PenCom’s N20bn Recapitalisation May Stifle Growth of PFAs, PFCs – Renaissance Capital Warns
Nigeria’s pension industry faces a major shake-up following the National Pension Commission’s (PenCom) new recapitalisation directive, which has raised the minimum capital requirement for Pension Fund Administrators (PFAs) and Custodians (PFCs). While the move is designed to strengthen financial stability, global investment firm Renaissance Capital has warned that the new thresholds could discourage growth, distort competition, and trigger a wave of over-capitalisation.
In a circular issued on September 26, 2025, PenCom raised the bar for PFAs with Assets Under Management (AUM) below ₦500 billion to ₦20 billion in capital, while those managing above ₦500 billion must add 1% of the excess to the base requirement. For Pension Fund Custodians (PFCs), the new minimum is ₦25 billion plus 0.1% of Assets Under Custody (AUC). Special PFAs, such as NPF Pensions and Nigerian University Pension Management Company, face even higher thresholds. Existing operators have until December 31, 2026, to comply, while new entrants must meet the requirements upfront.
Renaissance Capital acknowledges that the pension industry has grown significantly, with PFAs’ AUM expanding at a compound annual rate of 16% since the last recapitalisation in 2021. This growth, boosted by strong returns and naira devaluations in 2023 and 2024, justifies stronger buffers, especially as PFAs now have access to higher-risk asset classes such as infrastructure, securities lending, and private equity. However, the firm argues that the variable capital requirement is poorly aligned with the risk profile of PFAs, which typically earn just a 1% management fee and do not bear direct market risk.
“This rule discourages PFAs from scaling their AUMs beyond ₦500 billion, reducing attractiveness for shareholders and investors,” the report noted. By excluding statutory reserves from qualifying capital, the directive may also force indefinite profit retention, undermining investor confidence. Renaissance Capital instead recommends a fixed capital model, warning that the tiered structure could lead to unintended market distortions and discourage innovation within the sector.
The heightened thresholds are likely to fuel consolidation, with Renaissance Capital estimating PFAs will need to raise an additional ₦275.7 billion, and PFCs about ₦28.9 billion. Larger PFAs may weather the storm using group balance sheets, but smaller operators could face mergers or acquisitions. Industry insiders expect a reshaping of Nigeria’s “Big Five” pension players, while PFCs affiliated with major banks such as First Bank, Zenith, and UBA may have to retain more earnings, potentially impacting dividend payouts. Although PenCom’s reform aims to safeguard the long-term health of the pension system, critics caution it could narrow competition and limit growth opportunities for the very firms entrusted with Nigerians’ retirement savings.
source: nairametrics