Understanding non-interest pension fund for RSA holders

The non-interest pension fund is one of the innovations of the National Pension Commission targeted at providing investment alternatives for Nigerians who would prefer their savings to be invested according to their ethics and beliefs. Daily Trust reports that the National Pension Commission (PenCom) introduced the non-interest fund, also known as Fund VI, in September […]

The non-interest pension fund is one of the innovations of the National Pension Commission targeted at providing investment alternatives for Nigerians who would prefer their savings to be invested according to their ethics and beliefs.

Daily Trust reports that the National Pension Commission (PenCom) introduced the non-interest fund, also known as Fund VI, in September 2021 by issuing the non-interest operational framework.

Checks by Daily Trust show that Fund VI is one of the fund types allowed under the multi-fund investment structure approved by the regulator. The multi-fund investment structure segregates the RSA funds into six fund types (Funds l to Vl).

Accordingly, three Funds (Fund I, Fund II, Fund III) are for active contributors, while Fund IV is for retired contributors. Fund V serve the needs of the micro pension plan participants, just as Fund VI, which is the non-interest fund was approved for both active and retired contributors.

What is non-interest fund VI?

The non-interest Fund VI is a fund type whose assets are invested in ethical and non-interest-bearing instruments.

The Fund was created in compliance with the provisions of Islamic commercial Jurisprudence and other established non-interest principles, as approved by the Financial Regulation Advisory Council of Experts (FRACE) or any other body constituted by the Central Bank of Nigeria and the Securities and Exchange Commission.

The non-interest Fund VI is designed to attract employees with reservations about investments in interest-bearing instruments, thereby, promoting financial inclusion within the Nigerian financial system.

Notably, the objectives of pension fund investments of safety and maintenance of fair returns on investments also apply to Fund VI.

It specifies that Fund VI assets shall not be invested in the production or trading of alcohol, pornography, weaponry, gambling/betting, speculation, interest-earning ventures, and other ventures of similar nature, contrary to non-interest finance principles as outlined and determined by FRACE.

How to transfer pension savings to non-interest fund VI

Meanwhile, the National Pension Commission has made it flexible for contributors to transfer their monies to Fund VI, which can only be at the instance of the RSA holder.

Accordingly, RSA holders in Funds I, II, and III and retirees in Fund IV can transfer their RSA contributions to the non-interest fund by making a formal request to their pension fund administrator (PFA) in line with section 7.6 of the investment regulation, which deals with transfers between fund types. Also, the RSA holder is not required to pay any fee.

Subsequently, RSA holders are only required to visit their respective PFAs to request the transfer of their pension savings from their existing fund to the non-interest fund by completing and signing a consent form issued by their PFA.

The presence of the RSA holder is necessary for authentication. Subsequently, the PFA will move the pension savings to the non-interest fund and notify the RSA holder.

Consequently, the National Pension Commission (PenCom) issued the Revised Framework for the Establishment of the Pension Industry Non-Interest Advisory Committee (PINAC).

PINAC is expected to assist in institutionalising monitoring mechanisms for effective compliance of non-interest fund investments with ethical principles.

The primary objectives of the revised framework for the establishment of PINAC are to set out rules, regulations and procedures for the establishment of PINAC, define the roles, scope of duties, and responsibilities of PINAC, outline the functions related to Shari’ah review and audit processes of Fund VI assets, strengthen the capacity of the pension industry to adhere to Islamic finance principles in the investment of Fund VI assets, and defining the relationship and working arrangement between the Pension Fund Operators Association of Nigeria (PenOp) and PINAC.

What PenCom is saying

Speaking recently at the inauguration of PINAC in Abuja, Director General of PenCom, Omolola Oloworaran, emphasised the significance of the initiative in deepening financial inclusion and expanding ethical pension offerings within the industry.

According to Oloworaran, the establishment of the advisory committee reflects PenCom’s commitment to fostering innovation, inclusivity and sustainability in pension administration.

She highlighted the increasing demand for non-interest financial products, driven by a growing awareness of ethical finance principles and the need for alternative investment avenues.

“The rationale for the Non-Interest Advisory Committee is clear. In recent years, we have witnessed increasing demand for non-interest financial products, driven by a growing awareness of ethical finance principles and the need for alternative investment avenues, she said.

According to her, the development of this segment requires structured guidance, expert insights, and collaborative strategies to navigate regulatory, operational, and market challenges.

“This is precisely why we have established this Advisory Committee to serve as a think tank, providing recommendations on best practices, governance structures, product development and compliance with non-interest finance principles,” Oloworaran added

The PenCom DG further noted that the newly inaugurated committee has been tasked with key responsibilities, including Ensuring transparency, security and alignment of non-interest pension products with global best practice.

Other tasks include development and awareness, promoting financial literacy and increasing public education on the benefits of non-interest pension funds.