Difference between Pension Fund Administrators and Pension Fund Custodians

Pension fund administrators, PFAs and pension fund custodians, PFCs play distinctive roles in pension fund management. 

Pension Fund Administrators

A pension fund administrator (PFA) is a company licensed by the National Pension Commission to carry out business of managing and investing pension funds of employees.

Functions of Pension Fund Administrators

Functions of pension fund administrators include:

  • To open Retirement Savings Account (RSA) for employees
  • Invest and mange pension funds assets
  • Payment of retirement benefits to retirees and  pensioners 
  • Giving proper accounts of all transactions relating to the pension funds under their custody.

In Nigeria PFAs are licensed by Pension Commission (PenCom) to manage Pension Fund Assets on behalf of pension fund contributors in accordance with the Pension Reform Act 2004. The commission says that: “Pension Fund Administrators (PFAs) have been duly licensed to open Retirement Savings Accounts for employees, invest and manage the pension funds in a manner as the Commission may from time to time prescribe, maintain books of accounts on all transactions relating to the pension funds managed by it, provide regular information to the employees or beneficiaries and pay retirement benefits to employees in accordance with the provisions of the Pension Reform Act 2004”.

See List of Pension Fund Administrators in Nigeria

In simple terms, PFAs manage your pension contributions on your behalf. The moneys you contributed are invested in equities, bonds and other securities, and assets to ensure that your retirement savings yield profits still the time you retire. PFA’s also sends you periodic reports on the performance of your pension contributions

Pension Fund Custodians (PFCs)

Pension Fund Custodians (PFCs) are companies licensed to carry out the business of keeping safe custody of pension funds and assets in Retirement Savings Account for the employees or contributors (RSA holders) in trust  of the pension fund administrators, PFAs.  

PFCs are usually subsidiaries of financial institutions which must have a minimum credit of not less than ₦125billion.

See the Pension Fund Custodians in Nigeria and their PFA clients

The main functions of PFCs are to receive pension contributions on behalf of PFAs; settle transactions and undertake activities relating to the administration of pension fund investments on behalf of PFAs and to notify the PFA within 24 hours of the receipt of pension contributions from employers.

Anytime your organization deducts money from your salary as pension, the money deducted is deposited with the PFCs. The PFCs then notify the PFAs that money has been deposited following which the PFA’s can now access it for investments of which the PFCs will keep track and undertaker the investments transactions settlements.

The Pension Commission guidelines on RSA  state that:

The PFAs shall not be permitted to hold the pension funds assets. The employer sends the contributions directly to the Custodian, who notifies the PFA of the receipt of the contribution within 24 hours of such receipt, and the PFA subsequently credits the retirement savings account of the employee/ contributor. The Custodian will execute transactions and undertake activities relating to the administration of pension fund investments upon instructions by the PFA. The custodian shall hold pension fund assets on trust for its clients.

Safekeeping of Pension Assets

PFCs ensure that all securities and assets are immediately available for delivery on demand by  PFAs who are their clients.  

Performance Measurement and Analytics

PFCs provide statistical analysis on clients’ investments, and compared it with specific benchmark portfolios as specified by PenCom e.g. the Nigerian All-Share Index.

Corporate Actions

PFCs protect the funds’ rights and entitlements in any corporate action declared – mergers, take-over, dividend, right issues, bonus issues and stock splits.

Proxy Voting Services

PFCs ensure that clients are aware of all meetings (AGM’s, EGM’s) and clients’ voting instructions are executed correctly and on time.

Benefits Administration

PFCs process benefit of all exit types as approved by the National Pension Commission while ensuring timeliness of such benefit payments.

Trade Settlement

PFCs carry out trade settlement on any investment transactions on pension funds.

Compliance Monitoring and Regulatory Reporting

The PFCs also keep records of account and remit periodic returns to PenCom, aimed at ensuring adequate supervision and regulation.

Contribution Administration

They receive pension contributions from employers and process same for timely crediting of employees’ retirement savings accounts.

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