How Pension Funds are Invested under Multi Fund Structure (4)

In this concluding part of our articles on “How Pension Funds are invested under the Multi Fund Structure”, we will be focusing on the Non-Interest Fund (Fund VI).  The article will also explore some of the elements that make the fund different from the previously discussed Funds.

The increase in demand by RSA holders for the opportunity to invest their retirement savings in Non-interest instruments led to a series of engagements with other financial regulators and stakeholders towards creating a Non-Interest Fund based on Islamic Sharia Principles.

Consequently, in 2021, the Commission approved the implementation of fund VI in line with Section 7.3 of the Regulation on Investment of Pension Fund Assets issued by PenCom. The regulation aims to promote financial inclusion within the Nigerian Financial System, establish standards and procedures for managing the Fund VI by licensed PFAs. In addition, it sought to, increase the investment portfolio for better returns on pension funds and assist in expanding the coverage of the Contributory Pension Scheme (CPS) by attracting employees with reservations about investments in Non-interest instruments.

The Non-Interest Fund (Fund VI)

The Non-Interest Fund VI is a Fund type whose assets are invested in instruments that are both ethical and Non-interest as approved by the Financial Regulation Advisory Council of Experts (FRACE). The fund is designed for contributors and retirees who are interested in investments that comply with non-interest and ethical principles. The Fund is therefore divided into two, for Active for RSA Holders and Retirees respectively. The Active RSA fund VI comprises contributors that are 50 years and below while the Retiree Fund VI is strictly for retirees.

Transfer from other Fund types to Fund VI

RSA holders in Funds I, II, III, and retirees in Fund IV are eligible to move their RSA contributions to Fund VI.  Likewise, RSA holders in Fund VI seeking to move back to any of the Active RSA Funds i.e. Funds I, II and III, are allowed to do so. However, Retirees in Fund VI are only qualified to move back to Fund IV which is the default Retiree Fund.

To transfer from Fund VI to other Fund types, RSA holders are required to visit their respective PFAs to request the transfer of their pension savings from their existing fund to the Non-Interest Fund by completing and signing a consent form issued by the PFA.   The transfer is allowed once in every 12 months and the RSA holder is not required to pay any fee.  

Investment of pension assets in Fund VI

The investment portfolio for Fund VI is made up of Sharia-compliant instruments. The permissible instruments for the Investment of Fund VI assets include Corporate/ Supranational Sukuks; Government Sukuk (including Islamic Treasury Bills and Euro Sukuk) issued by the Federal Government of Nigeria, CBN or FGN Agencies, and Infrastructure Sukuk backed by FGN/CBN guarantee. Other instruments are Shari’a-compliant Money Market instruments, ordinary shares, private equity funds, and real Estate funds.

In line with Section 7.3 (a) of the investment regulation, the active RSA fund VI is invested in variable income instruments as the RSA holders are young and can bear the risk compared to Retirees. Therefore, Retiree Fund VI, are invested in fixed-income instruments to preserve the funds against market volatility considering their ages and risk appetite.

Consequently, investment of Fund VI assets is not in the production or trading of alcohol, pornography, weaponry, gambling/betting, speculation, interest-earning ventures, and other ventures of similar nature contrary to Non-interest finance principles.

Benefits to RSA holders

The implementation of Fund VI contributed to boosting the confidence of the public in the CPS, as it offers the opportunity for RSA holders to invest their retirement savings in non-interest instruments. In addition, RSA holders are offered a viable alternative to the conventional interest-based pension investment system.

The creation of the Non-Interest Fund will complement the efforts of other regulators in the financial sector in promoting the issuance of structured products that comply with the applicable principles of Non-interest finance to further provide viable investment outlets for pension funds. Pension contributors and retirees that require more information on  the Non-interest fund may enquire from their PFAs and study the Operational Framework for Non-Interest Funds on the Commission’s website www.pencom.gov.ng.

This is the concluding part of our articles on the Multi-Fund investment structure for RSA funds. As earlier explained, the Multi-Fund investment structure would address the varying risk appetite of contributors, as the different funds are tailored to fit the ages and risk profiles of contributors. The multi-fund structure would also benefit the economy as a whole, as pension assets would be channelled into key areas of the economy such as infrastructure and housing.