Pension Insight: Pension fund investments, payment of retirement benefits, and other roles of PFAs

The successes achieved since the introduction of the contributory pension scheme (CPS) in Nigeria are often attributed to the robust structures upon which the system was established. A key feature of the 2004 pension reform was the licensing of pension fund administrators (PFAs). These are private companies entrusted with the management and administration of retirement savings of workers and retirees. These entities are licensed, regulated, and supervised by the National Pension Commission (PenCom). Understanding the roles and responsibilities of PFAs offers valuable insights into the operational framework 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 and issuing a personal identification number (PIN) to the employee. 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 pension fund custodian (PFC) with an accompanying schedule that contains the names, RSA PINs, and amount and period of remittance. 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 funds that are invested in various allowable asset classes. The PFA is responsible for taking investment decisions as a fiduciary duty 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.

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.

CUSTOMER SUPPORT TO RSA HOLDERS

The PFAs provide 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 the adequate number of branches to serve locations where they have a 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.

RENDERING RETURNS TO PENCOM

PFAs are mandated to 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

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.

DELIVERING EXCELLENT SERVICE TO CONTRIBUTORS AND RETIREES

One of the strategic focus areas of PenCom is ensuring excellence in service delivery to stakeholders. This partly informs the increase in minimum regulatory capital for PFAs by PenCom from time to time. Prioritisation of excellent service delivery by PFAs is expedient considering their functions. PFAs are required to provide accessible complaint channels to ensure speedy resolution of issues. RSA holders are, therefore, expected to seek a resolution of issues with their PFAs before escalating to PenCom when necessary. Some of these issues include non-remittance of pension contributions, payment of retirement benefits, and administration, amongst others.

In conclusion, PFAs satisfy rigorous licensing criteria. Currently, there are 18 PFAs managing pension fund assets on behalf of RSA holders. PenCom is committed to effective regulation and supervision of the pension industry to ensure that retirement benefits are paid as and when due.

Based on information by the National Pension Commission (PenCom).