Pension Insight: Understanding the role of pension fund administrators 

The successes attained since the inception of the contributory pension scheme (CPS) in Nigeria are often ascribed to the fundamental structures upon which the system was built. A vital feature of the scheme 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 any employee. Upon opening the RSA, the PFA issues an employee with a personal identification number (PIN), who then forwards the PIN to the employer for the purpose of remitting monthly pension contributions.

To open an RSA, the employee has to complete the RSA registration forms and also provide required documentation. It is noteworthy to state that selecting a PFA is an employee’s exclusive right.

CREDITING OF INDIVIDUAL RSAs

PFAs are responsible for crediting RSAs with monthly pension contributions. The employer deducts the monthly pension contributions and remits them to the PFC with an accompanying schedule containing the employees’ names, RSA PINs and other details. The PFC, in turn, advises the PFA upon receiving the contributions and schedules.

TAKING INVESTMENT DECISIONS

The PFA pools the pension contributions in individual RSAs into a fund that invests in various allowable asset classes. The PFA is responsible for making 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. Benefits payments include ensuring the retiree provides all required documentation at least six months before retirement. The PFA is also responsible for obtaining necessary approvals from PenCom and issuance of instructions to the PFC to disburse retirement benefits.

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 sufficient branches to serve locations with a significant number of registered RSAs under their management. In addition, PFAs must have the requisite technology that facilitates 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 in supervising the PFAs adequately. The returns include the daily valuation reports on investment and monthly and quarterly returns on various aspects of PFAs’ operations. In addition to the off-site reviews, PenCom conducts routine on-site examinations annually and special investigations whenever necessary.

APPOINTMENT OF PENSION FUND CUSTODIAN

As noted earlier, the PFA and PFC carry out the management and custody of pension funds, respectively. Therefore, the PFA is responsible for appointing 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 instructions are in accordance with the investment regulations issued by PenCom.

PFAs are licensed by PenCom after satisfying rigorous licensing criteria. Currently, there are 19 PFAs managing pension fund assets on behalf of RSA holders. PenCom reiterates its commitment to effectively regulating and supervising all PFAs in Nigeria.

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