Pension sector set to embrace mergers and acquisition
by Rosemary Onuoha
Following the directive from the National Pension Commission (PenCom) to Pension Fund Administrators (PFAs) to beef up their capital base, operators in the industry are bracing up for mergers and acquisition.
It will be recalled that PenCom increased the minimum share capital requirement for licensed PFAs from N150 million to N1 billion and will take effect from June 30, 2012.
Director General of PenCom, Mr. Muhammad Ahmad, stated that with the directive, PFAs are advised to embrace mergers and acquisition.
In his words, “The increase in minimum capital requirement would encourage healthy mergers or acquisitions and promote stability in the nation’s pension industry.”
Besides, he stated that the improved financial condition of the PFAs after implementation of the reviewed capital requirement would lead to improved services and product development, as well as improved capacity building and employment of qualified personnel.
Ahmad stated that the pension operators have a deadline of June 30, 2012 to meet up with the new capital requirement or surrender their operational licenses to the commission. PenCom has already conveyed this increment to the PFAs.
He said PenCom observed that the minimum share capital of N150 million prescribed for PFAs in the Pension Reform Act 2004 was no longer adequate to meet the operational expenses of a PFA business. He explained that this is taking into consideration the intensive information technology nature of the PFA business and an average gestation period of five years.
Before raising the minimum share capital requirement, Ahmad said PenCom actually consulted with the pension operators for their input before presenting a technical paper to the board of PenCom on the issue.
In a circular to all licensed PFAs, the PenCom boss pointed out that a minimum shareholders fund of N1 billion unimpaired by losses has been approved for the PFAs, explaining that the amount does not refer to the paid up capital of the pension operators.
He added that “This amount is considered adequate to absorb unforeseen losses and improve the financial condition as well as business processes of the PFAs given the market situation.”
With the new capital, PFAs would be able to deploy adequate IT infrastructure for improved business process, and create more business outlets for increase presence nationwide, Ahmad noted.
In addition, he said the PFAs that would emerge after the recapitalisation exercise are expected to be stronger and have more efficient research units for optimum investment decisions, as well as improved data management and record keeping.
The PenCom boss assured that the new minimum share capital requirement would be subsequently monitored by the commission on an annual basis at the financial year end of each PFA and any shortfall shall be made up within 90 days.
The Pension Act provides that only PFAs licensed by PenCom can manage pension funds under the new contributory pension scheme in the country.
The PFAs open Retirement Savings Account for all employees; as well as invest and manage pension funds and assets in accordance with the provisions of the Pension Act.
The pension managers also maintain books of account on all transactions relating to pension funds managed by them while also providing regular information on investment strategy, market returns and other performance indicators to the PenCom and employees or beneficiaries of the retirement savings accounts.