The National Pension Commission (PenCom), Nigeria’s pension industry regulator, is mulling a multi-fund structure for Pension Fund Administrators’ (PFAs) investible funds, to give more leeway for risk-taking activities. This move, the regulators think, would help boost returns for retirement savers.
The proposed investment regulation is aimed at encouraging PFAs to take on more risks in their investment activities. Nigerian PFAs are known to be risk-shy, following the huge loss of value in the 2008 stock market crisis. And since then, PFAs have been very overweight on government securities. But under the proposed Draft Investment Regulation, retirement savings will be deployed in a multi fund structure comprising of three baskets of investible funds.
The baskets will be categorised according to the age bracket of the retirement saver and will include: the young saver, the middle-age, and the elder funds. The young saver fund will hold assets that can be invested more aggressively, compared to other fund types, and will target riskier assets with potentially higher returns. Analysts say the rationale for this was that a young saver RSA had a longer investment time frame before the retirement of the saver, hence returns from the investment could moderate over time. The second basket of PFA funds, the middle-aged, would target conservative or lower risk investments and focus largely on fixed income investments.
And the third basket, the elder fund, would be sourced from older savers who are naturally risk averse. Funds from the elder basket will be deployed in zero-risk investment vehicles because of the shorter investment time frame before retirement. There are 6.4 million active RSA accounts in a country with a working population of about 90 million, indicating a pension penetration rate of 7.05 percent. This has been largely due to the exclusion of the informal sector from the formal sector. And out of the 6.4 million RSA accounts, the public sector accounts for 48.37 percent, and the private sector accounts for 51.63 percent.
“Definitely, we agree that the 6.4 million RSA accounts is not impressive, compared to the opportunities in the market”, Mohammed Sani Mohammed, commission secretary/legal adviser of PenCom, said at the Institute of Directors’ Quarterly Luncheon. “PFAs have always been the vanguard that propels development in other countries”, Mohammed said. Nigeria’s pension industry has accumulated assets of N4.61 trillion, as at December 2014, with N30 billion average contributions every month. There are also 117,994 retirees who currently receive pensions as at when due, under the Contributory Pension Scheme (CPS).
“We have barely scratched the surface in the pension industry”, said Eniola Fadayomi, president and chairwoman of the governing council of the Institute of Directors at the event.
