Daily Independent (Lagos)
Sola Alabadan
15 October 2008
National Pension Commissioner (PenCom) has once again reviewed the regulations on the investment of pension fund assets by further creating more investment outlets for Pension Fund Administrators (PFAs). The new regulation became effective on October 10, 2008.
This marked the third time that PenCom would be reviewing this regulation in the last four years, having updated it in May 2006 and December 2006.
Under the quality of shares, bonds and other securities, unlike before when any instrument proposed for listing on the floors of any recognised securities exchange through an initial public offer, must have a minimum acceptable rating of 'AAA' by, at least, one recognised risk Rating company, any debt instrument proposed for must now have a minimum acceptable rating of 'A' by, at least, one recognised risk rating company.
While pension fund assets can only be invested in bonds issued by the Federal Government of Nigeria or Central Bank of Nigeria under previous regulation, pension fund assets can now be invested in bonds/debt instruments issued by any state government, provided such securities have the full guarantee of the issuer. Such debt instruments must also be readily marketable i.e. listed/proposed for listing on a registered securities exchange. Before, not more than 2.0 per cent of Pension Fund Assets can be invested in bond and debt instruments issued by any one state government.
Hitherto, not more than 1.0 per cent of Pension Fund Assets managed by a PFA can be invested in Certificates of Deposit and Bankers Acceptances of any one Discount House, and traded on a Money Market Electronic Platform open to the public and approved by the CBN or Money Market Association of Nigeria. The percentage has been increased to 2.0 per cent under the new regulation.
Up to 5 per cent of pension fund assets can now be invested in eligible bonds/debt instrument issued by any one State Government, subject to the limit of 3 per cent of the issue for a bond with risk rating of "BBB"; 4 per cent of the issue for a bond with risk rating of "A" and 5 per cent of the issue for a bond with risk rating of "AA" and above.
Similarly, up to 5 per cent of pension fund assets can now be invested in eligible bonds, Mortgage Backed Securities (MBS) and Real Estate Investment Trusts (REITs), ABS and debentures of any corporate entity, subject to the limit of 3 per cent of the issue for such debt instrument with risk rating of "BBB" 4 per cent of the issue for such debt instrument with risk rating of "A" and 5 per cent of the issue for such debt instrument with risk rating of "AA" and above. Before now, it was 2.5 per cent flat rate.
Under the previous rules, PenCom stipulated that " Pension fund assets managed by a PFA can be invested in Certificates of deposit and bankers acceptances of any one bank issued on its own behalf and traded on a money market electronic platform open to the public and approved by the CBN or Money Market Association of Nigeria, subject to the limit of 2 per cent for a bank with risk rating of "A" 3 per cent for a bank with risk rating of "AA" and 4 per cent for a bank with risk rating of "AAA". Now the regulations states " Pension fund assets managed by a PFA can be invested in certificates of deposit and bankers acceptances of any one bank issued on its own behalf and traded on a Money market electronic platform open to the public and approved by the CBN or Money Market Association of Nigeria, subject to the limit of 3 per cent for a bank with risk rating of "A" 4 per cent for a bank with risk rating of "AA" and 5 per cent for a bank with risk rating of "AAA".
While only 2.0% of the issued ordinary share capital of any one Corporate Entity, may be purchased by a PFA in the past, it has now been increased to 3.0 per cent.
The regulatory authority in the nation's pension industry added another provision which stipulates that "Any amendment to the internal investment policy of a Closed Pension Fund Administrator (CPFA)/Approved Existing Scheme shall have prior approval by the Commission before implementation."
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