PenCom issues deadline for reclassification, valuation of PFAs under IFRS 9

By Zainab Iwayemi

Nigeria’s pension regulator, the National Pension Commission (PenCom), has given an ultimatum for all pension fund administrators (PFAs) to adopt the business models (BM) developed to guide the investment decisions for all existing and newly set up funds under management in accordance with the provisions of IFRS 9 adopted in 2018.

The directive is contained in a circular signed by Ehimeme Ohio, PenCom’s head of surveillance department.

The deadline which elapses on Friday, 28th February 2021 came after the 2020 half-year fixed income audit which revealed that pension fund operators were already valuing their portfolios in line with the provision of IFRS 9 but none was yet to adopt completely the duly formalized business models.

In November 2020, PenCom had in a letter, directed PFAs to ensure that all exposures of the RSA funds to variable income instrument (including fixed income securities marked to market) are to be rebalanced and made to be in line with the provisions of the regulation on investment of pension fund asset, within four months (ending 4th December 2021), whilst also stating that excesses after the due date will be treated as an exception.

Meanwhile, operators who seemingly took no action by opting to continue valuing their bonds on a straight-line basis (amortized cost methodology) effectively adopted the hold to maturity option; an option that is allowable in IFRS.

But PenCom also requires the PFAs/CPFAs in this category to put in place business models to guide their investment activities under this option.

In addition, the commission confirmed that operators in the Nigerian pension industry can only consider a change in an existing BM when the current liability structure of any pension fund under management has changed or is about to change.