Uduanu: There will be more consolidations in the pension sector

Managing Director/Chief Executive Officer, Sigma Pensions, Mr. Dave Uduanu, in this interview spoke at length about the recent recapitalization exercise in the pension industry and the expected impact. He also talked about the decision to deploy pension funds to develop infrastructure and other issues, Nume Ekeghe presents the exceptions:

The recapitalization of the pension industry has just been completed with 20 PFAs in place. What does this mean for the industry?

I think that’s a good thing. So there are 20 pension fund administrators (PFAs) standing, but I think it’s still early days and I think there will be more consolidations in this space. If you look at the pension industry beyond Stanbic IBTC, it is still very fragmented as Stanbic controls around 40% of the markets, so there would be more consolidations in the space.

The entry of banks is also good news as we have seen GTBank investing, FCMB and there is talk of Access Bank investing in this space so that is good news. I think they will bring in more capital, more resources, more infrastructure in terms of branch network, technology, and just the aggressiveness that banks have used to do their banking business. But more importantly, they will be a very formidable competitor for the number one player; so I think that’s good news. Additionally, with new capital, PFAs can invest more in customer service and technology to better serve customers.

How will this recapitalization impact operations and customer service?

The National Pensions Commission (PenCom) has a minimum requirement for branches to serve customers. So, for every 10,000 funded accounts you have, you need to create a branch; although we think technology will disrupt that because you can use technology to effectively serve more people.

We believe that with the resources and competitive pressures that have been occasioned by the recently opened transfer window, PFAs will invest more in technology and people to better serve customers. And of course, if you don’t serve customers, well, they’ll switch their PFA for someone else.

Regarding customers switching PFAs, has there been a lot of movement between PFAs, and has the market accepted this initiative?

In the scheme of things, there hasn’t been much movement. I think the moves are less than 5% since the start of the transfer window, so it’s not a lot. But again these are early days and I think there could be more movement in the future as there are now issues with the transfer window in terms of data recovery and some reluctance from PFAs to allow customers to roam voluntarily and freely, as PENCOM would have envisioned.

But I think as the market opens up, customers will shift. However, I must warn that what is important is that people move for the right reasons. Reason to move should be ROI and customer service but we are seeing induced movement where people are moving for no reason or maybe for PFA donations which is not the right reason to move .

So at the beginning, but I think there is a need for the regulator to raise awareness of this space so that people move for the right reasons.

You spoke of incitement, is there no control by the regulator to avoid this practice?

There are checks, but there are so many things a regulator can do. It is located in Abuja and even with some geographical regional offices; it can’t do much about raising awareness. So I think self-regulation is more important. PenCom is doing a lot but I think operators will need to better regulate themselves to ensure they continue to maintain the ethical standards the industry is known for.

Recently, when the Central Bank of Nigeria (CBN) announced the start of the Infrastructure Corporation of Nigeria (InfraCo), they mentioned that they plan to dip into pension funds, especially since over the years there have been discussions about deploying pension funds to finance infrastructure. What do you think about this?

InfraCo is above all a positive step in the right direction and it is an idea whose time has come. The government owns a lot of assets that are described as public property. There are toll roads, there are government-owned rail lines that need to be funded, and government finances are stretched, so InfraCo is a good idea.

Pension funds are best placed to finance large-scale infrastructure. However, these infrastructures can only be financed through instruments issued by an InfraCo and these instruments must be accompanied by appropriate guarantees or mitigations to ensure that the pension assets are safe and the returns must also be attractive. Thus, on a risk-reward basis, PFAs can then assess the attractiveness of infanCo.

I think that’s positive and I think pension funds will find room to invest in the InfraCo environment depending on how InfraCo managers come to the markets.

Finally, I think the best way for them to access the market is to issue debt securities with full or partial guarantees. At the beginning, they can start by giving full guarantees for the assets of the pension funds and I think they will raise the money.

As to whether they will raise the money they need, I don’t know, because we are only at the beginning. But I think if they can start with something like 1 trillion naira over two or three years, we will see how it goes and that can be a step in the right direction.

Sigma Pensions recently published its result; can you tell us about the finances of Sigma pensions?

We did well last year and it was a good year for the company. We were able to recapitalize the company from internally generated resources. We did not collect money from the public. Our profits have increased and our revenues have also increased. And more importantly, despite the COVID-19 induced lockdown from 2020 to 2021, we did well and it just shows the resilience of the business. Also, the fact that we were prepared for the COVID-19 situation and the business continues to grow. Additionally, our assets under management (AUM) increased by 13-15%, which is significantly above the industry average.

In terms of mastering technology, what role does technology play in the daily operation of Sigma Pensions?

Technology is a game-changer for Sigma Pensions. For example, we are completely paperless. So if you come to our office you will not see any paper because we are now paperless. Dematerialization is not an end in itself, but it has made it possible to reduce operating costs. Also, we can work remotely completely for a whole year if we want and nothing will happen to our customers and they won’t feel it. Most importantly, it enables self-service, as some of our customers can do whatever they need with us from the comfort of their own home. So I think that’s a good advantage.

Finally, what can your existing customers and new customers expect from your company in the near future, and what gives Sigma Pensions a competitive advantage over its peers?

One of the advantages of choosing Sigma Pensions is that we are one of the most successful managers in the market. Last year, three of our funds were ranked in the top five in the industry, which is a good thing, which means you get good returns on your investment. We also have very good customer service. We are proactive because we have deployed very good technological solutions to allow our customer service to have transparent access to our services. So overall, we’re one of the best PFAs in terms of key ROI, customer service, and technology proficiency metrics. Additionally, we have a young and energetic workforce.

Finally, you must monitor our space; Sigma is a company that flies and thrives, so watch this space and you’ll soon hear more good news about Sigma.

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