Pushing for a more vibrant pension scheme In Nigeria

Going by a recent report from the National Pension Commission (PENCOM) on the general acceptance of pension in Nigeria and the assets garnered over the years, one can conclude that the scheme is gradually gaining momentum in Nigeria. The report shows that Nigeria experienced a Compound Annual Growth Rate of 20.24% from 2011 to 2016, with pension assets rising from N2.45 trillion in December 2011 to N6.16 trillion in December 2016.

With this, we can say that the pension scheme is gradually moving up to a place where it would effectively meet the retirement goals of pensioners.  More of the credit, however, will go to the Pension Reform Act (PRA) 2004 and the Pension Reform Act (PRA) 2014, which gave birth to PENCOM, and is giving rise to some innovation in the administration of pension funds in Nigeria.

To further boost the effectiveness of retirement savings by aligning it with strategic retirement goals of contributors, PENCOM has introduced a rather interesting regulatory regime, which will ensure that the funds of contributors are appropriately invested according to how receptive or averse they are to risks. Under this new regime, the active Retirement Savings Account Fund has been broken into four funds to reflect different levels of tolerance for risk. Simply known as the Multi-Fund Structure, the pension fund administration framework is planned to commence in January 2017.

In simpler terms, the Multi-fund Structure will ensure that your RSA is not exposed to risks beyond your risk appetite. Fund 1 is aptly dubbed the aggressive fund; Fund 2 is the balanced fund; Fund 3 is the conservative fund; while Fund 4 is simply called the retiree fund. What this means is that contributors, based on their age and the level of risk they are willing to take with their savings, can achieve more or less returns to align with their strategic objectives.

Talking about how vibrant your RSA can become with the Multi fund structure, it is important to note that Fund 1 is for contributors with a high-risk appetite and it is open only to pensioners below 50 years. The aggressive fund will have a 20 to 75% exposure to variable income instruments.  It is suitable for the young who are not close to retirement because they still have enough time to realize potential gains and recover from potential losses. Persons who are 50 years and above cannot subscribe to this fund.

With Fund 2, the balanced fund, pension savings are exposed to less risk when compared to Fund 1. With a 10 to 50% exposure to variable income instruments, this vehicle is for contributors are below 50 years but prefer moderate risk.  However, this fund is also open to contributors above 50 years who are in Fund 3 (50-60 years), albeit by choice.

Fund 3, the conservative fund, has a 5-20% exposure to variable income instruments, and is designed for contributors who are above 50 years and are close to retirement.  They have a low risk appetite due to their age. The commission also recognizes that some people in this age bracket may have a higher risk appetite.  Such individuals may elect to subscribe to Fund 2.

The beauty of the multi-fund structure is that it puts the power in your hands to determine the level of investment risk your pension account should be exposed to, offering you the opportunity to switch between funds when you so desire, under certain terms and conditions. The Multi-fund structure is mandatory for all Pension Fund Administrators and, based on your age, your RSA will be allocated to either Fund 2 if you are below 50 years old or Fund 3 for people above at the inception of the new regime. Subsequently, contributors can choose to switch between funds, based on their risk tolerance.

With the kick-off of the new fund regime, Leadway Pensure, according to its officials, will ensure that the various pension accounts under its management are appropriately allocated. Account holders will also enjoy the benefit of being regularly updated with trends across the various funds and their investment portfolios, in order to aid their decision-making.

The future is looking brighter, particularly where it concerns retirement savings and its management.