PenCom Capital Rules Threaten PFA Returns, May Curb Investments and Innovation

…Stanbic IBTC, Access Holdings may see lower payouts from Pension subsidiaries

The move by the National Pension Commission (PenCom) to increase the capital base of Pension Fund Administrators (PFAs) could backfire and cause them to stop innovating or chill investments and returns in the sector, making it less attractive.

“The new capital requirements significantly change the return profiles of these businesses for their investors. While bearable in the short term, it may ultimately lead to under investment in these PFAs over the long term,” said Kato Mukuru, Equity Analyst at Emerging and Frontier Capital (EFC) in a 14 Oct. note to clients, seen by MoneyCentral.

PenCom increased the minimum capital requirements for PFAs (defined as shareholders’ funds unimpaired by losses, less the statutory reserve fund) to N20 billion (from N5 billion) for PFAs with assets under management (AUM) below N500 billion.

For PFAs with an AUM of N500 billion or more, the requirement has been revised to N20 billion plus 1% of the AUM above N500 billion (from N5bn).

All PFAs are required to comply with the revised minimum capital requirements by 31 Dec 2026.

Under the new capital requirements, which will force much lower dividend payout ratios, the forecasted return profiles of Stanbic IBTC Pensions and Access ARM Pensions fall by 20 percentage points (pps) and 19pps to 26% and 27%, respectively, by Full Year 2031, from 46% in FY 2024 for both companies, according to modelling done by Mukura.

Stanbic IBTC Pensions and Access ARM Pensions are the number one and two PFAs in Nigeria by Retirement Savings Accounts (RSAs), with total registered RSAs of 2.21 million and 2.14 million, respectively, as at Q1, 2025.

Mukuru of EFC argues that PenCom could rather look to the UK for direction on how to reform the industry, and set a minimum AUM (say N500bn) for each PFA by 2030.

“Rather than reduce the return profile of the PFAs, encourage them to list and allow members to benefit from their contributions in the form of dividends. This would keep the industry highly attractive and introduce retail shareholder oversight,” Mukuru said.

The logic of additional capital buffers to protect members doesn’t look sound according to Mukura, pointing to the fact that Nigeria’s PFAs are not defined benefit (DB) schemes that would demand regulatory risk capital and capital buffers to ensure that all member pensions are fully funded.

“To end this debate, we highlight that pension administrators of defined contributory schemes in the UK and South Africa are not required to maintain a minimum level of capital,” Mukura said.

Get More of our proprietary news and analysis as MoneyCentral is now on WhatsApp Channels  Follow the MoneyCentral Nigeria channel on WhatsApp: Click here!