• Login
  • Register
Nairametrics
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
Nairametrics
No Result
View All Result
Home Markets Fixed Income Funds Management

Pension multi fund structure explained

Uche Ndimele by Uche Ndimele
June 26, 2018
in Funds Management, Investment Tips, Markets
FBN Money Market Fund, Understanding How Mutual Fund and ETFs Work in Nigeria
Share on FacebookShare on TwitterShare on Linkedin

The National Pension Commission, PenCom, is getting ready to start implementing the Retirement Savings Account, RSA, Multi Fund structure from July 1st, 2018.  The proposal is built on the objective of achieving a proper alignment between the assets and liabilities of pension funds as well as making pension fund investments in line with the risk appetite and profile of pension contributors. According to available regulatory documents, the multi fund structure shall comprise Fund 1, Fund 2, Fund 3 and Fund 4, which will differ between each other according to their overall exposure to variable income instruments.

While Fund 1 is allowed a maximum exposure of 75% of portfolio value to variable income instruments, Fund 2 can only be exposed to such instruments to the maximum of 55% while Fund 3 and Fund 4 will be allowed a maximum exposure of 20% and 10% respectively. In like manner, there are stipulations for minimum exposure as well. These are 20% for Fund 1, 10% for Fund 2 and 5% and 0% for Funds 3 and 4

The determination of what fund you belong to shall almost exclusively be based on your age. Membership of Fund 1 is strictly by choice made by the pension contributor while membership of Fund 2 is for contributors that are 49 years or younger, those that are 50 years or older belong to Fund 3 while Fund 4 is for RSA retirees only.

RelatedStories

PFA, Nigerian University Pension Management Company,

Best performing pension funds in Nigeria for February 2025 

March 14, 2025
PFA, Nigerian University Pension Management Company,

Best performing Pension Funds in Nigeria in 2024

January 21, 2025

Contributors in Fund 2 can migrate to Fund 1 if they so wish so far as they make a formal request while those in Fund 3 can also migrate to Fund 2 upon formal request. However, no member of Fund 4 above the age of 50 is allowed to migrate to Fund 1 but you can only make a switch from one fund to the other once in 12 months free of charge, any switch request that is more frequent than 12 months intervals attracts a yet to be determined fee.

Unanswered Questions

The multi structure is a good development in that it will free pension fund managers to invest in variable income securities like equities, ETFs and mutual funds which will in turn increase market activities and add to the vibrancy of the market. It will also help pension contributors in meeting their retirement savings target. Every pension fund manager has devoted some pages on their website to frequently answered question on multi fund structure but there still seem to be some unanswered questions in the multi fund structural system. The system assumes that contributors’ risk appetite or profile is determined solely by their age. That assumption may not be totally correct. Risk appetite can be affected by ones’ current financial and family circumstances. A first-born child aged 29 who has 8 siblings still in school and whose parents are retired may have a risk appetite for Fund 4 while a 55-year-old retiree who has some money in a fixed deposit account in a bank somewhere and who also has life insurance policy, may have the risk appetite for Fund 1.

The question then is, how will the proposed fund structure accommodate a 29-year-old contributor whose family and financial circumstance puts him as a risk averse investor that fits into Fund 4 category?  And how will the proposed fund structure accommodate a 55-year-old contributor whose family and financial circumstance puts him as a risk loving investor that fits into Fund 1 category?

It looks like one can only switch from Fund 2 to 1 or 3 to 2 and not the other way around, like from 2 to 3, or 1 to 3. What if, for example, a contributor in Fund 1 thinks that the equity market is doing very poorly and wants to move to Fund 3 instead, for a temporary period of time after which such a contributor would move back to Fund 1.

Split between funds

It does not look like the regulation provides for a split between funds. Investors sometimes like to have some safe landing by hedging their risk in one way or another. What if a contributor wants to get the best of both worlds by being partly in Fund 1 for higher return and partly in Fund 3 or 4 for safety. How would those who want to divide their contributions between 2 or more funds be accommodated?

Management Fees

As it stands, investments in Fund 1 and probably Fund 2 will require active management by the fund manager as they are likely to involve more rebalancing while investments in Funds 3 and 4 may not require so much active management. Given the nature of invests in Fund 1 compared to Fund 4 and the requirement for rebalancing to stay within regulatory demands, there is the likelihood that Fund 1 will gain more than 4 over time, of course, depending on the stock market. How then will a fund 4 contributor with minimal gain be charged the same fee, of N100 or the like, as one in Fund 1 who demands active management and generates more gains?

Valuation and Reporting

The multi structure system may introduce some fund accounting or valuation issues. How will RSAs valuations be reported on a daily or monthly basis. Will the prices of the Funds differ one from the other? For example, let’s assume that on July 1, the funds are valued as follows:

Fund 1——————–N100

Fund 2——————-N100

Fund 3——————-N100

Fund 4——————-N100

Then by the end of the month the funds make the following profits/losses after fees

Fund 1——————– (N10) loss

Fund 2——————-N10 gain

Fund 3——————-N11 gain

Fund 4——————-N12 gain

Will the valuations of the funds be as follows as at July ending?

Fund 1——————–N90

Fund 2——————-N110

Fund 3——————-N111

Fund 4——————-N112

Or are we going to have a weighted average price for the 4 funds in one RSA fund?

Though we have posed these question to the National Pension Commission, PenCom, we have not received any response but  these and other issues need to be addressed and communicated to contributors, so they know what they are getting into.

 


Follow us for Breaking News and Market Intelligence.
Tags: Multi fund structurepension funds
Uche Ndimele

Uche Ndimele

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

Related Posts

PFA, Nigerian University Pension Management Company,
Fixed Income

Best performing pension funds in Nigeria for February 2025 

March 14, 2025
PFA, Nigerian University Pension Management Company,
Fixed Income

Best performing Pension Funds in Nigeria in 2024

January 21, 2025
Aisha Dahir-Umar - PenCom
Fixed Income

Pension fund assets rise to N19.787 trillion as of April 2024 – PenCom

June 18, 2024
CrusaderSterling Pensions, PFA, RSA Pension, Pensions
Financial Analysis

Analysis: 2023 Premium Pension Corporate and Pension Fund Accounts for the year ended December 2023

April 29, 2024
Pension: 73,600 informal sector workers register for Contributory Scheme in December 2021
Fixed Income

‘Pension fund assets rise to N19.531 trillion as at January ’24’ – PenCom  

March 14, 2024
CrusaderSterling Pensions, PFA, RSA Pension, Pensions
Funds Management

Public sector’s contribution to pension funds exceeds that of private sector by N370 billion by Q2 2023

December 18, 2023
Next Post
Dangote Sugar Plc appoints new Group Managing Director

Dangote Sugar Plc appoints new Group Managing Director

Comments 2

  1. Rahman Eyiowuawi says:
    June 29, 2018 at 3:34 pm

    The MFS shld only apply to vuluntary contributions and at contributors request. Exposure of RSA shld b very minimal considering d complete lack of transparency in the capital market. Pencom shld be ready to bear all losses dt this will generate. RSA funds are volatility stabilusation funds with very minimal exposuees

    Reply
  2. Quantitative Financial Analytics Ltd says:
    June 29, 2018 at 10:24 pm

    Agreed but the MFS have different risk exposures to the market, with fund 1 being the most exposed and fund 4, the least, so for those with low risk tolerance, the choice should be fund 3 or so. It is this concern for risk like you expressed that is the motivation for the MFS

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Emple
nlng
first bank
Zenth Bank








DUNS

Recent News

  • Onga ignites African culture and storytelling at AMVCA 2025 Culture Day with festival of flavours 
  • Anambra Govt acquires land in Aguata, Orumba for new industrial city 
  • US-based Nigerian archaeologist Abidemi Babalola wins $300,000 Dan David Prize  

Follow us on social media:

Recent News

Onga ignites African culture and storytelling at AMVCA 2025 Culture Day with festival of flavours 

Onga ignites African culture and storytelling at AMVCA 2025 Culture Day with festival of flavours 

June 12, 2025
UNDP partners with Anambra State to establish Innovation Makerspace 

Anambra Govt acquires land in Aguata, Orumba for new industrial city 

June 12, 2025
  • iOS App
  • Android App
  • Contact Us
  • Home
  • Markets
  • Sectors
  • Economy
  • Business News
  • Financial Literacy
  • Disclaimer
  • Ads Disclaimer
  • Copyright Infringement

© 2025 Nairametrics

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms below to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
Social Media Auto Publish Powered By : XYZScripts.com
No Result
View All Result
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Login
  • Sign Up

© 2025 Nairametrics