Three of Nigeria’s Pension Fund Administrators (PFAs) are in merger talks as the country pension regulator raised the capital requirements for operators in the industry.
The National Pension Commission (PENCOM) increased industry capital to N5 billion and expects operators, including pension managers to meet the target next year.
In a notice on Friday, Pencom said it board approved the increase of the minimum regulatory capital (shareholders fund) requirement for PFAs from 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 stated in the circular.
It said the board has approved a 12-month transition period, effective April 27, 2021, within which PFAs are to meet the new capital requirement.
However, two pension executives with knowledge of the matter revealed the merger talks by the three operators to meet the new capital requirement, according to a Reuters report.
Nigeria has increased the capital requirement for pension managers in an attempt to steer the biggest sector of its fund management industry to target untapped opportunities in the much larger, informal sector of small business.
Fund managers include Stanbic IBTC Pension Managers, a unit of Stanbic IBTC Holdings, Sigma Pensions, which sold a majority stake to private equity firm Actis, and several others with either banking or insurance parent companies.
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The National Pension Commission was not available for comment.
Nigeria’s pension funds were worth around N12.3 trillion as of March, up from N10.5 trillion in 2019. Fund growth slowed in 2020 due to the COVID-19 pandemic but a strong rally on the equity market helped counter historically low bond yields.
Africa’s most populous country faces a shrinking labor market, double-digit inflation and low growth in the face of mounting insecurity. So far, contributions are mainly from the millions working for the government or big companies.
But there are untapped opportunities in the small business sector, the executives said, adding that the sector needed to overcome challenges on how to track them.
The growth in pensions has lifted fund flow into equities and bonds in Nigeria. Current regulations allow Nigerian pension managers to invest up to 30 percent of their portfolio in equities and limit investment in government bonds to a maximum of 80 percent.
