Pension Insight: The non-interest fund for RSA holders

The National Pension Commission (PenCom) introduced the non-interest fund, also known as Fund VI, in September 2021 by issuing the non-interest operational framework. The framework has the objective of, amongst others expanding coverage of the contributory pension scheme (CPS) and promoting financial inclusion. 

Fund VI is one of the fund types allowed under the multi-fund investment structure approved by PenCom. The multi-fund structure, or the life-cycle investment structure, seeks to align contributors’ risk appetite with their investment horizon at each life cycle stage. The multi-fund investment structure segregates the RSA funds into six fund types (Funds l to Vl). Three Funds (Fund I, Fund II, Fund III) are for active contributors, while Fund IV is for retired contributors. Fund V serve the needs of the micro pension plan participants, and finally, Fund VI, which is the non-interest fund and is available to both active and retired contributors.

 THE NON-INTEREST FUND VI

The non-interest Fund VI is a fund type whose assets are invested in ethical and non-interest-bearing instruments in line with non-interest principles approved by the Financial Regulation Advisory Council of Experts (FRACE). The non-interest Fund VI seeks to attract employees with reservations about investments in interest-bearing instruments, thereby, promoting financial inclusion within the Nigerian financial system. In addition, the overarching objectives of pension fund investments of safety and maintenance of fair returns on investments apply to Fund VI.

Fund VI assets shall not be invested 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 and as may be determined by FRACE from time to time.

 HOW TO TRANSFER PENSION SAVINGS TO THE NON-INTEREST FUND VI

It is important to note that membership in Fund VI can only be at the instance of the RSA holder. Accordingly, RSA holders in Funds I, II, and III and retirees in Fund IV can transfer their RSA contributions to the non-interest fund by making a formal request to their pension fund administrator (PFA) in line with section 7.6 of the investment regulation, which deals with transfers between fund types. The RSA holder is not required to pay any fee.

Therefore, eligible RSA holders are only 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 their PFA. The presence of the RSA holder is necessary for authentication. After that, the PFA will move the pension savings to the non-interest fund and notify the RSA holder.

In a significant move aimed at ensuring compliance with Islamic finance principles in the investment of non-interest pension fund (Fund VI) assets, the National Pension Commission (PenCom) recently issued the Revised Framework for the Establishment of the Pension Industry Non-Interest Advisory Committee (PINAC).

PINAC is expected to assist in institutionalising monitoring mechanisms for effective compliance of non-interest fund investments with ethical principles. The primary objectives of the revised framework for the establishment of PINAC are to set out rules, regulations, and procedures for the establishment of PINAC, define the roles, scope of duties, and responsibilities of PINAC, outline the functions related to Shari’ah review and audit processes of Fund VI assets, strengthen the capacity of the pension industry to adhere to Islamic finance principles in the investment of Fund VI assets, and defining the relationship and working arrangement between the Pension Fund Operators Association of Nigeria (PenOp) and PINAC.

The creation of the non-interest fund will complement other financial sector regulators’ efforts to promote the issuance of structured products that comply with the applicable principles of non-interest finance to provide viable investment outlets for pension funds.

For more information on the non-interest fund pension, contributors and retirees should not hesitate to enquire from their PFAs and also refer to the operational framework for non-interest fund on the commission’s website www.pencom.gov.ng.

Based on information by the National Pension Commission (PenCom)