Since the introduction of the Multi-Fund structure regime (aka Life Cycle investment structure) into the Nigerian pension industry in July 2018, there have been series of questions regarding the operations of the multi-fund structure.
Interestingly, the Multi-Fund structure as introduced by the pension industry regulator (PenCom) was introduced to among others:
– Achieve optimum returns for contributors by aligning their pension savings with their individual risk/return profiles.
– Provide investment portfolio choices to contributors.
– Enhance the safety of pension assets through adequate portfolio diversification
The points noted above are the core reasons, according to PenCom, the Multi-Fund regime was created.
One would definitely not fault the reasons the Regulator has decided to enhance the operational cum investment capabilities of pension funds especially when the pension fund assets are growing at a progressive rate.
For almost 15 years the Contributory Pension Scheme has started in Nigeria, total assets under management by various PFAs have grown progressively from about 815 billion naira in 2007 to over 8.6 trillion naira with over 8.4 million contributors as at December 2018. It is therefore necessary to introduce a robust operational and investment process to cater for various risk profiles of different contributors who can take different levels of risks depending on their risk appetites and expected years of active working life.
How The New Multi-Fund Structure Works
In the new Multi Fund structure regime, we have the following Funds categories:
– Fund I: This is the Fund for contributors that are below 50 years old and they choose to be here by choice.
– Fund II: This is the default Fund for contributors that are below 50 years old. Contributors who wish to go out of here will have to make a request to the PFA to do so. It is formerly known as the RSA Active Fund before the Multi-Fund regime.
– Fund III: This is the default Fund for contributors that are 50 years and above who are still in active service.
– Fund IV: This is the Fund for the retirees. Once a contributor retires from active service, he or she is automatically moved to this Fund. It is formerly known as the Retiree Fund before the Multi-Fund regime.
– Fund V: This is the Micro Pension Plan (MPP) Fund for contributors who are eligible to participate in the newly launched MPP. The minimum age for participation here is 18 years.
– Fund VI: This is Non-Interest Fund for contributors who choose to have their pension contributions invested in Non-interest and ethical investment products.
In our next article, we shall discuss the various types of movements that occur between the different RSA Funds under the Multi Fund structure.