How Pension Funds are invested, a Publication by PenCom – PensionNigeria

How Pension Funds are invested, a Publication by PenCom

Pension funds in Nigeria have been on the rise since the introduction of the Contributory Pension Scheme (CPS) in 2004. Records from the National Pension Commission (PenCom) showed that within the 16 years of the pension reform, the value of accumulated pension assets has reached N12.3 Trillion as at January 2021. The Director General of PenCom, Aisha Dahir Umar, recently said the fund is currently invested in varied but quality financial instruments all tailored towards the development of the Nigeria economy.

The CPS, under the Pension Reform Act, (PRA 2014), outlined guidelines and regulations on the investment of pension contribution funds and assets as provided in section 85 (2), which states that “Pension funds and assets shall only be invested in accordance with regulations and guidelines issued by the Commission, from time to time.

PenCom ensure that Pension Fund Administrators (PFAs) adhere strictly to the pension fund investment regulations and guidelines to ensure that the funds are not only save, but yields fair returns as well. Note that section 85 (1) of the PRA 2014 states that, “all contributions made under this Act shall be invested by the Pension Fund Administrator (PFA) with the objectives of safety and maintenances of fair-returns on amount invested”.

Guidelines issued by PenCom state that pension funds and assets shall be invested in Bonds, Treasury bills and other securities issued by the Federal Government through the Central Bank of Nigeria, as well as State and Local Government. Pension funds can also be invested in bonds, debentures, redeemable shares and other debt instruments issued by corporate entities and listed on a Stock Exchange under the Investment and Securities Act and ordinary shares of public limited companies listed on a Stock Exchange under the Investment and Security Act.

In addition, pension funds can also be invested in bank deposits and securities; real estate development investments; specialist investment funds and other financial instruments as approved by PenCom from time to time. Data from PenCom showed that as at February 2021, N7.34 trillion was invested in Federal Government Bonds, N676.91 billion in Federal Government treasury bills, N11.91 billion in agency bonds and N117.82 trillion in State Government securities. Similarly, a total of N870.30 billion was invested in corporate debt securities, N1.62 trillion in local money market securities and N158.96 billion in mutual funds during the same period.

It is worth stating that the PRA 2014 allows Pension Fund Administrators (PFAs) to invest pension funds in units of any investment outside Nigeria within the categories of investments set out in Section 86 of the Act. Meanwhile, PFAs are not allowed to invest pension funds or assets in shares or securities issued by the PFA or its Pension Fund Custodian (PFC) or even a shareholder of the PFA or its PFC. Also, PFAs are not allowed to sell pension fund assets to itself, any shareholder, director, affiliated or associate of the PFA, employee of the PFA, spouse of PFA employees, affiliate of any shareholder of the PFA and so on.

PenCom may, by regulations, impose additional restrictions on investments by PFAs with the objective of protecting the interest of the beneficiaries of the Retirement Savings Account (RSA). Any PFA who fails to comply with the provisions of the PRA 2014, shall be penalized by PenCom according to the provisions of the Act.

Aisha Dahir Umar, the Director General of PenCom, has assured the 9.27 million Retirement Savings Account (RSA) holders as at January 2021, that PenCom would not compromise on the major objectives of pension fund investments, which are safety of the assets and maintenance of fair (real) returns on investments.

You can check out our publications on Contributory Pension Fund Assets here

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