How PenCom ensures sound Corporate Governance in Management of Pension Assets
The Nigerian pension landscape has undergone a remarkable transformation since the birth 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.
In February 2021, the National Pension Commission (PenCom) issued Guidelines on Corporate Governance for Pension Fund Operators (PFOs). The guidelines were 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 are meant to be used with the Nigerian Code of Corporate Governance 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 behaviour.
To ensure strict compliance with the PRA 2014 and its regulations, PenCom authorises regular inspections and examinations of PFAs and PFCs. This process determines whether all provisions of the Act are being adhered to diligently.
The monitoring of corporate governance is done through both off-site and on-site methods. Off-site supervision involves reviewing reports submitted by PFAs and PFCs periodically. On the other hand, on-site examinations entail annual physical reviews of their books and records, ensuring their operations strictly align with the law.
The Act also addresses potential conflicts of interest. 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 non-compliant during examinations, the PRA 2014 empowers PenCom to impose sanctions and penalties as prescribed by the Act. Consequently, all pension 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 keeping pension funds and assets safe. 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 plainly states that governments at all levels cannot borrow directly from 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 suspicions of actions contrary to the interest of Retirement Savings Account (RSA) holders, insufficient assets to cover liabilities or infringements of the provisions of the PRA 2014. 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 non-compliance 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.
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