Deeper Dive into Non-Interest Fund and its Operational Framework – PensionNigeria

Deeper Dive into Non-Interest Fund and its Operational Framework

PenCom Introduces the Non-Interest Fund and Issues Operational Framework

The National Pension Commission (PenCom) has introduced a Non-Interest Fund (Fund VI) and also issued an Operational Framework for the Fund. This is in furtherance of the implementation of the Multi-Fund Investment Structure, which seeks to provide investment portfolio choices to pension contributors and retirees. Section 7.3 of the Regulation on Investment of Pension Fund Assets issued by PenCom established the Fund VI among the Fund types to be managed by licensed Pension Fund Administrators (PFAs).

Introduced in July 2018, the Multi-Fund Investment Structure resulted in the segregation of the Retirement Savings Account (RSA) Fund into 6 Fund types, aligned with the age and risk profiles of the contributors, which allows pension contributors and retirees to make specific choices regarding the investment of their pension funds.

The Non-Interest Fund is a fund which complies with the provisions of Islamic Commercial Jurisprudence and any other established non-interest principles, as approved by the Financial Regulation Advisory Council of Experts (FRACE) or any other body constituted by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission, from time to time. In order to boost confidence amongst pension contributors and retirees, the FRACE, has certified that the Operational Framework issued by the Commission complies with non-interest (Sharia’s) finance principles.

Some of the objectives of the Operational Framework issued by PenCom include: to promote financial inclusion within the Nigerian Financial System; to establish standards and procedure for the management of Fund VI by licensed PFAs in Non- Interest instruments as provided in Section 7.3 of the Investment Regulation; to promote Islamic Finance and bridge the access to finance gap in Nigeria; and assist in expanding the coverage of the Contributory Pension Scheme (CPS) by attracting employees who are interested in non-interest funds. Sequel to the issuance of the Operational Framework by PenCom, all PFAs were required to create and maintain the Non-Interest Fund for interested Retirement Savings Account (RSA) holders.

The Fund shall be separated into two funds for Active RSA Holders and Retirees, respectively. It should be noted that the Non-Interest Fund is optional to pension contributors and retirees. Consequently, RSA holders in Funds I, II, III and retires in Fund IV are eligible to transfer their RSA contributions to the Non- Interest Fund (Fund VI) by making a formal request to the PFA, in line with the provisions of the RSA Multi- fund Implementation Guidelines and Section 7.6 of the Investment Regulation dealing with Transfers between Fund Types within a PFA.

The permissible instruments for the Investment of Fund VI assets include: Corporate/ Supranational Sukuks; Government Sukuk (including Islamic Treasury Bills and Euro Sukuk) issued by the Federal Government of Nigeria, CBN or FGN Agencies and Infrastructure Sukuk backed by FGN/ CBN guarantee.

Other instruments are Shari’ah compliant Money Market instruments, ordinary shares, private equity Funds and real Estate funds. It is expected that the creation of the Non- Interest Fund by PenCom will complement the efforts of other regulators in the financial sector in promoting the issuance of structured products that comply with the applicable principles in order to further provide viable investment outlets for pension funds.

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