The gale of change sweeping across the financial services sector may soon consume Pension Fund Administrators that fail to shore up their capital base from N150m to N1bn.
The National Pension Commission had given the PFAs till June 30, 2012 to meet the new minimum capital balance.
However, indications have emerged that PFAs that are unable to meet up with the requirement before the deadline may lose their operational licence or be acquired by others.
The Director-General, PenCom, Mr. Mohammad Ahmad, confirmed this to our correspondent on Wednesday.
According to him, the present minimum paid up capital of N150m is no longer adequate to meet the operational requirements of the pension management business, given its huge infrastructural requirements and long development period.
He said that the PFAs that might not meet the recapitalisation deadline had the option of either merging with others or be acquired by stronger ones.
“However, as a last option, the commission may exit the PFAs by transferring the management of their pension assets to others, usually those with the highest return on investment, and then, the licences will be withdrawn,” Ahmad said.
The PenCom boss, however, assured that such regulatory action would not affect the safety of the pension assets.
According to him, the increase in the capital requirement of the PFAs will encourage healthy mergers and acquisitions and promote stability in the industry.
Ahmad said, “It is expected that the improved financial conditions of the PFAs, after the implementation of the reviewed capital requirement, will lead to improved service delivery, product development, improved capacity building, employment of qualified personnel and development of adequate IT infrastructure for improved business process.
“The new capital will become effective from June 30, 2012 and subsequently be monitored by the commission on an annual basis at the financial year end of each PFA. Any shortfall shall be made up within 90 days.”
However, investigations by our correspondent revealed that many of the PFAs were currently making frantic efforts to meet the new capital base requirement.
Some banks, which either fully or partially own PFAs, are in the process of divesting from the companies in line with Central Bank of Nigeria’s directive for them to focus on strict banking activities.
As a result of this, the affected PFAs are facing the challenge of how they will cope after divestment by the banks and also meet up with the recapitalisation deadline.
Currently, there are 24 PFAs and four Pension Fund Custodians operating in the country.
“In the event of winding down of business, the PFAs will be directed to simply transfer all the pension assets under their management to other licensed PFAs,” Ahmad said.
He noted that this had earlier been successfully done with Standard Alliance PFA, when it returned its operating licence to the commission.
The PenCom boss said that SA PFA had N1.42bn in pension assets, which were transferred to Pension Alliance Limited.
Ahmad said that because of the approval granted by the commission, PAL had effectively taken over the management of all pension funds and assets previously managed by SA PFA.
He pointed out that pension was a long-term retail business driven by the volume of funds under management or custody.