The National Pension Commission (PenCom) has extended regulatory forbearance for Pension Fund Administrators (PFAs), allowing them to invest pension assets in securities issued by the parent companies of their Pension Fund Custodians (PFCs) for another two years.
The new investment window, contained in a circular released earlier this month and signed by the Director of Surveillance Department, A.M. Saleem, is expected to provide PFAs with greater flexibility to diversify pension portfolios amid limited availability of quality investment instruments in the domestic market.
PenCom said the temporary relief would remain in effect for 24 months, adding that the policy was designed to expand investment opportunities without compromising the safety of contributors’ retirement savings.
The Commission explained that the decision was based on prevailing conditions in the financial market, including operational constraints within the financial system and the shortage of suitable investment options.
According to PenCom, the measure would “enhance portfolio flexibility and broaden the investable universe, enhance diversification, and improve PFAs’ ability to achieve optimal risk-adjusted returns in line with their fiduciary obligations.”
However, the pension regulator warned PFAs against giving preferential treatment to securities linked to their custodians, stressing that contributors’ interests must remain the priority in all investment decisions.
PenCom stated that the relationship between a security issuer and a custodian must not influence investment decisions.
“The mere fact that a security is connected to a custodian must never justify preferential treatment,” the Commission said, noting that all investments must meet the same fiduciary standards applicable to pension assets.
Under the new framework, only parent companies that meet strict eligibility requirements will qualify for investment.
Eligible companies must be licensed financial institutions regulated by the Central Bank of Nigeria (CBN), publicly quoted on Securities and Exchange Commission (SEC)-recognised exchanges, and have demonstrated strong records of profitability, dividend payments and regulatory compliance.
PenCom also introduced exposure limits to prevent excessive concentration of pension assets.
For active Retirement Savings Account (RSA) funds, investments in ordinary shares of a custodian’s parent company are capped at three percent, while conservative and retiree funds are restricted to one percent.
Bond investments in custodian-linked parent companies are limited to five percent for active RSA funds and three percent for conservative and retiree funds.
The Commission further ruled that the combined exposure of an RSA portfolio to equities and bonds issued by the same custodian’s parent company must not exceed five percent of its net asset value.
Total exposure to all securities issued by the same company is also restricted to a maximum of 10 percent.
To strengthen corporate governance, PenCom directed PFAs to subject every proposed investment involving a custodian-linked company to independent reviews by their Investment Committee, Risk Management Unit and Compliance Department before approval.
The regulator also instructed PFA boards to establish formal policies guiding such investments and ensure that investment committees can demonstrate that every transaction serves the best interests of Retirement Savings Account holders.
PFAs are also required to prove that custodian-related investments provide competitive returns compared with alternative investment opportunities.
In addition, PenCom tightened conflict-of-interest controls by requiring PFAs to maintain a formal register of all investments involving custodian-related entities.
Officials with any personal or professional relationship with the issuing company or custodian group must disclose such interests and withdraw from the approval process.
For greater transparency, PFAs must submit quarterly reports on all investments made in parent companies of their custodians.
Audited financial statements must also disclose these exposures in clear language that contributors can easily understand.
The Commission further directed PFAs to report any breach of investment limits or financial distress involving a custodian’s parent company within 48 hours.
The latest directive reflects PenCom’s effort to balance the need to expand investment opportunities for pension fund managers with the responsibility of protecting the retirement savings of millions of Nigerian workers through stronger governance, transparency and risk management measures.
