Investing Pension Fund Assets Securely and Profitably

PenCom has constantly reviewed its rules/guidelines on investing pension funds, since the enactment of the now repealed Pension Reform Act 2004 (“the old regime”). There were the reviewed regulations of 2007, 2008, 2010 and 2012 made under the old regime. Provisions of the 2012 version (“the current regulations”), like that of previous regulations substantially limit investment of pension fund assets to the more secure federal government bonds and other core assets. In order to improve upon and replace the old regime, the new Pension Reform Act 2014 (“the Act”) was enacted, and on July 1, 2014 signed into law.

Legal framework

In Nigeria, investment of pension fund assets is regulated by PenCom as provided for under Part XII (Sections 85-91) of the Act. Section 85(1) stipulates that all funds realized under the CPS shall be invested by the PFA with the objectives of safety and maintenance of fair returns on the amount invested. Section 85(2) states that pension funds and assets shall only be invested in accordance with regulations and guidelines issued from time to time by PenCom.

Section 86 lists the modes of investment of pension funds, subject to PenCom regulation to include: (a) bonds, bills and other securities issued or guaranteed by the Federal Government and the Central Bank of Nigeria (CBN) (b) bonds, bills and securities issued by the States and Local Governments (c) bonds, debentures, redeemable preference shares and other debt instruments issued by corporate entities and listed on a Stock Exchange registered under the Investments and Securities Act (ISA) (d) ordinary shares of public limited companies listed on a securities exchange registered under the ISA (e) bank deposits and bank securities (f) investment certificates of closed-end investment fund or hybrid investment funds listed on a securities exchange registered under the ISA with good track records of earning (g) units sold by open-end investment funds or specialist open-end investment funds registered under the ISA (h) real estate development investments; or (i) specialist investment funds; and such other financial instruments as PenCom may from time to time approve.

Under Section 87, the Act also permits a PFA to invest pension funds in units of any investment outside Nigeria within the categories of approved portfolios. In this case, PenCom may recommend for the President’s approval, subject to the subsisting foreign exchange rules of the CBN, the portfolio limits for investment of pension fund or assets outside Nigeria. However, Sections 88 – 90 place restrictions on certain areas of investment. By these provisions, pension funds shall not be invested in the shares or securities issued by the concerned PFA or its PFC. Neither shall any PFA sell pension assets to itself, its PFC or any person or body corporate affiliated or associated with it, nor shall it utilize the fund assets to acquire assets or apply it as loans or collateral for loans, except where a percentage of the pension contribution of a holder of Retirement Savings Account (RSA), is applied towards the payment of equity contribution for residential mortgage as permitted by Section 89(2). The scope of the restrictions on areas of investment or allowable instruments may be widened or altered through regulations or guidelines made by PenCom – Section 90(1).

Pursuant to Section 115 of the Act which empowers PenCom to make regulations, rules or guidelines for effective implementation of the objectives of the Nigerian pension regime, a new body of rules and guidelines on investment of pension funds was issued in February 2015 to replace the current regulations. PenCom refers to the whole body of rules and guidelines as “Regulation on Investment of Pension Fund Assets” (“the draft regulations”). The focus of the draft regulations is how to make 3 investible pension fund assets align with developments in the financial market, and also make them responsive to the needs of registered contributors to the pension fund.