The National Pension Commission (“PenCom”) recently published the Amended Regulation on Investment of Pension Fund Assets for the Pension Industry. The new investment guideline introduces a multi-fund structure, this would replace the existing “single-fund” structure that puts all contributors into one Retirement Savings Account (“RSA”) Fund without consideration for age or risk profile.
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 dividing the RSA Fund into three Fund types while retaining the single Retiree fund (four fund types in all 3 active funds and 1 Retiree fund).
What are the different Fund Types?
Fund I – This is an optional fund. Contributors must write formally to opt for this Fund.
Fund II – This is the default fund for contributors aged 49 and below.
Fund III – This is the default fund for contributors aged 50 and above.
Fund IV – This is the Retiree Fund.
What are the features of each Fund Type?
|Fund Type||Maximum exposure to variable income instruments||Minimum exposure to variable income instruments|
|Fund I & II||2.5% of AUM invested in alternative assets|
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 and are not guaranteed. 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 the potential to generate high returns over the long term but could be risky owing to uncertainty and fluctuations in market prices and returns.
How soon will this new guideline take effect?
PenCom is yet to provide the operational framework to guide the transition to the Multi-Fund structure. Once the framework is released, there will be guidance on when contributors can be assigned based on the default age classification.
What has age and risk profile got to do with how my pension funds are invested?
This is because younger people tend to have more capacity for risk because they still have time to recover from loses (if any). Once a person is approaching retirement, it is advisable that they limit the amount of risks they take and reduce exposure to uncertainty as they would start drawing from their pensions within a short period.
Can I decide which Fund Type to be assigned to?
On the day of commencement, all active contributors that are 49 years and below would be placed in Fund II by default while active contributors that are 50 years and above would be placed in Fund III. Contributors who make a formal request can switch among funds within a PFA once in 12 months without a fee. Additional requests to switch among Funds within a year will attract a fee to be determined by PenCom from time to time. Contributors in Fund II can be transferred to Fund I after a formal request. Contributors in Fund III can request to be transferred to Fund II after a formal request. Contributors in Fund III and Fund IV cannot choose Fund I.
When will the 12-month period start counting, will it be from the date of commencement or from the date of my first switch?
PenCom will provide details on the 12 months’ period in the operational framework that would guide the transition to the Multi-Fund structure.
What are the benefits of the multi-fund structure?
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.
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 movement to the multi-fund structure because the entire balance would be moved to the appropriate fund without charges.
What is/are the requirement(s) for switching from one fund type to another?
To switch from one fund type to another, a formal request must be submitted by the contributor to his or her PFA.
If my date of birth is wrongly captured, which Fund Type will my PFA profile me?
You can check and update your records with your PFA before the commencement of the transition.
Can I 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 provided that a contributor has the option to move for free once within 12 months.
Will the RSA and VC funds have separate fund price or the same?
The RSA and AVC will have the same fund price because they will be invested in the same fund the contributor selects.
How will the Fund Prices under the Multi-Fund Structure be determined at the point of crossing over to the new structure and what would happen to the Old Fund Price and units?
PenCom would provide guidance as to how the fund price and units would be treated in the operating framework that would guide the transition.
What are the multi-funds options for Approved Existing Schemes?
Approved Existing Schemes are governed by the Board of Trustees who have the right to structure the portfolios in the best interest of the beneficiaries subject to PenCom’s approval. Consequently, the BOTs of contributory AESs can amend their agreements and restructure them along the lines of the Multi-Fund structure if they choose to.