PenCom Tightens Rules: PFAs Must Raise Capital to N20bn

The National Pension Commission (PenCom) has released a revised Pension Investment Regulation, marking a significant evolution in Nigeria’s pension sector. The updated regulation introduces new investment instruments, adjusts existing allocation limits, and incorporates operational frameworks to ensure pension funds are more resilient, diversified, and aligned with global best practices.

Introduction of New Investment Instruments

PenCom’s revision broadens the scope of permissible instruments, providing PFAs with opportunities to enhance diversification and improve long-term returns. Key additions include:

• Reverse Repos Securities: Purchased with an agreement to resell in the future, providing short-term liquidity management.
• Gold Receipts: Tradable on SEC-recognised exchanges, allowing pension funds to gain exposure to gold without the complexities of physical storage.
• Securities Lending: Permitted only with full guarantee by a central counterparty.
• Private Issuances by Registered Corporate Entities: Direct participation in de-risked private placements by corporates.
• Derivatives: Restricted to risk management purposes, including Futures, Forwards, Options, and Swaps.
• Commodity-Backed Instruments: Linked to physical commodities such as oil, gold, and agricultural products.
• Agriculture Investment Funds: Including debt securities, equities, and infrastructure projects across the agricultural value chain.

Adjustments to Investment Limits

To balance risk and promote sustainable growth, PenCom has also adjusted allocation limits across pension fund classes:

• Federal Government Securities (FGN): Exposure reduced across all funds, with an option to offset through asset-backed instruments.
• Infrastructure Funds: Allocation limits increased to encourage impact investing and hedge against inflationary pressures.
• Single Entity Exposure Cap: PFAs managing multiple funds must not hold more than 25% of instruments issued by a single corporate entity, ensuring risk is spread across diverse issuers.

Integration of Operational Frameworks

The regulation now consolidates clear operational guidelines for:

• Non-Interest Investments: Supporting compliance with ethical and Sharia-compliant investment principles.
• Co-Investment by PFAs: Encouraging alignment of interests between pension funds and managers.
• ESG Integration: Pension Fund Administrators (PFAs) and Custodians (CPFAs) are required to integrate Environmental, Social, and Governance (ESG) factors into investment decisions, emphasizing responsible investing, inclusive growth, and allocation to sectors critical for sustainable national development.

Expanded and Refined Definitions

The revised regulation provides clearer definitions, particularly around Fund VI (Ethical Fund), and refines existing terms for better regulatory clarity, strengthening compliance and operational consistency across the pension industry.

PenCom’s updated framework reflects its commitment to enhancing diversification, boosting returns, and safeguarding the retirement benefits of millions of Nigerians while aligning the nation’s pension industry with international best practices.

For more information, visit: www.pencom.gov.ng

PenCom unveils a revised Pension Investment Regulation introducing new investment instruments, adjusting allocation limits, and integrating ESG frameworks to enhance diversification, returns, and sustainability in Nigeria’s pension sector.