The Nigerian Contributory Pension Scheme

1. National Pension Commission: Self – Assessment Results & Nigeria’s Risk-Based Supervision SystembyMusa IbrahimNational Pension CommissionAbuja – Nigeria

2. The Nigerian Contributory Pension Scheme Features • 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

3. Industry Overview as at Feb. 2011 Scheme Memberships Scheme Assets 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 • 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) • 24 PFAs • 4 PFCs • 7 CPFAs • 19 AES

4. Industry Overview … cont’d Public vs. Private Memberships

5. Industry Overview …cont’d

6. Industry Overview …cont’d

7. An Assessment on Compliance with IOPS PrinciplesAs At September 2010

8. An Assessment on Compliance with IOPS Principles

9. An Assessment on Compliance with IOPS Principles

10. An Assessment on Compliance with IOPS Principles

11. An Assessment on Compliance with IOPS Principles

12. An Assessment on Compliance with IOPS Principles

13. An Assessment on Compliance with IOPS Principles

14. An Assessment on Compliance with IOPS Principles

15. An Assessment on Compliance with IOPS Principles

16. An Assessment on Compliance with IOPS Principles

17. The Assessment Matrix

18. Key Risks to the Pension Industry in Nigeria • 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

19. Risk Based Supervision System • 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

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

21. 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 governance • Composite and component ratings are assigned based on a 1 to 5 numerical scale, where 1 is the highest rating and 5 the lowest

22. Off-Site Surveillance • Aimed at early detection, preventing, controlling and mitigating risks • Involves 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

23. Resolution • It involves the application of certain measures/actions directed at diagnosing and addressing a weakness, problem, dispute and/or crisis • Action Steps in Resolving Risk Issues in the Industry • Early Warning Signs • Types of Supervisory Actions • Corrective/Remedial Actions • Final Resolution Actions • Enforcing Compliance with Supervisory Actions • Monitoring Supervisory Actions • Terminating/Modifying Supervisory Action • Documenting Supervisory Actions

24. Thank You!!! National Pension Commission 174 Adetokunbo Ademola Crescent Wuse II – Abuja 09 4138736 – 40 09 8703389 – 9 info@pencom.gov.ng www.pencom.gov.ng