Pension Insight: How strong corporate governance safeguards pension funds in CPS

The Nigerian pension landscape has undergone a remarkable transformation since the advent of the contributory pension scheme (CPS). One of the fundamental aspects that underpin the success of the CPS is the emphasis on sound corporate governance practices in the pension industry.

The National Pension Commission (PenCom) has issued guidelines on corporate governance for pension fund operators (PFOs). The guidelines are a set of principles based on best practices, which were intended to guide pension fund operators on the structures and processes for achieving optimal governance practices. The guidelines were issued pursuant to the Nigerian Code of Corporate Governance of 2018.

Strong corporate governance has been at the centre of the success of the CPS in Nigeria. Under the watchful eye of PenCom, the requirements for licensing pension fund administrators (PFAs) and pension fund custodians (PFCs) have been meticulously defined, ensuring that only those who meet the highest standards are entrusted with the management and custody of pension funds and assets.

The PRA 2014 mandates that the chief executive officer, directors, and management staff of pension operators cannot assume their roles without the prior written approval of PenCom. Moreover, they must execute the code of conduct provided by PenCom, fostering a culture of transparency and ethical conduct.

PenCom conducts routine and target examinations of PFAs and PFCs. During these visits, PenCom examiners meticulously review the records of pension operators to ensure strict adherence to the provisions of the PRA 2014 and all other regulatory instruments.

The Act also addresses potential conflicts of interest. The PRA 2014 prohibits a PFA from keeping any pension fund assets with a PFC in which it has any business interest, shares, or relationship. This measure safeguards against any unfair practices and maintains the integrity of the pension system.

If any PFA, PFC, or related body is found to be noncompliant during examinations, the PRA 2014 empowers PenCom to impose appropriate sanctions. Consequently, all operators in the pension industry are held accountable for their actions, further strengthening the system’s credibility.

To safeguard the interests of pension contributors, the PFCs are tasked with the safekeeping of pension funds and assets. Furthermore, every PFA must maintain a statutory reserve fund from its earnings as a contingency fund to meet potential liabilities.

To prevent any misuse of pension funds, the PRA 2014 prohibits the direct borrowing or lending of pension funds. However, PFAs can invest pension assets in approved financial instruments, such as treasury bills and bonds issued by the Central Bank of Nigeria (CBN) or the federal and state governments implementing the CPS.

PenCom is also empowered to order special investigations of PFAs, PFCs, or any related entities if there are strong concerns, in order to protect the interest of retirement savings account (RSA) holders. To ensure strict adherence to the PRA 2014 and internal regulations, every PFA and PFC must employ a compliance officer.

The officer monitors compliance, reports noncompliance issues, and liaises with PenCom when necessary.

It is imperative to note that under the CPS, the board of the PFOs are responsible for monitoring adherence to corporate governance rules to ensure that breaches are effectively sanctioned. The board may delegate the function to one of its committees. Directors, top management, and all employees are always obligated to comply with the provisions of the guidelines on corporate governance issued by PenCom for PFOs in Nigeria.

In conclusion, corporate governance under the contributory pension scheme is a cornerstone of trust, transparency, and accountability.

PenCom’s robust regulatory framework ensures that only qualified entities manage pension funds and assets, safeguarding the interests of contributors and retirees. By upholding the highest standards of corporate governance, Nigeria’s pension industry remains a model of reliability and security for the nation’s workforce.

Based on information from the National Pension Commission (PenCom).