Frequently asked questions/Multi-fund Structure Ot PenCom

Frequently Asked Questions/Multi-fund Structure
The National Pension Commission (“PenCom”) recently published/released
the Amended Regulation on Investment of Pension Fund Assets for the
Pension Industry. The new investment guideline introduces a multi-fund
structure, which would replace the “one size fits all” structure that puts all
active contributors into one Retirement Savings Account (“RSA”) Fund
without consideration for age or risk profile of such contributors.
What is the multi-fund structure?
The Multi-Fund structure is a framework that aims to align the age and risk
profile of RSA holders by segmenting the RSA Fund into four distinct Funds.
The current RSA Fund will be sub-divided into three separate Funds, while
the RSA Retirees Fund would be the 4th Fund.
What is the difference between the 4 Funds?
The respective funds differ based on their overall exposure to variable
income instruments such as equities (that is, Ordinary Shares) and the age
profile of the members.
What are variable income instruments?
Variable income instruments are investments that generate income or
returns that cannot be pre-determined from the date the investments were
made. In addition, the prices of such instruments fluctuate daily. Instruments
in this category include Ordinary Shares, Collective Investment Schemes
(“CIS”) such as Mutual Funds, Real Estate Investment Trust; Infrastructure
Funds and Private Equity Funds. Such investments have potentials to
generate high returns over the long term but could be risky owing to
uncertainty and fluctuations in market prices and returns.
What has age and risk profile got to do with how my pension funds are
invested?
In investing money, everyone has a limit to the amount of risk that they can
take and the amount of uncertainty they can handle. This is known as risk
tolerance. Typically, younger people tend to have more capacity for risk
because they still have time to recover from loses (if any). Once a person is
nearing retirement, it is advisable that they limit the amount of risks they take
and reduce exposure to uncertainty as they would start drawing down on
their pensions within a short period. Consequently, the allowable exposures
to variable income instruments have been designed such that Fund I has the
highest allowable limit, followed by Fund II, III and IV respectively. This
reduces the risk and uncertainty of contributors in line with their ages.
Can I decide which Fund Type to be assigned to?
On the day of commencement, a default mechanism shall apply. According
to the default mechanism, all active contributors that are 49 years and below
would be placed in Fund II while active contributors that are 50 years and
above would be placed in Fund III. Subsequently, an active contributor can
make a request to his PFA to move between Funds subject to certain
restrictions. An active contributor of 49 years and below can opt for Fund I,
while an active contributor in Fund III may elect to be assigned to Fund II.
However an active contributor in Fund III is not allowed to opt for Fund I
while an active contributor in Fund II is not allowed to opt for Fund III. Fund
III is strictly for active contributors above 50 years. To be assigned to any
fund based on the preceding, a RSA holder must make a formal request to
his/her PFA.
How often can I move between Fund types?
An active contributor may switch from one Fund type to another Fund type
within a PFA a maximum of two times in a calendar year (subject to a formal
application). While the 1st request is free, the 2
nd request to switch between
Funds within a 12 month period by the active Contributor shall attract a fee
of N1,000.00Fund TypeExposure to Variable Investment
instrumentsMembershipFund I 20% to 75% of Portfolio
Strictly based on request but not accessible to Retiree and active
contributors of 50 years and aboveFund II 10% to 55% of Portfolio
Default for active contributors of 49 years and below
Fund III 5% to 20% of PortfolioDefault for active contributors of 50
years and above
Fund IV 0% to 10% of Portfolio Strictly for Retirees
Are there any benefits in this multi-fund structure?
Yes there are. The new structure allows RSA holders more control
over how their pension funds are invested based on their risk
tolerance. For instance, an RSA holder in Fund III owing to the
default classification based on age, may have more tolerance for
risks and uncertainty and could opt to be assigned to Fund II.
Can I be assigned immediately?
Upon commencement of the Multi-Fund structure on 02 July 2018,
contributors will be assigned to the various funds based on the
default age classification. Subsequently, contributors will have the
option to be assigned to a fund of their choice depending on their
risk tolerance.
Who takes the ultimate switch responsibility between the
contributor and the PFA?
Whilst the contributor has the right to switch between funds
depending on his or her preference, the PFA will be responsible for
effecting the switch upon receipt of a formal request from the
contributor. The PFA is also in a position to provide financial advice
to contributors to assist in assessing risk and making an informed
decision.
What are the impacts on my pension balance when my PFA
moves into the multi-fund structure?
The balance in your RSA will not change due to the first movement
to the multi-fund structure because the entire balance would be
moved to the appropriate fund without charges. However subsequent
growths in your balance would depend on contributions such as the
mandatory monthly contributions, voluntary contributions as well as
returns generated by the PFA on that particular fund.
What is/are the requirement(s) for switching from one fund type
to another?
In order to switch from one fund type to another, a formal request
must be submitted by the contributor to his or her PFA.
Do I need to seek an advice from external financial advisor or
my PFA before taking a decision to switch?
Whilst you are at liberty to seek advice from external financial
advisers, we would make information available on the fund
performance and indices to enable you take an informed decision
If my date of birth is wrongly captured, which Fund Type will my
PFA profile me?
You will be profiled based on the age we have for you on our
records. Please check your records and notify us if you observed that
your date of birth is wrong on our records.
Will I be able to move back to the preferred fund free of charge
after my date of birth correction (especially when my date of
birth was wrongly captured by my PFA)?
Yes, you will be able to move free of charge given that a contributor
has the option to move for free once within 12 months.
Can I split my voluntary contribution in a separate Fund Type
while my mandatory goes into another Fund Type?
Every RSA holder is entitled to only one RSA PIN for all types of
contributions. Consequently, your voluntary contribution will be in the
same Fund as your mandatory contribution.
Will the RSA and VC funds have separate fund price or the
same?
The RSA and VC will have the same fund price because they will be
invested in the same fund the contributor selects.