PenCom Bars PFAs from Banks’ AT1 Capital, Reinforces Pension Fund Protection and Regulatory Discipline

The National Pension Commission (PenCom) has once again drawn a clear line on what constitutes acceptable investments for Nigeria’s growing pension industry. In a new circular, the regulator prohibited Pension Fund Administrators (PFAs) from investing pension assets in the Additional Tier-1 (AT1) capital instruments of Deposit Money Banks, citing a breach of existing regulatory provisions.

The directive, signed by A.M. Saleem, Director of Surveillance at PenCom, explained that AT1 capital—though recognized under Central Bank of Nigeria (CBN) banking regulations—does not qualify under the framework that guides pension fund investments. AT1 instruments are perpetual, without a maturity date, and lack redemption incentives. According to PenCom, these features directly violate Section 2.4 of the Regulations on Investment of Pension Fund Assets, which prohibits PFAs from investing in securities with restrictions or limitations on sale and purchase.

“Arising from the foregoing, PFAs cannot invest pension fund assets in Additional Tier 1 Capital instruments issued by Deposit Money Banks,” the Commission stated emphatically.

Protecting an ₦18 Trillion Industry

Nigeria’s pension industry has grown significantly since the introduction of the Contributory Pension Scheme (CPS) under the Pension Reform Act of 2004, later amended in 2014. With assets now valued at over ₦18 trillion, the sector is regarded as one of the most transparent and best-regulated in Africa.

Over the years, PenCom has maintained a cautious approach to risk, often erring on the side of safety to protect the retirement savings of millions of Nigerian workers. This latest directive fits into that long-standing regulatory philosophy: pension assets must remain in secure, transparent, and clearly redeemable vehicles.

Analysts note that while AT1 instruments are legitimate tools for strengthening banks’ capital buffers, they carry risks that make them unsuitable for retirement funds. By shutting the door to PFAs’ requests, PenCom is reinforcing the principle that pension funds should prioritize stability over potentially higher, but riskier, returns.

Continuity in Reform and Oversight

PenCom’s stance is not an isolated action but part of a broader reform agenda that has shaped the Nigerian pension system over the past two decades. From mandating strict asset classes to ensuring custody arrangements that separate PFAs from Pension Fund Custodians (PFCs), the Commission has consistently pursued policies that guarantee both accountability and prudence.

Past interventions, such as capping PFAs’ exposure to equities, introducing multi-fund structures to align investments with contributors’ risk profiles, and guiding diversification into infrastructure and real estate, reflect a balancing act between growth and safety. The rejection of AT1 instruments is, therefore, another example of regulatory consistency aimed at preserving confidence in the system.

Implications for Stakeholders

For pension contributors, this decision provides reassurance that their hard-earned savings will not be exposed to complex financial products that lack liquidity safeguards. For PFAs, it is a reminder that compliance with regulatory limits is not optional but central to the trust on which the pension system rests.

For policymakers, the circular reflects PenCom’s broader role in the financial ecosystem: ensuring that Nigeria’s pension funds are invested in ways that support economic development without jeopardizing the long-term safety of retirement benefits.

Looking Ahead

As Nigeria works towards deepening its capital markets and building a $1 trillion economy, pressure is likely to mount on PenCom to allow greater flexibility in pension fund investments. However, the Commission’s firm stance on AT1 signals that it will not compromise the foundational principle of security for contributors.

By drawing the line early, PenCom is not just enforcing the law; it is shaping a disciplined investment culture within Nigeria’s pension industry, one that balances innovation with prudence, growth with stability, and opportunity with responsibility.

In the words of one policy analyst, “PenCom’s job is not to chase returns at all costs, but to ensure that Nigerians retire with dignity. That requires rules, discipline, and above all, trust.”

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