Investment Regulation to be Upgraded in Q1

16 Jan 2013

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Mr. Muhammad Ahmad

Nnamdi Duru

The National Pension Commission (PenCom) is poised to release an updated investment regulation to give teeth to its decision to give Pension Fund Administrators (PFAs) more options for the investment of the pension assets under their management.

This was in furtherance with the commission’s decision to create more investment options for pension assets in response to stakeholders’ complaints that fund managers were not given free hand to invest pension assets using their skills and experience to maximise returns on funds under management.

The commission confirmed this in a statement titled, ‘Amendment to the Regulation on Investment of Pension Fund Assets’.

According to the commission, its investment regulation has been revised to accommodate more investment options, adding that before the end of this quarter, the commission would release an updated version of its investment regulation to formally give more investment options for pension assets.

The pension regulator stated its expectation that in this quarter, the operators would embark on public education, preparatory for the implementation of the new categories of investment options created recently.
“The Regulation on Investment of Pension Fund Assets (Regulation) had been further revised in response to the dynamics of the financial and regulatory environment. The major highlights include the introduction of Exchange Traded Funds (ETFs) as allowable instruments; and incorporation of Guidelines on Global Depository Receipts/Notes (GDRs/GDNs) and Eurobonds, amongst others. 

“The Regulation becomes effective from 17 December, 2012. The new Multi-fund Structure for Retirement Savings Account (RSA) Funds would be incorporated into the amended Regulation in the 1st Quarter of 2013. This is to provide ample time for the commencement of a public education/sensitisation campaign on the multi-fund structure by the commission as well as for licensed Pension Fund Operators (PenOp) to be operationally ready to implement same,” the commission stated.

In the last quarter of last year, PenCom responded positively to stakeholders’ complaints that contributors were not given opportunity to maximise returns on their accumulated savings because fund managers were not free to invest using their skills and experience to maximise returns on funds under management.

Before now, the former Director-General of the commission, Mr. Muhammad Ahmad, confirmed that the commission introduced four new types of funds, such that pension contributors could determine the instruments in which accumulated retirement savings should be invested.
“What we did was to create different buckets of funds so that for the younger contributors, they can be given the opportunity to invest in more floating instruments because in floating instruments, you earn higher returns,” he said.

“We created Fund 1, which is the Aggressive Fund. If you are not up to 40 years, you can ask your PFA to invest in aggressive fund. Now in that bucket, we said PFAs can invest up to 50 per cent of that fund in equities or rather in floating or variable instruments.

“Then we went to the next one, which is more of a neutral one, which is where the 25 per cent comes in; then we moved to another one that is basically for somebody who is close to retirement.

“Retirees cannot afford to have their investments floating because of the fluctuations in returns and they will not have time to accumulate or correct any possible fall in return, so substantial part of the fund will be invested in fixed income.

“The fourth fund we created is the ethical fund including sharia-compliant funds. There are people who will not want their contributions or savings to be invested in certain instruments or businesses, so we created an ethical fund which will be based on demand,” Ahmad explained.
In line with this policy, the Renaissance Capital also predicted that PFAs were likely to invest more in quoted stocks and corporate bonds this year, going by the increase in private sector debt.

In its recent report titled, “Thoughts from a Renaissance Man: Nigeria’s Pension Funds – An Unsung Story”, Renaissance Capital said “we assume is that pension funds will now begin to turn more to equities.”
“The most important long-term reason in our view is of course that private sector debt in Nigeria as tremendous room to rise and the economy has decades of strong growth ahead of it. Both suggest that a higher allocation to equities makes sense.

“In the short term, we still assume that lower bond yield. The 10-year local yield is down from 17 per cent to 12 per cent in the past few months, will encourage banks to start lending, as investing in local securities offer less yield,” it explained.

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