How N5bn minimum regulatory capital will improve the performance of PFAs

The National Pension Commission (PenCom) increased the Minimum Regulatory Capital (Shareholders’ Fund) requirements of Pension Fund Administrators (PFAs) from N1 billion to N5 billion last year. The recapitalisation exercise had a 12-month transition period from 27 April 2021 to 27 April 2022.

Recently, PenCom announced that as at 27 April 2022, all Pension Fund Administrators (PFAs) had complied with the Commission’s directive for the upward review of their Shareholders’ Fund to N5 billion. During the recapitalisation exercise, the Commission approved mergers and acquisitions of some PFAs. The Commission approved the acquisition of Investment One Pension Managers, First Guarantee Pension Limited, IEI-Anchor Pension Managers Limited and AIICO Pension Managers Limited. The merger between Tangerine Pensions Limited and APT Pension Funds Managers Limited and subsequent change of name of the merged entity to Tangerine APT Pensions Limited was also approved.

It is imperative to state that from the commencement of the Contributory Pension Scheme (CPS), only entities licensed by the National Pension Commission are allowed to manage pension funds in line with the provisions of the Pension Reform Act 2004 (repealed and replaced with PRA 2014). Over the years, pension contributions and assets have grown significantly, requiring greater capacity from the PFAs to manage the increasing number of contributors and pool of investible pension funds. Accordingly, the Commission reviewed the capital requirement for PFAs to ensure they have adequate resources to manage pension assets under their management.

PFAs have many functions, which require adequate capital. Section 55 of the PRA 2014 empowers PFAs to open Retirement Savings Account for all employees with Personal Identity Number (PIN) attached; invest and manage pension funds and assets and provide regular information on investment strategies, market returns and other performance indicators to the PenCom and employees or beneficiaries of the RSAs. The Act also mandates PFAs to maintain books of account on all transactions relating to pension funds managed by them and provide customer service support to employees including access to employees account balances and statements on demand. In addition, PFAs pay retirement benefits to holders of RSAs, bear responsibility for all calculations in relation to retirement benefits and carry out other functions as may be directed by PenCom from time to time.

The recapitalization exercise became expedient as the value of pension fund assets under management and custody had grown exponentially by 244 percent, from N3 trillion in 2012 (when the previous recapitalisation was done) to N12.29 trillion (as at December 31, 2020). In addition, the total number of contributors had increased to over 9.59 million as at the end of February 2022. The sustained growth in pension fund assets and number of contributors implies greater fiduciary responsibilities that require more operational capacity by the PFAs. In addition, as a result of the growth in pension assets and contributors, increased capital injection into PFAs became necessary to maintain service standards and increase the growth potential of the pension industry. It is expected that the increase in the capital requirement for PFAs will enable them to open more branches, employ and retain skilled staff as well as ensure the adequacy of resources to fund operational requirements and activities.

With the conclusion of the recapitalisation exercise, stakeholders, particularly RSA holders, should expect increased effectiveness and efficiency as well as improvement in service delivery from PFAs.