You may have heard those radio commercials educating workers on the new multi fund structures introduced by the National Pension Commission, PENCOM.

According to the commercial, there are now 4 levels of Fund in pension administration and each worker will decide which structure it fits depending on age.

But it is not that simple. The information is rather incomplete and if you have been wondering what the multi fund structure is all about, Bounce News spoke to professionals with knowledge of the matter.

We spoke to two people, Mr Oladele, a pension executive at Stanbic IBTC Pension limited and Desmond Njoku, an Insurance executive with AIICO Insurance.

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Based on our conservation with them, here is what we understand about the Multi Fund Structure.

What The Multi Fund Structure Is

Mr. Oladele explained that PENCOM asked the Pension administrators to segment the pension contributors into 4 groups, according to their age.

So, there are Fund 1, Fund 2, Fund 3 and Fund 4.

By default, according to Mr Oladele, no one is on Fund 1. Fund 2 are those that are less than 50 years old. Fund 3 are those that are over 50 years old, while Fund 4 are those that are on already receiving their monthly pensions.

But the crux of the multi fund structure is investment. Your fund structure determines what investment your retirement savings is exposed to.

So, the PENCOM’s multi fund structure is about the type of investment your fund will be channeled to based on your age.

Age And Risk Appetite

The essence of the demographic distribution is because of the assumption that your age should determine your risk appetite.

The younger you are, the likelier that your fund would be exposed to more investments (more risk) and the older you are, the less your fund is exposed to investment (less risk).

As It Stands With the Multi Fund Structure

For those that are on Fund 2, your PFA will expose at least 50% of your retirement savings balance to investments.

What this means is that whatever interest that accrues into your investment, you will benefit from it, but whatever loss is incurred will also affect your money, said Mr. Oladele.

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Now, when you now get to Fund 3, that is, when you get over 50 years, it is expected that by that time, you will be getting close to your retirement and as such your fund will not be exposed to lots of investments. So, your PFA only exposes about 20% of your fund to any investments.

While for those on Fund 4 that are already receiving monthly pensions, the PFA is allowed to expose only 10% of their fund to any investment.

That is the difference between the 4-fund structure and what the entire fund structure means in simple terms. It is all about how your fund is exposed to investment by your age.

So, do you get to choose which financial instrument or wherever your fund is invested in?

The answer is NO. As a matter of fact, PENCOM has already advised the PFAs on where to invest the funds in different portfolios.

For each of the funds, PENCOM has already directed the PFAs on how and where to invest it.

The only reason it is touted that you have a right to choose how your fund is invested is this: If you are on Fund 2 for instance, and you want to move to fund 1, you can do that, based on your age.

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