The National Pension Commission (PenCom) of Nigeria has introduced a groundbreaking framework to integrate foreign currency contributions into the Contributory Pension Scheme (CPS). This initiative aims to expand the scope of the CPS to encompass Nigerians living abroad and residents earning in foreign currencies, while simultaneously bolstering regulatory oversight to combat financial malpractices. The new guidelines mandate Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) to report all foreign currency pension contributions exceeding $10,000 to the Nigeria Financial Intelligence Unit (NFIU) within 24 hours of receipt, aligning with the Money Laundering (Prevention and Prohibition) Act 2022. This measure is crucial in preventing money laundering and terrorist financing, thereby reinforcing the integrity and security of the pension system.
The guidelines offer a comprehensive framework for various categories of contributors, including Nigerian citizens working abroad, foreign nationals employed in Nigeria by international organizations or foreign companies, and local residents receiving income in foreign currencies. This inclusivity allows diaspora workers and expatriates to directly contribute their retirement savings to the CPS in foreign currency, eliminating the previous restriction of Naira-only contributions. To facilitate participation, contributors are required to furnish valid identification documents, undergo stringent Know Your Customer (KYC) procedures in compliance with anti-money laundering regulations, and make contributions exclusively in US dollars, regardless of the original currency of earnings.
The framework also introduces a structured approach to managing access to accumulated funds. Contributors’ savings are divided into two segments: 60% accessible under specific conditions before retirement and 40% reserved until retirement. Withdrawals are limited to twice a year and are permissible only after the initial deposit has remained in the Retirement Savings Account (RSA) for a minimum of six months. This mechanism ensures a balance between liquidity and long-term savings goals. Furthermore, to ensure transparency and prompt processing, custodians are obligated to notify PFAs of contributions within 24 hours, with PFAs subsequently informing contributors within the same timeframe. Any contributions that cannot be credited within 48 hours must be returned to the originating account, safeguarding contributors’ funds.
The management and investment of these foreign currency contributions are meticulously outlined in the guidelines. All foreign currency contributions will be consolidated into dedicated Dollar Funds managed by PFAs. These funds will be primarily invested in dollar-denominated instruments like Eurobonds and supranational bonds, Federal Government-backed securities, and Exchange Traded Funds (ETFs). While investments in Naira-denominated assets are permitted, they must be hedged against currency fluctuations using instruments approved by the Central Bank of Nigeria, such as futures or swaps. Furthermore, stringent credit-rating and concentration limits are imposed to mitigate default risks. For example, investments in AAA-rated corporate foreign bonds are capped at 5% of the fund, and investments in BBB-rated instruments are limited to 1%.
The framework incorporates tax incentives and reporting requirements to ensure transparency and compliance. Contributions and returns are exempt from taxation if held for a minimum of five years, encouraging long-term savings. However, early withdrawals will incur tax penalties, which custodians are obligated to remit to the relevant tax authority within 21 days. To maintain regulatory oversight, PFAs are mandated to submit daily and monthly reports to PenCom, detailing contributions, withdrawals, and portfolio valuations in both dollars and Naira. The NFIU, as the central authority for analyzing suspicious financial transactions, plays a critical role in monitoring compliance with the guidelines. The mandatory reporting of contributions exceeding $10,000 and the detailed reporting requirements empower the NFIU to effectively monitor foreign currency inflows into the pension sector, enhancing transparency and preventing misuse of the system.
This comprehensive framework signifies a significant advancement in Nigeria’s pension landscape. It provides Nigerians in the diaspora and local residents earning in foreign currencies with a secure and regulated avenue to save for retirement in hard currency, shielding their future pensions from exchange rate volatility. Simultaneously, it strengthens regulatory oversight, combats financial crimes, and aligns Nigeria’s pension sector with international best practices. By facilitating the inflow of foreign currency into the pension system, the framework is expected to bolster confidence in the CPS, expand the pool of investable dollar assets for PFAs, and contribute positively to Nigeria’s foreign exchange reserves. The implementation of these guidelines underscores PenCom’s commitment to enhancing the integrity, transparency, and security of the Nigerian pension system, while expanding its reach to a wider demographic.
