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Can governors borrow N17trn from pension funds? The short answer is no

Can governors borrow N17trn from pension funds? The short answer is no
December 07
16:14 2020

You must have read the news: the Nigeria Governors’ Forum (NGF) is reportedly planning to borrow the sum of N17 trillion from the pension fund for infrastructural development.

A communique from the 22nd NGF  teleconference meeting said the forum was adopting a proposal by the National Economic Council (NEC) ad hoc committee on leveraging a portion of accumulated pension funds for investment.

It said in addition to borrowing a total sum of N2 trillion for the National Infrastructure Investment Fund, it was aligning with a recent proposal by Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), to access N15 trillion funding through InfraCredit at a lower interest rate of five per cent.

The move has, however, been condemned by many Nigerians and groups including the Socio-Economic Rights and Accountability Project (SERAP) which argued such borrowing would be “be detrimental to the interest of the beneficiaries of the funds”.

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TheCable carried out a check to find out if such a plan from the NGF is practicable and legal. Here is what we found.

Government borrowing from the contributory pension scheme through investment opportunities is not a new practice in Nigeria as this has been done more than once in the past.

For instance, when pension funds are used to buy federal government bonds, the funds are, by implication, being lent as money to the bond issuer — that is the federal government.

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However, the Pension Reform Act of 2014 which regulates how pension funds can be used does not provide for direct borrowing as being sought by the NGF.

The act only provides for the investment of pension funds in viable investment options that would in turn promote the country’s economic development.

The governors may want to tie their bonds to infrastructural projects, but there are conditions precedent and pension fund administrators (PFAs) are not allowed to invest in such bonds if those conditions are not met.

Most states are not compliant with the contributory pension scheme and are, by regulation, not able to benefit from pension funds by raising of bonds.

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To ensure the safety of such funds as provided by the act, the PFAs are required to conduct several risk analyses to decide if investing in such bonds meets expected yields and risk appetite.

In the event they do not meet such criteria, the administrators are at liberty to not subscribe to a state bond.

MOREOVER, PENSION FUNDS ARE NOT UP TO N17 TRILLION

Even if the governors found a way around the provisions of the law, it is not practically possible to borrow N17 trillion from the pension funds since accumulated funds are far less than the amount.

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The fund stood at N11.56 trillion as of September 30, 2020, according to the last quarterly report from PenCom.

The fund comprises N8 trillion of the retirement savings account (RSA)  ‘active’ funds, N934.19 billion of the RSA retiree fund; N1.44 trillion of the closed pension fund administrator (CPFA) fund; and N1.19 trillion for the approved existing schemes funds.

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VERDICT: It is not possible for governors to borrow N17 trillion from the pension funds even if they dream of it. The assets are only N11.56 trillion and only about 70 percent can be invested in government securities. More so, there are strict conditions to be met by each state — such as having enacted a contributory pension law and being up to date with payments — which many of them cannot meet. As a result, PFAs cannot invest in state bonds.

Editor’s note: This report has been updated with more facts. 

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