Renaissance Capital Africa has raised critical concerns over the National Pension Commission’s (PenCom) latest recapitalisation directive, warning that while the reforms aim to fortify Nigeria’s pension industry, they may inadvertently undermine the economics of Pension Fund Administrators (PFAs) and trigger over-capitalisation across the sector.
In a circular issued on 26 September 2025, PenCom revised the minimum capital requirements for PFAs and Pension Fund Custodians (PFCs), citing the need to enhance financial stability, operational efficiency, and long-term viability.
In a report titled ‘Pension Industry Reforms, (Over)Strengthening the Pillars’, Renaissance Capital acknowledges the strategic intent behind the reforms but cautions that certain provisions, particularly those affecting PFAs with large asset bases, could distort market incentives and discourage growth.
Capital Requirements: A Mixed Bag
Under the new framework, PFAs with Assets Under Management (AUM) below N500 billion must maintain a minimum capital of N20 billion. Those with AUM exceeding N500 billion face a variable requirement of N20 billion plus 1% of the excess AUM. PFCs must now hold N25 billion plus 0.1% of Assets Under Custody (AUC).
Special-purpose PFAs, such as NPF Pensions Limited and Nigerian University Pension Management Company Limited, are subject to even higher thresholds of N30 billion and N20 billion, respectively.
New entrants into the pension space must meet these capital requirements immediately, while existing operators have until 31 December 2026 to comply.
Why Recapitalisation Is Justified—To a Point
Renaissance Capital notes that the last capital review occurred in 2021, when the minimum requirement for PFAs was N5 billion. Since then, PFAs’ AUM has grown at a compound annual rate of 16%, driven by strong investment returns and foreign asset revaluations following the Naira’s devaluation in 2023 and 2024.
The firm argues that this growth, coupled with recent regulatory changes allowing PFAs to invest in higher-risk instruments such as securities lending, repos, infrastructure, and private equity, necessitates stronger capital buffers.
These asset classes introduce greater operational and counterparty risks, making enhanced capitalisation a prudent safeguard.
But the Economics Don’t Add Up
Despite acknowledging the need for stronger buffers, Renaissance Capital warns that the variable capital requirement for PFAs with AUM above N500 billion is misaligned with the risk profile of their operations.
PFAs typically earn a 1% fee on AUM, and the new rule effectively mandates that they reinvest this income into capital buffers, despite not bearing market risk.
“This disincentivises PFAs from growing their AUMs beyond N500 billion and makes the business less attractive to shareholders and investors,” the report states. The exclusion of statutory reserves from qualifying capital further compounds the issue, potentially leading to indefinite profit retention and over-capitalisation.
Renaissance Capital recommends a fixed capital requirement model, arguing that PFAs primarily bear operational, not market, risk. “The tiering of PFAs resulting from the recapitalisation rules ultimately serves as a disincentive and skews the market,” the firm adds.
Consolidation Wave Incoming
The new capital thresholds are expected to catalyse another round of industry consolidation. Renaissance Capital estimates that PFAs will need to raise an additional N275.7 billion to meet the revised requirements, with larger PFAs facing the bulk of the shortfall.
While dominant players are likely to leverage their group balance sheets to comply, smaller PFAs may struggle, opening the door for mergers and acquisitions. This echoes the 2021 recapitalisation wave, which saw Tangerine Pensions emerge from a series of acquisitions, and GTBank enter the sector through its acquisition of Investment One Pension Managers.
The number of PFAs has already declined from 22 to 17, following Leadway Pensure’s acquisition of PAL Pensions. Renaissance Capital expects further consolidation to reshape the “Big Five” structure currently led by Stanbic IBTC, Access ARM, Leadway-PAL, Premium, and NPF Pensions.
PFCs and Profit Retention
For PFCs, the estimated capital shortfall stands at N28.9 billion. First Pension Custodian, Zenith Pensions Custodian, and UBA Pensions Custodian will need to raise N6.4 billion, N8.2 billion, and N14.3 billion, respectively. However, their affiliation with large banking groups is expected to ease the recapitalisation process.
The reforms may also impact dividend payouts, as PFAs and PFCs, particularly those within tier-I banking groups, prioritise profit retention to meet capital targets.
Renaissance Capital notes that while the effect on group-level dividends will be minimal, internal capital allocation strategies may shift in the short term.
