iops supervisory reform workshop – abuja 2011 may 2011 national pension commission: self –...

IOPS Supervisory Reform Workshop – Abuja 2011IOPS Supervisory Reform Workshop – Abuja 2011

May 2011May 2011

National Pension Commission: Self – National Pension Commission: Self – Assessment Results & Nigeria’s Risk-Assessment Results & Nigeria’s Risk-

Based Supervision SystemBased Supervision System

byby

Musa IbrahimMusa IbrahimNational Pension CommissionNational Pension Commission

Abuja – Nigeria Abuja – Nigeria

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May 2011May 2011

The Nigerian Contributory Pension The Nigerian Contributory Pension SchemeScheme

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Contributory Contributions by both employer and

employee Individual Accounts

Nature of the account, portability and withdrawals (Lump sum, Annuity & Programmed withdrawal)

Privately Managed Life Insurance Cover

3 times employee’s emoluments & Premium to be paid by employer

Features


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Industry Overview as at Feb. 2011Industry Overview as at Feb. 2011

24 PFAs

4 PFCs

7 CPFAs

19 AES

Operators in the Industry

RSA – 4,601,428

CPFA – 26,598

AES – 41,669

Note: 4,799,189 was recorded for RSA registration as at the end of Feb. 2011, but due to data clean up, multiple PINs were removed and number dropped

Scheme Memberships

RSA – N1,138.00 Billion (US$7.61 Billion)

CPFA – N413.33 Billion (US$2.76 Billion)

AES – N530.67 Billion (US$3.55 Billion)

Scheme Assets


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Public vs. Private Memberships

Industry Overview … cont’dIndustry Overview … cont’d


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Industry Overview …cont’dIndustry Overview …cont’d


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Industry Overview …cont’dIndustry Overview …cont’d


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Principle 1: Objectives

Status Suggestions Remarks

National laws should assign clear and explicit objectives to pension supervisors

Fully Implemented PenCom’s

responsibilities and duties are clearly defined in the Legislation

Section 15 of the PRA 2004 maybe amended to align it closer with PenCom’s vision

PenCom’s vision can be accommodated within its objective as defined by Section 15 of the PRA

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An Assessment on Compliance with IOPS An Assessment on Compliance with IOPS PrinciplesPrinciples

As At September 2010As At September 2010


May 2011May 2011

Principle 2: Independence


Pension supervisory authorities should have operational independence

Broadly Implemented Most pre-

requisites for independence are in place

PenCom has an unusually large degree of freedom

However, undue executive influence might potentially be applied

Executive power to remove the Chairman and Executives could be abusedLegislation should have provided for phasing in executive appointments to provide some level of continuity Government should indemnify PenCom against fines, etc, from litigationA policy on information sharing with other Government Agencies should be developed

First three suggestions would take long period as it involves legislative processes PenCom has already established working relationships with all regulatory agencies and is working on signing MOUs with some of them

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Principle 3: Adequate Resources


Pension Pension supervisors supervisors require require adequate adequate financial, financial, human and human and other resourcesother resources

Broadly Implemented Appropriate

budgeting processes are in place

There are processes to ensure that staff are of the right calibre

There is scope for budgeting to link more closely to the Strategy Plan and a tighter focus on high profile areas

More explicit linkage between the Corporate Strategy and the budget process, with consideration given to using a zero-based budgetMore effort and resource needs to be put into developing PenCom’s training capability

Initiatives in the Strategy Plan had been included in the Commission’s budget based on commencement datesPenCom has been collaborating with other agencies on capacity buildingEvery staff attends at least a local course in a yearPenCom & Operators are developing a Industry Training Institute

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May 2011May 2011

Principle 4: Adequate Powers


Pension supervisors should be endowed with the necessary investigatory and enforcement powers

Fully Implemented Wide range of

powers in relation to licensed operators

Responsibilities of operators are well established in legislation and have been amplified through regulations, standards and guidelines

PenCom has adequate powers in relation to employers but enforcing them can be challenging

Use the PFA statutory reserve fund to reduce risks to contributorsIntroduce a requirement for annual investment strategy as well as provide guideline on its preparation and contentIntroduce regulation covering actuarial valuations in the industryLeverage on establishing relationships to establish a database of eligible employers to facilitate employer compliance

All suggestions would be implemented

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May 2011May 2011

Principle 5: Risk Orientation


Risk Orientation - Pension supervision should seek to mitigate the greatest potential risks to the pension system

Broadly Implemented There is significant

risk orientation to many activities, notably the operator risk management, on-site and off-site inspection and risk assessments

Most of the major risks are being addressed and PenCom has responded proactively to identified risks

Strategy plan establishes objectives that reflect major risks

Some objectives lack rigour and formality, with no documented perspective on risk to enable prioritisation of initiatives

Consider phrasing departmental objectives in risk terms Undertake an assessment of the impact and probability of risks in the pensions landscape and develop metrics for ongoing assessment of these risks - some of the new KPIs being implemented will suffice for this purpose

Recommendations would be pursued to address the concerns expressed in the assessment

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May 2011May 2011

Principle 6: Proportionality & Consistency


Proportionality and Consistency

Broadly Implemented Proportionate in

varying the depth of on-site inspections according to assessed risks and in published sanctions framework

Availability of practical procedures that should help ensure consistency of decision making

More to be done to ensure proportionality of data collection and interventions and to document processes needed to ensure consistency

On-site inspections could be undertaken less than annually, or at least restrict annual inspections of lower risk operators in most yearsConsider whether tougher action is needed on persistently non-compliant employers and PFAs taking into account the risk they poseEstablish a corporate policy for all data collection so that consistent data can be readily accessed across PenCom

RBS would address the intensity of supervisionStiffer sanctions would be imposed on non-compliant employers The Commission has commenced the development of a supervisory application, which would allow consolidation of data returns by operators

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May 2011May 2011

Principle 7: Consultation & Co-operation


Pension supervisors should consult with the bodies they are overseeing and cooperate with other supervisory authorities

Fully Implemented A highly

consultative approach on regulatory and supervisory matters has been established

Information exchange and co-operation with other supervisors has been instituted where appropriate

The Commission will continue to be committed to its policy of consultation within and outside the industry

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May 2011May 2011

Principle 8: Confidentiality


Pension supervisors should treat confidential information appropriately

Partly Implemented Highly

consultative approach on regulatory and supervisory matters has been established

Information exchange and co-operation with other supervisors has been instituted where appropriate

A corporate policy should be in place on confidentiality including within the Staff Handbook to prevent disclosure of confidential informationPRA should be amended to specify what information is confidential and to whom it can be disclosed and in what circumstances

Staff Handbook contains confidentiality clauseAmending of PRA would be considered to include elaborate confidentiality provisions

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May 2011May 2011

Principle 9: Transparency


Pension supervisors should conduct their operations in a transparent manner

Broadly Implemented PenCom’s website

is attractive, easy to use and includes much of the expected information

Further transparency is provided by the Consultative Forum and a very open approach associated with on-site inspections

More could be done to explain PenCom’s strategy through the website

Publish an abridged version of the Corporate Strategy and consider a clearer presentation within the Annual Report of the Commission’s objectives and how they are being metPublish statistical information on the industry on the websiteConsider establishing special areas for employers and contributors on the website

The Commission had already concluded arrangements to start publishing quarterly statistics on the pension industry Website would be updated as recommended

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May 2011May 2011

Principle 10: Governance


Governance Partly Implemented Procedures for

corporate governance are in place, along with internal controls, service standards, reporting to the National Assembly and undocumented review processes

There is no written procedures on staff conduct and conflicts of interest

Informality of accountability to the President may be a longer term risk

Development of performance measures is in its infancy, while greater oversight of and precision in key service standards would be desirable

Procedures covering staff conduct and managing potential conflicts of interest should be documentedThe procedures for taking, reviewing recording and disseminating decisions within PenCom should be documentedThere should be independent review within PenCom of decisions affecting supervised entitiesProcesses for capturing information for the KPIs should be developed

All suggestions would be implemented

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May 2011May 2011

Principle Assessment of implementationFully Broadly Partly

Objectives X

Independence X

Adequate Resources X

Adequate Powers X

Risk Orientation X

Proportionality and Consistency X

Consultation and Cooperation X

Confidentiality X

Transparency X

Governance X

Total 3 5 2

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The Assessment MatrixThe Assessment Matrix


May 2011May 2011

Coverage Lack of data on eligible employers Compliance by employers especially small and medium sized

enterprises Participation by the Informal Sector

Corporate Governance Strict adherence to regulations & guidelines Culture of transparency /accountability Appropriate internal controls Accuracy & reliability of reports to the regulator

Investment of Pension Funds Assets Limited investment instruments to optimally absorb pension fund

assets & insurance assets for companies providing life annuities Many good companies not listed on the stock exchange Ensuring real return on investment

Pension reform is reliant on the successes of other reforms in the financial sector

Key Risks to the Pension Industry in Key Risks to the Pension Industry in NigeriaNigeria

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Supervisory Objectives Ensure safety and security of the pension assets; and Create an environment to obtain the best returns at an

acceptable level of risks

Licensing Evaluation of Business Plan Evaluation of Ownership, Board and Top Management Technical Partnership Arrangement Fit and Proper Persons Test Compliance with PRA 2004 Interview with promoters

Adopted Risk Based Supervisory Approach Off-Site Review and Risk Profiling On-Site Supervision Off-Site Surveillance Resolution

Risk Based Supervision SystemRisk Based Supervision System

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Off-Site Review and Risk Profiling

Evaluation of the financial condition and performance of both the Company and the FundEvaluation of size of funds under Management Review of Compliance with Rules & RegulationReview of Board and Top Management, Shareholding Structure, Adverts, etc.Off-site risk profiling – Categorizing operators into high, medium and low risk operatorsDrawing a risk matrix for each operator covering the major risks it poses to the pension systemPreparation of off-site report which serves as input to the on-site exam Allocation of resources and team formation


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On-Site Supervision

Developed a Uniform Pension Fund Rating System (UPFRS) as an internal supervisory tool for evaluating the activities of operators on a uniform basis

Composite ratings are assigned to operators based evaluation of their activities and rating of the following: the capacity and effectiveness of Board and Management robustness of ICT infrastructure and personnel controls and audits the quality of service; operational capabilities compliance with applicable laws and guidelines adherence to sound principles and good corporate

governanceComposite and component ratings are assigned based on a 1 to 5 numerical scale, where 1 is the highest rating and 5 the lowest


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Off-Site Surveillance

Aimed at early detection, preventing, controlling and mitigating risksInvolves the following:

Risk identification and assessment Implementing and monitoring on-going corrective actions Gathering intelligence reports and monitoring developments in

the industry Reviewing audited accounts & External Auditors Management

reports Reviewing Corporate Governance & Risk Management reports Reviewing Board & Top Management, Shareholding , Adverts

etc Discussing with senior management and/or external auditors,

where necessary Identifying high risk areas for On-site examination


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Resolution

It involves the application of certain measures/actions directed at diagnosing and addressing a weakness, problem, dispute and/or crisisAction Steps in Resolving Risk Issues in the Industry

Early Warning Signs Types of Supervisory Actions

o Corrective/Remedial Actionso Final Resolution Actions

Enforcing Compliance with Supervisory Actions Monitoring Supervisory Actions Terminating/Modifying Supervisory Action Documenting Supervisory Actions


May 2011May 2011

Thank You!!!

National Pension Commission174 Adetokunbo Ademola Crescent

Wuse II – Abuja09 4138736 – 4009 8703389 – 9

[email protected]

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iops supervisory reform workshop – abuja 2011 may 2011 national pension commission: self –...

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