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PFAs Scramble to Meet New N5bn Capital Requirement as M&A’s Surge

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…APT Pension to merge with Tangerine Pension Ltd

Nigerian Pension Fund Administrators (PFAs) are currently scrambling to meet a new N5 billion capital requirement imposed by the regulator National Pensions Commission (PENCOM), which is leading to a new round of mergers and acquisition (M&As) in the sector.

So far in 2021, PENCOM has approved the acquisition of AXA Mansard Pensions Limited by Eustacia Limited and the change of name from AXA Mansard Pensions Limited to Tangerine Pensions Limited.

In addition, the Commission has granted “No Objection” for the merger between Tangerine Pensions Limited and Apt Pension Funds Managers Limited.

PENCOM in a circular dated 29 April 2021 revised the minimum share capital requirement for licensed Pension Fund Administrators from the current N1 billion to N5 billion, unimpaired by losses.

“The increase in the minimum regulatory capital is necessitated by the need to improve the capacity of PFAs, in terms of operational efficiency and effectiveness as well as service delivery,” PENCOM said.

The Board also approved a 12-month transition period, effective 27 April 2021, within which PFAs are to meet the new minimum capital requirement.

In finance capital usually comprises tier one capital and tier two capital. Tier-one capital, the more important of the two, consists largely of shareholders’ equity and disclosed reserves. Tier 2 capital is supplementary capital, which usually comprises undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt.

Sources tell MoneyCentral that the bottom 15 smaller PFAs who had less than 500,000 Retirement Savings Accounts each were most likely to be needing an increase in their minimum capital base.

“The smaller players like Oak, IE-Anchor and APT will be needing to raise capital,” the market source said on condition of anonymity.

They include AIICO Pension Managers Limited with N1.759 billion in shareholder funds or total equity (including Share capital, retained premium, retained earnings, statutory reserves and fair value reserves) as at December 2019, Apt Pension Funds Managers Limited N2.028 billion, Crusader Sterling Pensions Limited N4.268 billion, FCMB Pensions Limited N2.778 billion, Fidelity Pension Managers Limited N3.047 billion, and IEI-Anchor Pension Managers Limited N1.341 billion.

Others are Investment-One Pension Managers Limited N1.226 billion, Oak Pensions Limited N1.72 billion, Radix Pension Managers Limited N0.62 billion, and Veritas Glanvills Pensions Limited N1.349 billion.

The PFAs listed generally had a very low customer base compared to the larger names.

The PFAs registered a total of 84,368 RSAs during the first quarter of 2021, bringing the cumulative RSA registrations from inception to 9,300,058 as at 31 March 2021.

Data shows that smaller firms like AIICO had just 2.7 percent of the total 9.3 million retirement savings accounts or RSAs, compared to Stanbic IBTC and Sigma Pensions which controlled 20.2 percent and 7.9 percent respectively.

A review of the RSA registrations during the quarter showed that about 82 percent of those that joined the CPS were below 40 years of age, pointing to the increasing sustainability of the contributory pensions scheme, as the younger generation are actively being registered under the scheme.

The Fourth RSA Transfer Quarter, TQ4:2020, which was the maiden RSA Transfer Quarter, was concluded in the second week of January 2021, and a total number of 2,799 RSAs were successfully transferred to the RSA holders’ new PFAs. The total value of pension assets belonging to the 2,799 RSAs transferred, stood at N18,898,848,438.79. A total number of 11,507 RSA Transfer requests were received between 1 January 2021 and 31 March 2021 signifying an increase of 311.11 percent when compared with 2,799 RSAs transferred in Q4 2020.

As at Q1 2021, the ranking of PFAs by number of registered contributors showed a marginal growth in the market share of the bottom three PFAs to 1.60 percent in Q1 2021 from 1.5 percent in Q4 2020. Similarly, the bottom five PFAs recorded a slight increase in the number of registered RSAs from 4.10 percent in Q4, 2020 to 4.20 percent in Q1 2021. In the same vein, the bottom ten PFAs recorded a marginal increase from 15.20 percent in Q4 2020 to 15.30 percent in Q1, 2021.

The market share of the top three marginally decreased from 37.40 percent in Q4 2020 to 37.30 percent in Q1, 2021 while the market share of the top 5 PFAs also marginally declined from 53.20 percent in Q4 2020 to 53.10 percent in Q1, 2021.

The market share of the top ten PFAs marginally declined from 78.40 percent in Q4 2020 to 78.30 percent in Q1 2021.

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