In this exclusive interview with the Nation newspaper, the Director General of the National Pension Commission (PenCom) explained the reasons for the increase in the minimum share capital of Pension Fund Administrators (PFAs) and one of which is ensuring the safety of the pension assets due to its exponential growth over time.
Read the excerpts of the interview below.
Why the increase in PFA’s Shareholders Fund?
The upward review of the minimum regulatory capital from N1 billion to N5 billion for Pension Fund Administrators (PFAs) became expedient as the value of pension assets under management and custody had grown exponentially by 244 percent; from N3 trillion in 2012 when the previous recapitalisation was done, to N12.29 trillion as at December 31, 2020.
In addition, the total number of contributors had increased to 9.33 million as at December 31, 2020. The sustained growth in assets implies greater fiduciary responsibilities and requires more operational capacity by the PFAs.Consequently, increased capital injection into the PFAs became necessary to maintain service standards and growth potentials of the pension industry. The increase in the shareholders’ fund will enable the PFAs to employ and retain skilled staff and ensure the adequacy of resources to fund operational requirements like Information Communication Technology (ICT) infrastructure, branch office expansion and other activities. In addition, the new minimum capital requirement would enable the PFAs absorb potential operational and investment risks as well as improve their business processes.
What is the update on the increase in the PFA’s shareholders’ fund?
The new minimum regulatory capital for PFA was approved by the Board of the commission in April 2021 and PFAs have been given a 12-month transition period to meet up with the new capital of N5 billion. The Commission is aware that the pension operators are evaluating the various options open to them to attain the new capital requirement. The commission is monitoring the process closely and whichever option a PFA chooses, will be subjected to the commission’s approval processes.
How would recapitalization affect the PFCs?
The operations of the Pension Fund Custodians (PFCs) are not affected by the recapitalization of the PFAs.The PFCs are wholly owned by big licensed financial institutions and are adequately capitalized.
PFAs have been given a 12-month window and are expected to increase their share capital otherwise known as Shareholders’ Fund to N5 billion latest by the first quarter of 2022. PensionTalk shall keep you updated on the developing story on this report.
Source: The Nation