Nigeria: How PenCom Advanced Nigeria's Pension Industry in 2022

27 December 2022
This Day (Lagos)

The National Pension Commission (PenCom) is the apex regulator of the pension industry in Nigeria. In executing its mandate, PenCom is responsible for effectively regulating and supervising all Licensed Pension Fund Operators (LPFOs) and developing guidelines that facilitate achieving the objectives of the Pension Reform Act 2014.

The year 2022 will be recorded as one of the most eventful years in Nigeria's pension regulation and administration history. This year, PenCom accomplished some significant initiatives that have positively impacted the pension landscape in Nigeria. Some of the initiatives include an upward review of the Minimum Regulatory Capital (Shareholders' Fund) of Pension Fund Administrators (PFAs) from N1 billion to N5 billion, the issuance of the Revised Regulation on Retirement and Terminal Benefits and the release of the Guidelines on Accessing Retirement Savings Account (RSA) Balance towards Payment of Equity Contribution for Residential Mortgage by RSA Holders. In addition, PenCom issued the Operational Framework for Co-Investment of Pension Funds by PFAs. Below are highlights of the important achievements of PenCom in 2022:

N5 billion PFAs' Minimum Share Capital

All PFAs increased their Minimum Regulatory Capital (Shareholders' Fund) from N1 billion to N5 billion as of 27 April 2022. PenCom had approved the recapitalisation exercise for the PFAs with a 12-month transition period from 27 April 2021 to 27 April 2022. The exercise became expedient as the value of pension fund assets under management and custody had grown exponentially by 244 percent, from N3 trillion in 2012 (when the previous recapitalisation was done) to N12.29 trillion (as of 31 December 2020). The sustained growth in assets implies greater fiduciary responsibilities that require more operational capacity by the PFAs. The urgent need to ramp up PFAs' ability to manage the increasing number of registered contributors and the value of pension fund assets under management led to the recapitalisation exercise.

Mergers and acquisitions

In 2022, PenCom approved the acquisition of Investment One Pension Managers, First Guarantee Pension Limited, Sigma Pension Limited, IEI-Anchor Pension Managers Limited and AIICO Pension Managers Limited. The merger between Tangerine Pensions Limited and APT Pension Funds Managers Limited and the subsequent change of name of the merged entity to Tangerine APT Pensions Limited was also approved.

Revised Regulation on Retirement and Terminal Benefits

To improve benefits payouts, PenCom issued the Revised Regulation on Retirement and Terminal Benefits to PFAs for immediate implementation by PFAs. The Revised Regulation was the maiden comprehensive review of the regulation since its initial issuance in 2007. The regulation guides the process of accessing retirement and terminal benefits by pension contributors and retirees under the CPS. In line with its consultative approach, PenCom obtained input from critical stakeholders to ensure a more efficient retirement benefits administration. The Revised Regulation contains several new provisions on Pension Enhancement, Voluntary Contributions, Temporary Access to RSA due to loss of job, Payment under the Micro Pension Plan, and Administrative Sanctions for violations by PFAs, amongst others. Furthermore, the regulation introduces salient amendments to several existing provisions while providing clarity on others.

Operational Framework on Co-Investment of Pension Funds

PenCom issued the Framework on co-Investment to PFAs to further enhance the diversification of pension fund assets and to improve returns on pension fund investments. Nigeria's pension fund assets have remained concentrated in Federal Government Securities as the rapid growth of pension funds has not been matched by a corresponding increase in domestic investment outlets. PenCom noted that the concentration of pension assets in government securities could lead to distortions in asset prices within the domestic market as Pension Funds continue to chase the same limited asset classes available within the domestic market. One of the asset classes with the lowest asset allocation by pension funds is Private Equity (PE). Consequently, PenCom identified investing in specific transactions under a Co-Investment arrangement as a viable option to improve pension funds' allocation to this asset class. Co-Investing alongside the General Partner of a PE Fund is expected to provide PFAs flexibility and greater choice in the type of projects and companies to invest in, further enhancing returns and increasing exposure to PE.

Guidelines for the use of pension savings for residential mortgage

The Guidelines on Accessing Retirement Savings Account (RSA) Balance towards Payment of Equity Contribution for Residential Mortgage by RSA Holders actualised the provisions of Section 89 (2) of the Pension Reform Act 2014 (PRA 2014). Section 89 (2) allows Retirement Savings Account (RSA) holders to apply a percentage of their pension savings towards payment of equity contribution for a residential mortgage. The Guidelines set eligibility criteria for RSA holders and established documentation standards and implementation modalities for PFAs.

Online enrolment/registration

Like the previous year, PenCom conducted the 2022 online Verification and Enrolment Exercise for retirees and prospective retirees of treasury-funded Ministries, Departments and Agencies (MDAs).The nationwide exercise started on 20 June 2022 and ended on 31 August 2022. To ease the process for prospective retirees and retirees, PenCom provided two registration options for the enrolment: the Self-Assisted option and the Pension Desk Officer (PDO)/PFA-Assisted option.

Pension clearance certificates

The Public Procurement Act requires the Pension Clearance Certificate (PCC) to be submitted as evidence of compliance with the PRA 2014 by all suppliers, contractors or consultants soliciting any contract or business from Federal Government Ministries, Departments and Agencies (MDAs). Consequently, from January to December 2022, PenCom issued 559 Pension Clearance Certificates (PCCs) to private organisations that applied and fully complied with the set requirements

As the pension industry continues to evolve to meet the needs of stakeholders, PenCom assures all of its commitment to the effective regulation and supervision of the Nigerian Pension Industry to ensure that retirement benefits are paid as and when due.

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