Lagos, Nigeria (VOICE OF NIJA)- THE National Pension Commission (PenCom) has granted a 24-month regulatory forbearance allowing Pension Fund Administrators (PFAs) to invest in a wider range of securities issued by the parent companies of their respective Pension Fund Custodians (PFCs), in a move aimed at improving portfolio diversification and long-term returns for pension contributors.
PenCom said the temporary regulatory relief reflects prevailing market conditions, including operational constraints and the limited supply of quality investable instruments in Nigeria’s domestic capital market.
According to the Commission, the measure is expected to provide PFAs with greater investment flexibility, broaden the universe of eligible assets and strengthen their ability to deliver optimal risk-adjusted returns while meeting their fiduciary responsibilities.
“The Commission hereby extends its existing regulatory forbearance to permit Pension Fund Administrators (PFAs) to invest in a broader range of securities issued by the parent companies of their respective Pension Fund Custodians.
“This measure would enhance portfolio flexibility, broaden the investable universe, improve diversification, and strengthen PFAs’ ability to achieve optimal risk-adjusted returns in line with their fiduciary obligations,” PenCom said.
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Under the new framework, only parent companies of Pension Fund Custodians that are licensed financial institutions regulated by the Central Bank of Nigeria (CBN) will qualify for investment.
Eligible firms must also be publicly listed on a Securities and Exchange Commission (SEC)-recognised securities exchange and demonstrate strong financial fundamentals, including sustained profitability, consistent dividend payments, regulatory compliance and the absence of unresolved enforcement actions.
To mitigate concentration and conflict-of-interest risks, PenCom introduced strict exposure limits across asset classes and Retirement Savings Account (RSA) fund categories.
For equity investments, PFAs may invest up to 3 percent of the net asset value of Funds I, II, V-Growth and VI-Active in the ordinary shares of a qualifying PFC parent company. The limit is 1 percent for Funds III, IV, V-Conservative and VI-Retiree.
Exposure to corporate bonds issued by eligible parent companies is capped at 5 percent for higher-risk funds and 3 percent for conservative and retiree-focused funds.
PenCom also stipulated that total exposure to a single PFC parent company’s equities and bonds must not exceed 5 percent of an RSA fund’s consolidated net asset value, while overall exposure to all securities issued by the parent company—including money market instruments—is limited to 10 percent.
For lower-rated debt instruments, PFAs may invest a maximum of 20 percent of any “A”-rated corporate bond issue and 15 percent of any “BBB”-rated issue issued by a qualifying PFC parent company.
The Commission directed PFAs to implement enhanced governance and risk management procedures before making any investment under the forbearance arrangement.
Every proposed investment must undergo independent review by the PFA’s Investment Committee, Risk Management Unit and Compliance Department before receiving final approval from the board of directors.
In addition, PFAs are required to maintain a dedicated PFC-Party Conflict Register and submit quarterly reports to PenCom detailing investments in PFC parent companies, including acquisition dates, market valuations and portfolio exposure levels.
The regulator also directed that all such exposures be clearly disclosed in audited financial statements issued to Retirement Savings Account holders.
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Furthermore, any breach of prescribed investment limits or any material financial distress affecting a qualifying parent company must be reported to PenCom within 48 hours.
The Commission stressed that investments involving related parties must be conducted strictly on arm’s-length terms and be subject to the same fiduciary standards applicable to all pension assets.
The latest directive follows PenCom’s revised pension investment regulations issued earlier this year, which increased the permissible equity allocation across several RSA fund categories.
The reforms were widely viewed as part of broader efforts to provide Pension Fund Administrators with greater flexibility in portfolio construction, improve long-term investment performance and support liquidity and capital formation in Nigeria’s financial markets.
The new 24-month forbearance is expected to further expand investment opportunities for PFAs while maintaining safeguards designed to protect contributors’ retirement savings.
