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The National Pension Commission (PenCom) has issued a directive prohibiting Pension Fund Administrators (PFAs) from investing pension assets in Additional Tier-1 (AT1) capital instruments issued by Deposit Money Banks.
In a circular signed by the Director of Surveillance, A.M. Saleem, PenCom explained that AT1 instruments—defined by the Central Bank of Nigeria (CBN) as perpetual securities with no maturity date or redemption incentives—fall outside the permissible asset classes under pension fund regulations.
The Commission noted a surge in requests from PFAs seeking approval to invest in AT1 instruments, but clarified that such securities contravene Section 2.4 of its investment guidelines. The regulation explicitly restricts PFAs from placing pension assets in instruments with prohibitions or limitations on sale or purchase, except in certain categories such as open-, close-, or hybrid-end funds.
PenCom reaffirmed that PFAs may only invest in approved asset classes, including:
- Bonds issued by the Federal Government, state governments, or the CBN
- Treasury Bills and CBN-issued certificates
- Ordinary shares of public limited companies
- Bank deposits, bankers’ acceptances, and certificates of deposit
- Asset-backed securities
- Close-end or hybrid investment funds
Additionally, all eligible instruments must hold a minimum investment-grade rating of ‘BBB’ from a recognised rating agency.
The restriction comes as Nigerian banks intensify efforts to meet the CBN’s recapitalisation mandate. In March 2024, the apex bank directed commercial lenders to significantly raise their capital bases: ₦500 billion for international banks, ₦200 billion for national banks, and ₦50 billion for regional banks. Non-interest banks must raise ₦20 billion and ₦10 billion for national and regional licences, respectively, by March 2026.
With less than a year to the deadline, several banks have entered a second phase of capital raising through private placements, debt issuance, and international markets. CBN Governor Olayemi Cardoso recently disclosed that eight banks have already met the new capital thresholds.
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