Pension: What happens if a PFA or PFC fails, liquidated?

Pension: What happens if a PFA or PFC fails, liquidated?

Without sound corporate governance, integrity contributory pension scheme would be a very risky venture.

As such, retirement planning would be a disaster but the National Pension Commission (PENCOM) has covered grounds in every areas where pensioners could be affected by potential failings.

Here are some of the provision in the Pension Act 2014 as regards corporate governance and integrity of contributory pension scheme.

  1. How does PenCom ensure the soundness of Pension Fund Administrators and Custodians?

PenCom ensures that only fit and proper persons are appointed as Directors and Top Management of the PFAs and PFCs.

It also entrenched sound corporate governance in the pension industry.

This is strictly monitored through off-site supervision to review the reports submitted by the PFAs and PFCs on periodic basis;Pension: What happens if a PFA or PFC fails, liquidated?

…and on-site examination to physically review their books and records, on annual basis, to confirm that their operations are within the confines of the law.

  1. What happens if a Pension Fund Administrator fails or is liquidated?

Pension funds and assets are kept in safe custody by the Pension Fund Custodians and, as such, the liquidation of the PFA will not affect the funds and assets.

In such situations, PenCom will transfer the records of the failed or liquidated PFA to another PFA.

In addition, every PFA is expected to maintain a statutory reserve fund, from its earnings, as contingency fund to meet claims for which it may be liable.

  1. What happens where a Pension Fund Custodian fails or is liquidated?

The failure or liquidation of a PFC will not affect the pension assets in its custody as it only keeps investment certificates and records.

The only cash being held by the PFC comprises of monthly contributions before decisions are made by the fund administrator to invest the amount contributed; and matured investments before reinvestment by the PFA.

In addition, PenCom has the power and responsibility in such situations to transfer the pension fund assets being held by any failed PFC to another PFC.

  1. Can my contributions be used to settle liabilities of a failed PFA or PFC?

Pension funds cannot be used to meet any claim in the event of liquidation, winding up or cessation of business of the PFA or PFC or any of their shareholders.

  1. Can an organization own shares in both a PFA and a PFC?

In order to prevent conflict of interest, an organization should not own shares in a PFA and a PFC at the same time, but it can have shareholding in more than one PFA or PFC.

Read more: Analysts Maintain Buy Rating on Sterling Bank, Set Price Target to ₦1.43

  1. Can an individual or organization own controlling shares in more than one PFA or PFC?

Pension Act provides that where an individual or institution owns shares in more than one fund administrator or custodian, he/she cannot have significant shareholding (5% and above) in more than one PFA or PFC.

  1. Can a PFA keep pension fund assets with a PFC in which the PFA has business interest?

Section 77(2) of the PRA 2014 prohibits a PFA from keeping any pension fund assets with a PFC in which it has any business interest, shares or any relation whatsoever.

  1. Can pension funds be attached for the execution of judgment debt of a PFC?

The PRA 2014 provides that pension funds or assets in the custody of the PFC shall not be seized or be subject of execution of a judgment debt.

  1. Is a Pension Fund Administrator allowed to invest pension fund assets in its own shares?

A PFA is prohibited from investing pension fund assets in the shares or any other securities issued by itself or its PFC and also in investing in shares or any other securities issued by a shareholder or related party of the PFA or its PFC.

  1. Can government borrow from the Pension Funds?

Pension funds cannot be borrowed directly by Governments at Federal, States and Local levels.

However, PFAs are allowed to invest pension assets in Treasury Bills issued by the Central Bank of Nigeria (CBN) or Bonds (including Sukuk) issued by the Federal or State Governments and approved by the Securities & Exchange Commission (SEC) and other relevant institutions.

Pension: What happens if a PFA or PFC fails, liquidated?