In furtherance of its sustained initiatives to improve pension fund management in the country, the National Pension Commission (PenCom) has issued new regulatory guidelines aimed at standardizing the methodology for calculating and reporting investment performance across pension portfolios.
The commission, in a circular signed by its Head of the Surveillance Department, Mr. A.M. Saleem, and addressed to all Licensed Pension Fund Operators (PFOs), outlined a comprehensive framework designed to enhance transparency, promote long-term investment strategies, and reduce short-term decision-making among Pension Fund Administrators (PFAs) in the country.
Under the new guidelines, which took effect from July 1 this year, PFAs are required to calculate the rate of return over a 36-month period and convert it into an equivalent annual rate, expressed as a percentage up to four decimal places.
For unitised funds, the calculation involves computing the nth root of the ratio between the accounting unit’s end value and its beginning value, subtracting one, and expressing the result as a percentage.
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On the other hand, for non-unitised funds, including Approved Existing Schemes (AES), Closed Pension Fund Administrators (CPFAs), and Additional Benefit Schemes (ABS), the PFAs are required to adopt the Time-Weighted Return (TWR) method to ensure consistency across diverse fund structures.
According to commission, the computation for the unitized and non-unitized funds must be performed monthly using a rolling 36-month interval. For example, to determine the annualized return as of November 30, 2024, PFAs will use the accounting unit value from October 31, 2021, as the starting point.
Also, the opening values used in these calculations must correspond to periods that have been audited and approved by PenCom.
Under the latest guidelines issued by the commission, apart from the performance metrics, PFAs are now mandated to report the Shape Ratio for each fund. This ratio will be calculated using the three-year average yield of the 10-year Federal Government of Nigeria (FGN) bond as the risk-free benchmark, alongside the fund’s standard deviation.
Similarly, the PFAs are required to publish monthly performance reports on each PFO’s website no later than the 10th day of every month.
The latest circular supersedes Sections 6.0 to 6.4 of the existing Regulation on Valuation of Pension Fund Assets. All inquiries regarding the directive should be directed to the Head of the Investment Supervision Department.
The PenCom clarified: “This circular is intended to ensure transparency and encourage sustainable, long-term investment strategies by minimizing short-term decision-making.”
Meanwhile, the Chief Executive Officer of Pension Fund Operators Association of Nigeria (PenOp), Oguche Agudah, reported that PenCom had recovered N4.57 billion from defaulting employers year-on-year as of the first quarter of this year.
The industry chief listed the recoveries as including N2.12 billion in outstanding pension contributions and N2.45 billion in penalties imposed on 138 employers, who failed to remit pension funds as required by law.
