The Nigerian Pension Funds has been under performing since it came into force under the new Pension Act about a decade ago. Nairametrics featured a research some weeks back which showed just how underperformed some of these assets are.
It appears though that the National Pension Commission is about to change things drastically. According to an article in the Punch, the fund is planning to introduce in July, a multi-fund structure for RSA funds to address the varying risk appetite of contributors.
The investment structure would be categorised into four groups depending on the age of the pension contributors and these comprised employees below 35 years, those between 35 and 45 years, 50 years and those ready to retire.
The article quoted the Head, Investment Supervision Department, National Pension Commission, Mr. Ehimeme Ohioma as saying;
“The young ones, that is, people below 35 years have between 20 and 25 years to work. Their funds will be invested in variable income securities that have higher returns because they are long-term. These funds generate returns above inflation returns.
We will have more investments in ordinary shares, mutual funds and infrastructural funds. For people between 35 and 45 also, the percentage of investment in variable income securities may not be as high as people below 35 years because as you grow older, your risk capital reduces and the percentage of investment will be lower.
For people above 50 years and not retired, you are close to retirement and your fund will be invested in a way that will be beneficial to you. Less investment in variable income security and more investment in fixed income security.”
This basically suggest younger Pension Contributors will see their contributions take a risky turn as fund managers now have the mandate to invest their pension contributions in higher risk and high yielding assets. Whilst implementation is key, this move makes a lot of sense to Nairametrics as pension contributions does vary according to risk appetites and age of the contributors.
A younger person for example can take more risk, whilst an older person close to retirement will likely be risk averse. This will also properly measure the performance of PFA’s as they now have wider pool of investments that should help separate the wheat from the chaff.
We also hope some form of marked to market valuation of assets may also be considered to ensure PFA’s are kept on their toes.