Providing more Pension Fund Investment options through the Non-interest Fund, a Publication by PenCom

The National Pension Commission (PenCom) has introduced a Non-Interest Fund (Fund VI) and also issued an Operational Framework for the Fund.

This is in furtherance of the implementation of the Multi-Fund Investment Structure, which seeks to empower pension contributors and retirees to choose a particular fund in which their pension savings are invested.

The Multi-Fund Investment Structure

At the commencement of the CPS, all active contributors’ funds were being invested solely in the RSA ‘Active’ Fund. The Multi-Fund Investment Structure was thus conceived by PenCom to align the age and risk profiles of contributors. As a result, pension contributors and retirees are allowed to make specific choices regarding the investment of their pension funds. Introduced in July 2018, the Multi-Fund Investment Structure resulted in the separation of the RSA Fund into 6 Fund types (Funds I to VI).

The Multi-Fund Structure is consistent with the principle of allowing individuals to make their own choices under the Contributory Pension Scheme (CPS). Some of these fundamental choices include the option of selecting a Pension Fund Administrator (PFA) for the purpose of opening a Retirement Savings Account (RSA); the choice of a fund under the RSA Multi-Fund Structure; the transfer of an RSA from one PFA to another, etc.

Introducing the Non – Interest Fund

Section 7.3 of the Regulation on Investment of Pension Fund Assets issued by PenCom, established the Non-Interest Fund (Fund VI) among the Fund types to be managed by licensed PFAs. It is a Fund which complies with the provisions of Islamic Commercial Jurisprudence and any other established non-interest principles, as approved by the Financial Regulation Advisory Council of Experts (FRACE) or any other body constituted by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission. In order to boost confidence amongst pension contributors and retirees, the FRACE, has certified that the Operational Framework issued by the Commission complies with non-interest finance principles.

Some of the objectives of the Operational Framework issued by PenCom include: to promote financial inclusion within the Nigerian Financial System; to establish standards and procedure for the management of Fund VI by licensed PFAs; to promote Islamic Finance thus bridging the access to finance gap in Nigeria; and assist in expanding the coverage of the CPS by attracting employees who are interested in non- interest funds.

Sequel to the issuance of the Operational Framework by PenCom, all PFAs were required to create and maintain the Non-Interest Fund for interested RSA holders. The Fund shall be separated into two funds, for Active RSA Holders and Retirees, respectively. The permissible instruments for the Investment of Fund VI assets include: Corporate/ Supranational Sukuks; Government Sukuk Bills (including Islamic Treasury 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 compliant Money Market instruments, ordinary shares, private equity Funds and real Estate funds.

How to transfer your pension savings to the Non-interest Fund

The Non-interest Fund is optional to pension contributors and retirees. Consequently, RSA holders in Funds I, II, III and retires Fund IV are eligible to transfer their RSA contributions to the Non- Interest Fund (Fund VI) by making a formal request to their PFA in line with the provisions of the RSA Multi- fund Implementation Guidelines and Section 7.6 of the Investment Regulation dealing with Transfers between Fund Types within a PFA.

Therefore, eligible RSA holders are required visit their respective PFAs to request for the transfer of their pension funds from their existing fund to the Non-Interest Fund by completing and signing a Consent Form to be issued by the PFA. The personal presence of the RSA holder is required due to the need for authentication. Consequently, regardless of how the Consent Form is made available, the process cannot be concluded until the RSA holder visits the PFA and appends his/her signature to the form. Thereafter, the PFA will move the funds from the existing fund to the Non – Interest Fund and advise the RSA holder accordingly.

Update on investments in the Non-interest Fund

The Non-interest Fund has been received with great enthusiasm by pension contributors and retirees. While the Fund’s assets stood at 7.79 billion in September 2021 at commencement, the Fund grew to 17.75 billion by the end of January 2022, translating to a growth of 9.95 billion over the period. As enlightenment efforts are intensified by the Commission and Pension Fund Administrators, it is expected that the growth of the Non-interest Fund will be sustained.

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