PenCom extends forbearance on PFAs’ investments in custodians’ parent companies

Nike Popoola

The National Pension Commission (PenCom) has extended its regulatory forbearance allowing Pension Fund Administrators (PFAs) to invest pension assets in a broader range of securities issued by the parent companies of their respective Pension Fund Custodians (PFCs), subject to strict prudential limits and governance requirements.

The directive, contained in a circular dated July 3, 2026 and signed by the Director of Surveillance Department, A.M. Saleem, will remain in force for 24 months.

According to the Commission, the extension reflects prevailing realities in Nigeria’s financial market, including operational constraints and the limited availability of quality investment instruments. It said the measure is expected to enhance portfolio flexibility, broaden the investable universe, improve diversification and enable PFAs to generate better risk-adjusted returns while fulfilling their fiduciary responsibilities to contributors.

PenCom stressed that investments involving custodian-related entities must be executed strictly on an arm’s-length basis and meet the same fiduciary standards applicable to all pension investments. It warned that the relationship between a PFA and its custodian must not result in preferential treatment or compromise contributors’ interests.

Under the new framework, only parent companies of Pension Fund Custodians that are licensed financial institutions regulated by the Central Bank of Nigeria and publicly listed on a Securities and Exchange Commission-recognised exchange will qualify. Such companies must also demonstrate financial soundness through sustained profitability, dividend payments, regulatory compliance and the absence of unresolved enforcement actions.

The Commission also introduced stringent exposure limits. For active RSA Funds, investments in quoted shares issued by a custodian’s parent company are capped at three per cent, while retiree and conservative funds are limited to one per cent. Bond investments are restricted to five per cent for active funds and three per cent for retiree and conservative funds.

In addition, aggregate exposure to equities and bonds issued by a custodian’s parent company must not exceed five per cent of a Retirement Savings Account (RSA) portfolio’s consolidated net asset value, while total exposure to all securities issued by the same parent company is capped at 10 per cent.

To strengthen oversight, PenCom directed PFAs to subject every proposed investment to independent reviews by their Investment Committee, Risk Management Unit and Compliance Department before execution. Boards of PFAs are also required to establish formal policies governing investments in securities issued by their custodians’ parent companies.

The circular further mandates PFAs to maintain conflict-of-interest registers, ensure officials with overlapping affiliations recuse themselves from approval processes, and submit quarterly reports to PenCom detailing all investments in custodian-linked entities. PFAs must also notify the Commission within 48 hours of any breach of exposure limits or if a custodian’s parent company experiences financial distress.

PenCom said the enhanced disclosure and governance framework is aimed at safeguarding contributors’ retirement savings while preserving transparency and market discipline.