How PenCom Is Safeguarding Pension Fund Assets Through Strict Adherence To Investment Regulation

Pension Fund Administrators (PFAs), as investment fiduciaries, act on behalf of Retirement Savings Account (RSA) holders to manage pension funds. PFAs are required to put the interests of RSA holders ahead of their own, with a duty to preserve good faith and trust. As fiduciaries, PFAs are bound by the Pension Reform Act 2014 (PRA 2014) and regulations and guidelines issued by the National Pension Commission (PenCom) to act in the RSA holders’ best interests.

The Contributory Pension Scheme (CPS) is often described as fully funded because individual RSAs are funded monthly with pension contributions from employers and employees.

he pension contributions in the RSAs are pooled into Funds and invested by PFAs based on the requirements of the PRA 2014 and the Regulations of Investment of Pension Funds Assets. The overriding objectives guiding pension funds investments are maintaining safety and fair returns. These objectives are meant to ensure the timely payment of benefits to employees upon retirement.

The PFAs are responsible for making investment decisions and ensuring safety and fair returns for the benefit of contributors. At the same time, the Pension Fund Custodians (PFCs) provide safe custody of the assets. Furthermore, pension funds are segregated from the assets of the PFAs, and all incomes earned from pension funds investments are exclusively for the benefit of RSA holders.

Section 86 of the PRA 2014 has outlined the allowable investment outlets for pension fund investments. These include bonds, treasury bills and other securities issued by the Federal Government and eligible State Governments. 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.

Other allowable assets are Ordinary shares of public limited companies listed on a Stock Exchange under the Investment and Securities Act; bank deposits and securities; real estate development investments; and specialist investment funds and other financial instruments as enshrined in the Investment Regulation.
The PRA 2014, reinforced by the Investment Regulation, made provisions to guard against conflict of interest in the investment of pension funds. Specifically, Section 6.1 of the Investment Regulation stipulates that a PFA or its agents are prohibited from investing Pension Fund Assets in the shares or any other securities issued through public or private placement arrangements by a related party/person of any shareholder of the PFA.

Related persons/party includes natural persons related by blood, adoption or marriage. They may be legal entities, one of which has control or significant influence over the other, or both of which are controlled by another person or entity.

Accordingly, PFAs and PFCs take reasonable care in the management and custody of the pension funds in the best interest of RSA holders. Therefore, all investments made by licensed PFAs in eligible securities and corporate entities are “ring-fenced” and belong to the RSA holders and other pension beneficiaries.

The diligent implementation of the PRA 2014 by PenCom has resulted in the continuous accumulation of pension fund assets to over N14.99 trillion as of 31 December 2022.

In line with the foregoing, PenCom closely monitors the PFAs to ensure all investments align with the Investment Regulation. The PFAs must submit a daily valuation report on pension fund investments through which PenCom ensures strict adherence to the Investment Regulation.