Pension Multi-Fund Frequently Asked Questions

Pension asset

The National Pension Commission (PenCom) on  July 1 started the implementation of Multi-Fund investment structure, a new investment regulation that allows pension contributors to make choices on how they want their pension fund invested based on their risk appetite.

The new initiative, according to PenCom would help improve returns on pension funds.

Sadly, the contributors, also known as Retirement Savings Account (RSAs) holders under the Contributory Pension Scheme (CPS), are not aware of the new development.

Findings by Brand Spur Nigeria showed that there is low awareness and inadequate communication to the contributors, especially on the part of Pension Fund Administrators (PFAs).

The Multi-Fund structure is a framework that aims to align the age and risk profile of RSA holders by dividing the RSA Fund into three fund types and retaining the Retiree fund.

The various fund types are:

FUND I: Contributors must write formally to opt for this fund

FUND II: This is the default fund for active contributors aged 49years and below

FUND III: This is the default fund for active contributors aged 50years and above

FUND IV: This is the retiree fund

Features of the various Funds

The four funds differ according to their overall exposure to variable income instruments as follows:

FUND 1 75% 20% Strictly based on request but not accessible to Retiree and active contributors of 50 years and above
FUND 11 55% 10% Default for active contributors of 49 years and below
FUND 111 20% 5% Default for active contributors of 50 years and above
FUND IV 10% 0% Strictly for Retirees

What are Variable Income Instruments?

Variable income instruments are investments that generate returns that cannot be pre-determined from the date the investments were made. The prices of these investments fluctuate daily. Instruments in this category include Ordinary shares, Collective Investment Schemes (CIS) such as Mutual Funds, Private Equity Funds, Infrastructure funds, Real Estate Investment Trust.

What has age and risk profile got to do with how my pension funds are invested?

In investing money, everyone has a limit to the amount of risk that they can take and the amount of uncertainty they can handle. This is known as risk tolerance. Typically, younger people tend to have more capacity for risk because they still have time to recover from loses (if any). Once a person is nearing retirement, it is advisable that they limit the number of risks they take and reduce exposure to uncertainty as they would start drawing down on their pensions within a short period. Consequently, the allowable exposures to variable income instruments have been designed such that Fund I has the highest allowable limit, followed by Fund II, III and IV respectively. This reduces the risk and uncertainty of contributors in line with their ages.

Can I decide which Fund type to be assigned to?

All active members that are 49 years and below will be placed in Fund II and active contributors above 50 years would be placed in Fund III. However,   subsequently, active contributors can apply to switch between funds. An active contributor can switch from Fund II to Fund I while an active contributor in Fund III can switch to Fund II. All retirees and active contributors above 50years cannot switch to Fund I.

What are the requirements for switching from one fund type to another?

To switch from one fund to another, the contributor must submit a formal request to his PFA

What additional information do I need to know on the switch?

An active contributor may switch from one Fund type to another Fund type within a PFA a maximum of two times in a calendar year (subject to a formal application). While the 1 st request is free, the 2nd request to switch between Funds within a 12 month period by the active Contributor shall attract a fee of N1,000.00

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Are there any benefits to this multi-fund structure?

Yes, there are. The new structure allows RSA holders more control over how their pension funds are invested based on their risk tolerance. For instance, an RSA holder in Fund III owing to the default classification based on age may have more tolerance for risks and uncertainty and could opt to be assigned to Fund II.

What impact does Multi-Fund structure have on my future pension assets at the point of retirement?

The multi-fund structure provides more alignment between your retirement goals, risk appetite, and age. Consequently, there will be a better chance for your pension assets to meet your expectations when you retire.

What are the impacts on my pension balance when my PFA moves into the multi-fund structure?

The balance in your RSA will not change due to the movement to the multi-fund structure because your entire balance will be moved, hence at inception, your balance remains intact. However subsequent growth in your balance will depend on your contributions, voluntary contributions as well as the returns generated by your PFA.

Will I have access to information about the funds?

The fund prices on all funds will be published daily on the websites of the PFAs and the annual financial reports of the RSA Funds of all PFAs are published in at least 2 national dailies.

What are the multi-fund options for Approved Existing Schemes?

Approved Existing schemes are governed by the Board of Trustees (BOT) who have the right to structure the portfolio in the best interest of beneficiaries subject to PENCOM approval. Consequently, the Board of Trustees of contributory Already Existing Scheme (AES)can amend their agreements and restructure them along the lines of the Multi-Fund structure if they choose to.

Do I need to seek an advice from an external financial advisor or my PFA before taking a decision to switch?

Whilst you are at liberty to seek advice from external financial advisers, we would make information available on the fund performance and indices to enable you to make an informed decision

If my date of birth is wrongly captured, which Fund Type will my PFA profile me?

You will be profiled based on the age we have for you on our records. Please check your records and notify us if you observed that your date of birth is wrong on our records.

Will I be able to move back to the preferred fund free of charge after my date of birth correction (especially when my date of birth was wrongly captured by my PFA)?

Yes, you will be able to move free of charge given that a contributor has the option to move for free once within 12 months.

Is it possible for a client below 50 years to move to fund III?

No, Fund III is strictly for active contributors of 50 years and above.

Can I split my voluntary contribution in a separate Fund Type while my mandatory goes into another Fund Type?

Every RSA holder is entitled to only one RSA PIN for all types of contributions. Consequently, your voluntary contribution will be in the same Fund as your mandatory contribution.