What to look for when evaluating a PFA

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Introduction

Income from pension funds is important for many people during retirement. In Nigeria, the National Pension Commission (PenCom) regulates the management of pension funds by pension fund administrators (PFAs). It is important to ensure you are with or choose a reputable and reliable PFA to manage your retirement savings well.

In this article, we will discuss how to evaluate a PFA. Key factors to consider include:  regulatory compliance, operating capital, performance track record, product range, fees and charges, customer service, and technology and online presence. By considering these factors, you can make sure you are with or choose the right PFA to manage and protect your retirement savings.

Regulatory Compliance

Check that a PFA is fully licensed and meets all the regulations set by the National Pension Commission (PenCom). PenCom is responsible for regulating the activities of PFAs, including issuing licenses and setting standards for the management of pension funds.

You can find a list of licensed PFAs on the PenCom website. You can also contact PenCom directly to inquire about the licensing status of a particular PFA. PFAs must also maintain a minimum level of capital and submit regular reports on financial and investment performance, and investment activities.

Operating Capital

It is important to consider the operating capital of a pension fund administrator (PFA) when evaluating them. The operating capital of a PFA is the amount of money they have available to fund their operations and meet their financial obligations. A PFA with a high level of operating capital is likely to be more stable and better able to weather economic downturns or other challenges.

There are several ways to assess the operating capital of a PFA. One option is to review their financial statements, which should include information on their assets, liabilities, and equity.

Overall, it is important to consider the operating capital of a PFA when evaluating them, as it is an indicator of their financial stability and ability to manage your retirement savings effectively.

Review and Evaluate Performance Track Record

It is important evaluate the track record of a PFA in administering and managing pension funds and investing assets. To evaluate the performance track record of a PFA, review their financial statements and the performance of the funds they manage.

A PFA with a strong performance track record is likely to have a proven history of generating consistent returns and minimizing risk. On the other hand, a PFA with a poor performance track record may be more likely to underperform or expose your retirement savings to unnecessary risk.

To research the performance track record of a PFA and the funds they manage, review the financial statements of the PFA and of each of the funds they manage. The financial statement should be available on their website. The statements will provide information on the company’s performance and on the performance of each of the funds they manage, including their financial position and any potential risks. You can also look for independent research or analysis on the PFA's performance track record and ratings from financial analysts or reviews from industry experts. For the PFA you are with or considering, compare their performance to other PFAs and to industry benchmarks.

Product Range Available (The Funds)

The product range offered by a pension fund administrator (PFA) is another important factor to consider when evaluating them. This includes the types of funds they manage and the investment options available to you.

Currently, a PFA is allowed to offer up to 7 funds. Each of these funds have different investment styles and varying degrees of risk. The funds are:

1.   Fund I – Aggressive Growth

2.   Fund II – Balanced

3.   Fund III – Pre-Retirement

4.   Fund IV – Retiree

5.   Fund V – Micro Pension

6.   Fund VI – Non-Interest (Active)

7.   Fund VI – Non-Interest (Retiree).

Each of these funds will distribute your money to various investments such as stocks, bonds, mutual funds, real estate, private equity, and other allowed investment strategies to varying degrees. It is important to be with or choose a PFA that offers a fund that aligns with your own investment goals and risk tolerance.

The products that a PFA offers should be available on their respective websites where you can review them and their investment portfolios and other fund. The information should include the types of assets each PFAs fund invests in, and their investment strategies, risk profile and investment performance. You can also ask the PFA directly or you seek advice from a regulated investment adviser or investment professional.

It is also a good idea to compare the funds offered by your current PFA or the PFA you are considering to those of other PFAs in the market. This can help you to get a sense of the PFA's competitiveness and whether their fund is likely to meet your needs.

Overall, it is important to choose a PFA with a product range that meets your needs and goals, and that provides you with the flexibility to make changes as your circumstances change.

Fees and Charges

When evaluating a pension fund administrator (PFA), it is important to consider the fees and charges associated with their services. These fees can have a significant impact on your retirement savings, and it is important to choose a PFA that offers competitive and transparent pricing.

Look for a PFA that clearly communicates their fees and charges. Be sure to consider both explicit fees, such as management fees, custodian fee, regulatory fees, and administration fees, as well as any unseen fees, such as trading fees. Fees and charges have an impact on the investment performance of your retirement fund.

There are several types of fees and charges that you may encounter with a PFA managing your fund. These may include:

• Manager fee: This is the fee that is charged by the PFA for managing your pension fund. The maximum you can be charged varies with each of the 7 funds listed in funds above (see table of fees below).
• Administration fee: This the fee that is charged by the PFA for administrative tasks such as processing transactions, issuing statements, and maintaining records.
• Custodian fee: This is the fee charged by the independent custodian who holds assets in trust on your behalf.
• Regulatory fee: This is the fee that is charged by PenCom, regulatory body overseeing the pension industry.
• VAT: All the above fees are subject to the current rate of VAT in Nigeria.
• Investment management fees: These are fees that are charged the PFA by third parties and passed on to you via the fund for investing your pension fund in various assets. These fees include charges for buying and selling securities. Whilst you may not see them displayed in any report or disclosed to you, they do impact your pension. PFAs are in a position to minimise some of these investment fees, such as broker commission, bid/offer spreads, ongoing management fees for mutual funds and other investment products.

As part of your evaluation, it is worth looking out for the total expense ratio of a fund and compare to other funds.

Overall, it is important to consider the fees and charges associated with a PFA when evaluating them, as they can have a significant impact on your retirement savings.

Customer Service

The level of customer service offered by a pension fund administrator (PFA) is another important factor to consider when evaluating a PFA. A PFA with excellent customer service is likely to be quick and responsive to queries and requests, and helpful and knowledgeable when it comes to answering questions about your pension fund. On the other hand, a PFA with poor customer service may be difficult to reach or may provide inadequate support and assistance.

Look for a PFA that offers a variety of customer support options, including telephone and email support, as well as in-person support at local branches. Consider which channels are most convenient and accessible for you and ensure that the PFA you use or are considering offers them.

Overall, it is important to choose a PFA with a high level of customer service, as this will ensure that you have access to the support and resources you need to make informed decisions about your retirement savings.

Technology and Online Presence

In today's digital age, it is increasingly important for a PFA to have a strong online presence and to make use of technology in their operations.

Look for a PFA with a modern and user-friendly website and mobile app that provide easy access to account information, investment performance, and other resources.

A PFA with advance technology and a strong online presence is likely to offer a user-friendly and accessible platform for dealing with you and managing your pension. It is also a good idea to consider the security of a PFA's online systems, as you want to ensure that your personal and financial information is protected.

Here are some factors to consider when evaluating a PFAs online presence and technology:

• Website: The company's website should be professional, user-friendly, and provide a wealth of information about the PFA, its funds and other services. It should be updated frequently and be available to you 24/7. It should also be mobile-friendly, as many investors today access information online through their smartphones.
• Online account access: The PFA should offer online account access for pension fund holders, allowing them to view their accounts, update their personal information, and perform other tasks online. This can be particularly convenient for investors who may not have the time or resources to visit a physical location.
• Digital communication: The PFA should be able to effectively communicate with you through digital channels, such as email and online chat. This can be particularly useful for investors who may have questions or concerns that need to be addressed in a timely manner.
• Use of technology in the investment process: The company should be able to demonstrate how it uses technology to enhance its investment process, such as through the use of data analytics or automated investment tools. This can help to increase efficiency and potentially improve investment outcomes.

Overall, it is important to choose a PFA with a strong technology and online presence, as this will provide you with convenient and secure access to your retirement savings.

Bringing it all together

In conclusion, when evaluating a pension fund administrator (PFA), it is important to consider a range of factors to ensure that you choose a reputable and reliable company to manage your retirement savings. These factors include regulatory compliance, capital adequacy, performance track record, product range, fees and charges, customer service, and technology and online presence. By carefully considering these factors, you can make an informed decision and stay with or choose a PFA that will best meet your needs and protect your retirement savings.

Where you are in doubt or need help, it is also a good idea to seek advice from a qualified and regulated investment adviser or other qualified investment professional. They can provide valuable insights and guidance on the different PFAs and funds available and help you to make the right decision for your unique needs and circumstances.

Overall, which PFA you select or stay with is a crucial decision that will impact your financial security during retirement. Be sure to take the time to thoroughly evaluate your options and choose a PFA that you can trust to manage your retirement savings with care.

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