The National Pension Commission (PenCom) introduced the Multi-Fund Investment Structure to align contributors’ risk appetite with their investment horizon at each stage of their life cycles. The structure also seeks to provide investment choices for contributors and enhance the safety of pension assets through adequate portfolio diversification.
The Multi-Fund Investment Structure resulted in the segregation of the RSA Funds into six distinct fund types, thereby allowing pension contributors and retirees to make specific choices regarding the investment of their pension funds. Three of the Funds (Fund I, Fund II, Fund III) for active contributors and (Fund IV) for retired contributors are aligned with their age and risk profiles, while Fund V and Fund VI serve the needs of contributors to the Micro Pension Fund and the Non-Interest Fund respectively. The default assignment of Retirement Savings Account (RSA) holders to fund type is as follows. However, they may choose to switch funds, subject to eligibility.
- Fund I: For contributors that are 49 years and below (by choice);
- Fund II: Default Fund for all active contributors that are 49 years and below;
- Fund III: Default Fund for active contributors that are 50 years and above;
- Fund IV: Retiree Fund only for retirees;
- Fund V: Micro Pension Fund for Micro Pension Contributors; and
- Fund VI: Non-Interest Fund for RSA holders who prefer their retirement
savings invested in ethical, non-interest-bearing instruments.
In this write-up, the Non-Interest Fund (Fund VI) will be our focus, and we will explore some of the elements that make it different from other RSA funds.
The Non-Interest Fund VI
The Non-Interest Fund VI is a fund type whose assets are invested in instruments that are both ethical and non-interest-bearing, in line with Non-interest Principles as approved by the Financial Regulation Advisory Council of Experts (FRACE). The objectives of the Non-Interest Fund include, amongst others, assisting in expanding the coverage of the Contributory Pension Scheme (CPS) by attracting employees with reservations about investments in interest-bearing instruments and promoting financial inclusion within the Nigerian financial system.
The overall objectives of pension fund investments of safety and maintenance of fair returns on investments, in line with Section 85 of the PRA 2014 and regulations/guidelines issued by the Commission, also apply to Fund VI. Furthermore, 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. It is important to remember that membership in Fund VI can only be at the instance of the RSA holder.
How to Transfer Pension Savings to the Non-Interest Fund VI
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. Accordingly, 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.
It is essential to highlight that implementing the Multi-Fund Structure is expected to facilitate pension investments towards the real sector, in line with the Commission’s vision of ensuring that pension funds make a measurable impact on the nation’s economy. 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 further provide viable investment outlets for pension funds.
To this end, pension contributors and retirees should understand the Non-Interest Fund and should not hesitate to enquire from their PFAs and look at the Operational Framework For Non-Interest Fund on the Commission’s website www.pencom.gov.ng.