PenCom unveils new framework for pension fund performance
The National Pension Commission has released a directive that introduces a standardized approach for calculating and reporting investment performance across pension portfolios.The circular, authored by A.M. Saleem, Head of the Surveillance Department, and directed to all Licensed Pension Fund Operators, became effective on July 1, 2025.
It sets forth a consistent methodology designed to enhance transparency, promote long-term investment strategies, and mitigate short-term decision-making by Pension Fund Administrators.
According to the updated guidelines, PFAs are required to determine investment returns over a 36-month timeframe and convert the results into an annualized rate, represented as a percentage to four decimal places.
For unitised funds, the calculation involves determining the nth root of the ratio between the closing value of the accounting unit and its opening value, then subtracting one and presenting the resulting figure as a percentage.
In the case of non-unitised funds, such as Approved Existing Schemes (AES), Closed Pension Fund Administrators (CPFAs), and Additional Benefit Schemes (ABS), the guidelines require the application of the Time-Weighted Return (TWR) method to maintain uniformity across various fund structures.
PenCom outlined that the computations must occur monthly on a rolling 36-month basis. For instance, to establish the annualized return as of November 30, 2024, PFAs should use the accounting unit value from October 31, 2021, as the starting reference.
Moreover, all opening values utilized in these calculations must come from periods that have been audited and validated by PenCom.
In addition to performance returns, PFAs are now obligated to disclose the Sharpe Ratio for each fund.
This ratio will be calculated using the three-year average yield of the 10-year Federal Government of Nigeria (FGN) bond as the risk-free benchmark, alongside the fund’s standard deviation.
PenCom has also mandated that monthly performance reports be made available on each PFO’s website no later than the 10th day of every month.
“The purpose of this circular is to promote transparency and foster sustainable, long-term investment strategies by reducing short-term decision-making,” the Commission stated.
Recently, the Chief Executive Officer of the Pension Fund Operators Association of Nigeria, Oguche Agudah, disclosed that PenCom recovered N4.57 billion from defaulting employers between Q1 2024 and Q1 2025.
He mentioned that this sum consisted of N2.12 billion in unremitted pension contributions and N2.45 billion in penalties levied against 138 employers who neglected to meet their pension remittance obligations.
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