Understanding the Roles of Pension Fund Administrators (PFAs), a Publication by PenCom
The modest successes attained since the advent of the Contributory Pension Scheme (CPS) in Nigeria over seventeen years ago, are often ascribed to the fundamental 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. These Pension Fund operators are licensed, supervised and regulated by the National Pension Commission (PenCom). Therefore, understanding the role of PFAs will provide further insight into the workings of the CPS.
The following are the roles of PFAs under the CPS:
Registration of Contributors
The PFA is responsible for opening a Retirement Savings Account (RSA) for an employee. A Personal Identification Number (PIN) is issued to an employee upon opening an RSA. This is done after the employee has completed the RSA registration forms and provided other necessary documentation. 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.
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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 where they have significant number of registered RSAs under their management. In addition, PFAs are also expected to have the necessary technology that widens access to their services for RSA holders.
Render Returns to PenCom
PFAs maintain proper books of account and render off site returns to PenCom. The off-site returns assist PenCom to adequately supervise the PFAs. The returns include the daily valuation reports on investment, monthly and quarterly returns on various aspects of PFAs’ operations, amongst others. In addition to the off-site reviews, PenCom conducts routine on-site examinations annually and special examinations whenever the need arises.
Appointment of Pension Fund Custodian (PFC)
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 PFAs are licensed by PenCom after satisfying rigorous licensing criteria.
Currently, there are 20 PFAs managing pension fund assets on behalf of RSA holders.
Read the recent Mergers and Acquisitions in the Pension Industry HERE
Check out the Minimum Capital Requirement for a PFA HERE
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