pension schemes were not fully funded. Therefore, upon retirement, there were no ready funds to pay the pensioners. The new pension scheme is fully funded. Money is contributed into individual employee`s Retirement Savings Account (RSA) and when he/she retires, there will be money in his/her RSA to pay his pension.
Private sector pension schemes will be allowed to continue provided if there is evidence to show that the pension scheme is fully funded at all times, any shortfall made up within 90 days, pension funds assets are segregated from the assets of the employer/company, the pension funds assets are held by a licensed Custodian and the scheme is specifically approved by the National Pension Commission.
An employee shall make monthly contributions of a minimum of 8% of the total of his/her monthly emoluments (i.e., monthly basic salary, transport allowance and housing allowance) into his RSA.
A secure and happy retirement is every worker’s dream. Thus we look forward to retirement to be able to rest as often times our active years become so busy with building a family and making sure that they are well taken care of. In this part of the world where there is no clear statement of policy regarding social security, planning your retirement becomes even more imperative. The various hazards and vagaries of the social life could bring about unfavorable circumstances that lead to loss or cessation of income or means of sustenance. Notable among these hazards are sickness, accident, and old age, death of breadwinner or unemployment. As Nigeria does not have any social security system to take care of the individual under these circumstances, you need to take your financial future very seriously. Recent studies have shown that we are living longer and healthier lives than our parents and grandparents did. On this ground, we can expect to spend more time in retirement than they did. But you will remember that our grandparents even sometimes our parents, were totally reliant on the generosity of other people, sometimes even for food, otherwise, they would go totally hungry. If you save more today, you get to spend more at old age. Saving towards pension also reduces the tax burden we bear as pensions are allowable deductions for tax purposes. We all want to be able to sustain the lifestyle we are accustomed to even after our active employment years.
The first question to answer in this direction is what financial resources will be necessary to support that lifestyle? Experts estimate that you will require about 50% of your preretirement income to sustain your lifestyle post retirement. Inflation accounts for the major part of this estimate; given the prevailing inflation rate, it takes an average of 10years or less for the price of food to double. Also, health bills have proven to increase rapidly as one begins to age. Besides, higher retirement benefits can be very important to you later in life and increase the future benefit amounts your family and your survivors could receive. With the new pension scheme, the benefits you receive post-retirement becomes a function of your contribution into your pension account and the interest earned thereto. We, therefore, encourage you to take charge of your financial future and start saving more by opening a Retirement Savings Account (RSA) with Sigma Pensions Limited today to be able to guarantee a happy retirement.
Saving has proven to be a very worthwhile habit. So if you are already saving keep going. If you are not saving, it’s time to get started. If you start today to save towards your retirement, you will certainly benefit from that decision. The sooner you start saving, the more time your money has to grow. Saving for retirement should be your priority. Thanks to the new pension scheme, retirement savings are deducted at source from your salary and remitted to your PFA. If that is not the case for you, then you need a plan immediately. Once you have made a plan, stick to it. There is no limit to the amount you can save for your retirement; it all depends on the financial resources you require to support the lifestyle you desire at retirement. You are also free to make additional Voluntary Contributions (AVCs) to your RSA to augment the size of your monthly contributions. One advantage of these contributions scheme is that there is no need for you to open another RSA as these contributions would be made directly to the existing account. All you need therefore is to notify your employer of your intention to make AVCs.
You can still continue to contribute to your RSA even when you are retired but still maintain a steady source of income. The idea is to set aside as much as possible consistently every month so that you can access such funds when you are no longer productive and do not have a source of income.
The Pension Reform Act (2004) provides that pension assets shall be invested with the objective of the safety of funds and maintenance of fair returns on amounts invested. At Sigma, our investment philosophy is anchored on these objectives. The thrust of our investment function is to consistently improve investment returns by maintaining optimal portfolio within approved risk parameters in accordance with relevant Guidelines. We pay close attention to our investment strategy and asset allocation, and we regularly evaluate and review the performance of investment portfolio with a view to consistently improving investment returns and ensuring the safety of funds.
With the commencement of the transfer of NSITF contributions into the RSAs, any employee who was a contributor is to fill and forward a form to his PFA. In order not to experience any delays in the transfer of your funds, please ensure the following guidelines are STRICTLY adhered to: All transfer Application Forms must have a photocopy of a means of identification and the original membership certificate issued attached. Names of applicants should be filled in on the application form exactly as they have been filled on the membership certificate. For example, Oliver Jackson Tomato can only write his name as Oliver Jackson Tomato on the application form if that is how it was written on the original membership certificate, not Oliver J. Tomato. If the name was Oliver J. Tomato on the certificate, please do not write it as Oliver Jackson tomato. Where an applicant is providing an Indemnity Letter, the subject line must read “Letter of Indemnity and Identity” and the applicants NSITF membership number must be clearly stated using the format as approved by PenCom. Where an applicant is providing a court affidavit, the affidavit must clearly state the applicant’s NSITF membership number. All information on the application form, original membership certificate, and the photocopy of the means of identification must agree. Once your application has been received, a submission will be made to Trustfund Pensions. At this point, a verification of the claims will be done. Thereafter, all original certificates will be released to the custodian of funds. It is only after the release of these certificates that payments of the contributions will be made into applicants’ individual RSAs. Please note that the first remittance will be of the contributions made only. Accrued interest will be transferred at a later date upon receipt of guidelines from the National Pension Commission. Letters of notification of payment will be sent out to all whose contributions have been received. NOTE: Should an employer wish to make a submission on behalf of employees they are to do so using the schedule.
Required Documents: Hand written application for 25% withdrawal Age declaration/ birth certificate Redundancy/Termination letter from your employer (must be at least 6 months old) Passport photograph (1) Bank account details Please note that from the day of submission, the receipt of approval from PenCom, and the actual crediting of your account may take a number of weeks due to the volume of requests. You will be called and notified once the payment has been made.
Please note that this does not apply to Employees of the Public Sector. Required Documents: Application for the refund of Pre- Scheme Contributions Age declaration/ birth certificate Redundancy/Termination letter from your employer Passport photograph (1) Bank account details including the sort code and documents supporting ownership (attached form should be filled by your bank). Statement of account from your bank Letter from Employer, stating whether all terminal benefits have been paid directly to you or not and must clearly state that the applicant made contributions prior to the Contributory Scheme. Letter from Employer stating/ confirming Pre- Scheme amount paid into RSA. Upon receipt of the required documents, Sigma will make a submission to the National Pension Commission (PenCom) to obtain an approval for the payment of the amount due. Please note that from the day of submission, the receipt of approval from PenCom, and the actual crediting of your account may take a number of weeks due to the volume of requests. You will be called and notified once the payment has been made.
Required Documents: Voluntary withdrawal request form Bank Details Form Bank statement Please note the following: Access to the account can only be done ONCE within a quarter (period of three months). A maximum of 40% of the total value of voluntary contributions can be accessed at a time. A fee of N100 plus 5% VAT (N105) will be charged with every withdrawal.• Withdrawal of contributions that are less than 5 years on the withdrawal date will incur a 10% tax on the total amount to be withdrawn. This will be forwarded to the relevant authorities by the bank. Contributions 5 years or older will be withdrawn tax-free. All payments to customers wishing to withdraw from their RSAs can only be made to the customer’s personal bank account. Upon receipt of the required documents, a submission will be made to our Compliance Department for the approval to pay. You will be called and notified once payment has been made.
Public Sector: A) To obtain the accrued benefits of a deceased employee of the Public Sector, the Next of Kin will need to provide the following documents: Death Notification form Registration of death (from Population Commission) Copy of Deceased declaration of age Police Report (if by accident) Medical Certificate of death/cause of death Declaration of wish/evidence of nomination of next of kin. Copy of letter of appointment Copy of pay slip as at 30th, June 2004 Copy of pay slip as at demise Two passport sized photographs Last promotion letter Letter of introduction from the MDA stating Date of birth Date of first appointment Date of death Grade and step level as at June 2004 Grade and step level as at time of death NOKs name PLEASE ENSURE ALL DOCUMENTS ARE DULY SIGNED FOR. The individual’s Life Insurance to be paid into the RSA, all Ministries, Departments, and Agencies (MDAs) are advised to forward all claims for the payment of Life Insurance of the deceased employees to their Supervising Authorities. For example Office of the Head of Service for MDAs and other civilian employees of the Federal Government, Defence Headquarters (DHQ) for Armed Forces personnel and Police Headquarters for Police Officers. All such claims must be presented using the Death Notification Form and must be accompanied by duly authenticated copies of the documents specified therein. Copies of the Death Notification Form can be downloaded from the website of the National Pension Commission. Upon receipt of the relevant documentation, once the remittance of either the Life Insurance or accrued rights have been made, the payment is made to the beneficiary after the Compliance Department has approved in line with PenCom’s rules and regulations for withdrawals. The documents required for the payment are: • Payment Request Form (to be filled by the Next of Kin) • Bank Details Form (attached form to be filled by bank) • Next of Kin Bank Statement • Original Copy Nomination Letter (if required) • Letter of Administration It is advisable that these documents are provided even at the point of providing the documents for the accrued rights. Private Sector and “Parastatals” (self-funded Public Sector): The documents required are: • Passport Photograph (of deceased) • Letter of Administration / Nomination of Next of Kin • Letter of Accrued Benefit • Police Report (if by accident) • Registration of Death (certificate from National Population Commission) • Medical Certification of Death • Please ensure ALL Documents are DULY SIGNED Please note that if the Life Insurance of the deceased has already been paid out to the Next of Kin, a letter from the deceased’s employee must be provided attesting to that fact. The documents required for the payment are: • Payment Request Form (to be filled by the Next of Kin)• Bank Details Form • Next of Kin Bank Statement • Nomination Letter (if required) • Letter of Administration The payment is made upon the receipt of PenCom’s approval.
Prior to retirement, an employee with the Treasury funded Public Sector Organisation is required to attend a Verification Exercise that will be held by the National Pension Commission (PenCom) and also attend a documentation exercise with his/ her PFA immediately after retirement. PenCom usually holds this exercise in the different States to minimize the need to travel for the exercise. The dates are usually advertised in the national dailies. Click here for the list of documents required for the verification exercise.Kindly note that the documentation exercise with us can be done either at our Head Office or at any of our State Office Nationwide. The exercise is to be attended by all employees due to retire, regardless of sector. Click here for the required documents
On retirement, each individual is entitled to a lump sum and a monthly pension(Programmed Withdrawal)or they can alternatively purchase a Life Annuity from an Insurance company. Click here for the list of Licensed Insurance Companies as at October 2012 and also to view the table comparing the Programmed Withdrawal and the Life Annuity. Also to view the requirements for the payment of retirement benefits based on medical grounds Click here
ISSUES OF GOOD GOVERNANCE AND INTEGRITY OF THE NEW PENSION SCHEME
ISSUES OF GOOD GOVERNANCE AND INTEGRITY OF THE NEW PENSION SCHEME
All those managing or keeping custody of pension funds and assets will be licensed and continually regulated and supervised by the National Pension Commission.
The functions of the Pension Fund Administrator (PFA) and Custodian are clearly spelt out in the Pension Reform Act 2004. The Act provides adequate safeguards against the misuse of the pension funds and assets by any operator.
Yes. The new pension scheme entrenches the principles of transparency and accountability as reflected in the reporting requirement of the PFAs and PFCs to both the contributor and the National Pension Commission. An employee has the right to choose who manages his RSA and the right to receive statements of his account on quarterly basis with details of contributions made and returns on investment.
The pension funds and assets in the Retirement Savings Account (RSA) are kept by the PFC and as such the liquidation of the PFA will not affect the funds and assets. Besides, every PFA is expected under the Pension Reform Act 2004 to maintain a statutory reserve fund as a contingency fund to meet claims for which it may be liable as may be determined by National Pension Commission.
The Pension Reform Act 2004 allows any employee to complain about any PFA to the National Pension Commission.
The Federal Government has established the National Pension Commission and charged it with the responsibility of regulating and supervising new pension scheme.
The Government cannot tamper with the pension funds in your RSA, because the Government cannot have access to the account. Besides, the Government is primarily concerned with ensuring the safety of the money in your RSA through the enforcement of strict rules and regulations.
It is the duty of the PFAs to administer the contributions and invest in such a way that will ensure safe and reasonable returns on investment. The reserve fund created by the PFAs under the Act would compensate for any erosion of the value of the contributions.
Under the Pension Reform Act 2004 a person can voluntarily retire or be compulsorily retired before the age of 50 years on the ground of medical advice, permanent disability or due to particular terms and conditions of employment. If any person retires under any of the foregoing circumstances, he is entitled to withdraw from his RSA even though he was under the age of 50 at such retirement; provided that, in the case of retirement due to particular terms and conditions of employment, the contributor does not secure another employment after six months from the last employment.
The minimum pension guarantee shall be determined from time to time by the National Pension Commission.
There is an adequate representation of relevant stakeholders on the Board of the National Pension Commission, which comprises of representatives of the Government, Nigeria Labour Congress, the Nigerian Union of Pensioners and the Nigerian Employers’ Consultative Association.
THE EFFECTS OF THE NEW PENSION SCHEME ON THE COUNTRY’S ECONOMY
THE EFFECTS OF THE NEW PENSION SCHEME ON THE COUNTRY’S ECONOMY
Tax will be paid on the profit made from trading with the money in the Retirement Savings Account.
The new pension scheme will ensure that you receive your pension after retirement without any delay.
Pension Fund Administrators (PFAs) will issue regular statements of accounts and profit from investments to the employees.
There will be a huge pool of long-term funds available for investments, which will lead to national economic development.