The National Pension Commission (PenCom) has issued a strong warning to Pension Fund Administrators (PFAs) against investing workers’ retirement savings in the Additional Tier-1 (AT1) capital instruments of Deposit Money Banks.
In a circular signed by the Director of Surveillance Department, Mr A.M. Saleem, and addressed to all licensed pension fund operators, PenCom made it clear that such instruments are not recognised as acceptable investment outlets under the existing pension regulations.
The Commission explained that its attention was drawn to the matter after receiving several requests from PFAs who sought approval to channel pension funds into AT1 instruments. However, PenCom noted that the structure of AT1 does not align with the provisions of the Regulations on Investment of Pension Fund Assets.
According to the Central Bank of Nigeria (CBN) guidelines, AT1 instruments are perpetual in nature, meaning they have no maturity date and carry no obligation or incentive for redemption by the issuing bank. PenCom stressed that this contradicts Section 2.4 of its investment rules, which prohibits PFAs from placing pension assets in instruments with restrictions on sale or purchase, except in certain approved investment funds.
The Commission therefore ruled that PFAs are not permitted to invest pension fund assets in AT1 instruments issued by banks. Instead, the existing regulation provides a detailed list of acceptable channels where pension assets can be invested. These include Federal Government bonds, state government bonds, CBN-issued instruments like treasury bills and certificates, ordinary shares of public companies, bank deposits, bankers’ acceptances, asset-backed securities, and other specialist investment funds approved under the regulation.
Furthermore, PenCom insisted that all instruments eligible for pension fund investment must carry a minimum investment rating of at least ‘BBB’ from a recognised credit rating agency, in order to ensure safety and credibility.
The warning comes at a time Nigerian banks are under pressure to recapitalise following the CBN’s directive issued in March 2024. The apex bank ordered commercial banks with international licenses to raise their minimum capital base to N500 billion, while those with national licenses must increase theirs to N200 billion. Banks with regional authorisation are required to meet a minimum of N50 billion.
Non-interest banks were also given fresh capital targets, with national operators expected to shore up their base to N20 billion, and regional operators to N10 billion. The CBN gave all banks until March 2026 to comply.
The recapitalisation exercise is already in motion, with many banks embarking on fund-raising through private placements, the debt market, and international capital markets. The CBN Governor, Mr Olayemi Cardoso, disclosed after the last Monetary Policy Committee meeting that at least eight banks have already surpassed the new thresholds.
The capital raise is aimed at strengthening Nigeria’s banking sector, boosting financial stability, and ensuring banks have enough buffers to withstand economic shocks. However, PenCom’s decision underscores the importance of safeguarding pension fund assets, which represent the life savings of Nigerian workers.
By preventing PFAs from investing in risky perpetual instruments like AT1, the Commission said it is maintaining the prudence and long-term security that pension investments demand.
