The modest successes attained since the advent of the Contributory Pension Scheme (CPS) in Nigeria over eighteen years ago, are often ascribed to the structures upon which the system was built. A key feature is the separation of management and custody of pension funds. While Pension Fund Administrators (PFAs) are saddled with the responsibility of managing pension funds, Pension Fund Custodians (PFCs) are responsible for the custody of the funds. Pension Fund Operators are private entities licensed, supervised and regulated by the National Pension Commission (PenCom). Therefore, understanding their roles PFAs will provide further insight into the workings of the CPS. The following are the roles of PFAs and PFCs under the CPS.
Registration of Contributors
ThePFA is responsible for opening a Retirement Savings Account (RSA) for an employee. This is done after the employee has completed the RSA registration forms and provided other necessary documentation. A Personal Identification Number (PIN) is issued to an employee upon opening an RSA. It is noteworthy to state that the selection of a PFA is the exclusive right of an employee.
Crediting of individual RSAs
PFAs are responsible for crediting RSAs with monthly pension contributions. The monthly pension contributions are deducted by the employer and remitted to the PFC with an accompanying schedule that contains the names, RSA PINs and other details of the employees. The PFC in turn advises the PFA upon receiving the schedules.
Taking investment decisions
The pension contributions in individual RSAs are pooled together by the PFA into a Fund that is invested in various allowable asset classes. The PFA is responsible for taking investment decisions to ensure safety and fair returns for the benefit of contributors. These investment decisions must be in accordance with the Investment Regulations issued by PenCom. All incomes earned are exclusively for the benefit of contributors. Consequently, the PFA exercises investment decisions on trust, as a fiduciary duty on behalf of contributors.
Payment of Retirement Benefits
The main objective of the CPS is to ensure the payment of retirement benefits as and when due. The PFA is therefore responsible for processing the retirement benefits of a retiree under the CPS. This includes ensuring the retiree provides all required documentation at least six months prior to retirement. The PFA is also responsible for obtaining necessary approvals from PenCom and issuance of instructions to the PFC for payment of retirement benefits.
Provide Customer Support to RSA holders
The PFAs provide various customer support services to the RSA holders, including issuing RSA statements at least once every quarter. In carrying out this function, PenCom ensures that PFAs have adequate number of branches to serve locations with significant number of registered RSAs under their management. In addition, PFAs are expected to deploy the necessary technology that widens access to their services for RSA holders.
Render Returns to PenCom
PFAs maintain proper books of account and render reports/ returns to PenCom. The returns assist PenCom to adequately supervise the PFAs through offsite reviews. The returns include the daily valuation reports on investment and monthly and quarterly returns on various aspects of PFAs’ operations. Further to the off-site reviews, PenCom conducts routine on-site examinations annually on PFAs , and special examinations whenever the need arises.
Appointment of Pension Fund Custodian
As noted earlier, the management and custody of pension funds are carried out by the PFA and PFC, respectively. It is therefore, the PFA’s responsibility to appoint a Licensed PFC to provide custody and safekeeping for the pension funds under its management. The PFC is responsible for executing all transactions as instructed by the PFA, provided that such are in accordance with the Investment Regulations issued by PenCom.
The PFC plays the important role of providing safe custody of pension fund assets as enshrined by the Pension Reform Act 2014 and is therefore appointed by the PFA exclusively for that purpose. The following are the roles of PFCs under the CPS:
Collection of Pension Contributions: The monthly pension contributions are deducted by the employer and remitted to the PFC, accompanied with schedules that contain the names, RSA PINs, PFA name and other details of the employees. It is the PFC’s responsibility to advise the PFA upon receipt of the contributions, which in turn credits individual Retirement Savings Accounts (RSAs) with the respective amounts.
Safekeeping Services: Ensuring the safety of pension assets is a key principle of the CPS. Consequently, provision of safekeeping services is an important responsibility of the PFC. In conducting this role, the PFC registers the assets in the PFA’s name and keeps physical securities in the vault or central depositories. In essence, the ownership documents of all pension fund assets acquired by the PFA in the course of its management function, are kept safely by the PFC, to the exclusive order of the PFA, on behalf of individual pension contributors. It must be emphasised that the pension fund assets held by the PFC are fully separated from its company funds and that of its parent company, which further guarantees the safety of pension assets.
Settlement and Clearing: The PFC is responsible for executing investment decisions on behalf of the PFA. In essence therefore, once a PFA decides to invest in particular security, it advises the PFC, which effects actual payment for the securities to the counterparties. In addition, where a PFA decides to sell some investments to realise profit, the PFC will receive the consideration paid on behalf of the PFA. Furthermore, the PFC is also responsible for benefit payments to beneficiaries as advised by the PFA and accompanied by requisite approval by PenCom.
The clear delineation of responsibilities with checks and balances entrenched by the PRA 2014 is a cardinal principle of the scheme. This structure is being assured by the strong regulatory framework established by the National Pension Commission (PenCom).
