PenCom Releases The Amended Regulations on Investment of Pension Fund Assets, 2017

In February 2015, the National Pension Commission (“PenCom”) took the first step towards revamping the existing framework for the investment of pension fund assets in Nigeria, by issuing an exposure draft of proposed amendments to the Regulation on Investment of Pension Fund Assets, 2012 (the “2012 Regulations”) for review by various stakeholders. The thrust of the amendments was to expand the asset classes in which pension fund assets under management by Pension Fund Administrators (“PFAs”) can be invested, as well as the thresholds/limits of such investment.

The review process has now culminated in the release of the Regulation on Investment of Pension Fund Assets, 2017 (“Amended Regulations”) by PenCom. It is instructive to note that the 2012 Regulations were issued pursuant to the repealed Pension Reform Act, 2004. Thus, the Amended Regulations are the first set of investment rules to be made under the extant Pension Reform Act, 2014 and take effect from April 2017.

As a general observation, some key provisions in the 2012 Regulations have been retained in the Amended Regulations with few changes made to some of the strategic areas, conditions and requirements for investments by PFAs. These provisions are in respect of Institutional Framework; General Principles; Authorized Markets; Allowable Instruments; Quality of Instruments; Conflict of Interest Issues; Investment Limits; Performance Benchmark; Violation of Investment Limits; Voting Rights; Closed Pension Funds and Approved Existing Schemes; and Review. However, separate provisions for “RSA Retiree Fund” which existed under the 2012 Regulations have been expunged whilst new provisions on “Multi-Fund Structure” are introduced to provide for different categories into which RSA Funds would be divided (with the Retiree Fund constituting a category in the new structure) for investment purposes.

This newsletter discusses below, the various changes which the Amended Regulations have brought to the rules governing the ways in which PFAs are to invest the pension fund assets under management and in custody of the Pension Fund Custodians (“PFCs”).

Introduction of the Multi-Fund Structure

Compared to the 2012 Regulations wherein the general principles and criteria for investment for both the “Active Fund” and “Retiree Fund” are similar, the Amended Regulations introduced in its section 7 a Multi-Fund Structure, which classifies assets into four (4) Fund Types, based on the overall exposure to variable income instruments. Other factors to be considered for the classification of assets under which of the Fund Types they can be invested include age of the contributors, work status and the risk exposure elements.

Specifically, pension fund assets in the Retirement Savings Accounts (“RSAs”) managed by PFAs are now classified as follows: