PenCom alerts PFAs: avoid investing in banks’ AT1 Capital

The National Pension Commission (PenCom) has issued a firm warning to Pension Fund Administrators (PFAs) against investing pension fund assets in the Additional Tier-1 (AT1) Capital instruments of Deposit Money Banks (DMBs). The regulatory directive comes amid a rising interest from PFAs to diversify investments into banks’ AT1 capital as financial institutions work to meet new capital thresholds.

In a circular signed by A.M. Saleem, Director of PenCom’s Surveillance Department, the Commission highlighted that AT1 instruments, as defined by the Central Bank of Nigeria (CBN), are perpetual with no maturity date and no incentives for redemption.

This structure, PenCom emphasized, contravenes Section 2.4 of the Regulations on Investment of Pension Fund Assets, which prohibits PFAs from investing in instruments with restrictions on sale or purchase, except for specific funds such as open/close-end or hybrid investment funds.

“Arising from the foregoing, PFAs cannot invest pension fund assets in Additional Tier-1 Capital instruments issued by Deposit Money Banks,” the circular stated, reinforcing PenCom’s commitment to safeguarding pension funds and ensuring compliance with the legal investment framework.


PenCom regulations allow PFAs to invest in government-issued bonds, treasury bills, certificates issued by the CBN, ordinary shares of public limited companies, bank deposits, and bank financial instruments including bankers’ acceptances and certificates of deposit.

Additionally, PFAs can invest in asset-backed securities and specialist investment funds, provided that all instruments maintain a minimum investment-grade rating of ‘BBB’ by a recognised risk rating agency.


The directive aligns with ongoing capital reforms by the CBN, which in March 2024 mandated banks to increase their capital base.

Commercial banks with international authorisation are required to achieve N500 billion, national banks N200 billion, and regional banks N50 billion.

Non-interest banks also face similar thresholds of N20 billion and N10 billion for national and regional operations respectively, with March 2026 set as the deadline.

The CBN has noted significant progress, with eight banks having already met the new capital requirements.

Many institutions are using private placements, domestic debt markets, and international capital markets to meet the prescribed thresholds.


PenCom’s directive underscores the regulator’s prioritization of the safety and growth of pension assets.

By barring investment in AT1 instruments, the Commission seeks to mitigate exposure to perpetual capital instruments that carry inherent liquidity and risk challenges.

Analysts believe the warning also ensures alignment between the pension sector and established regulatory frameworks, preventing potential systemic risks to retirees’ savings.

The Commission’s intervention comes as PFAs explore avenues to boost returns amid Nigeria’s evolving capital market.

While banks’ AT1 capital provides potential yield, PenCom stresses the importance of compliance with investment regulations to protect the long-term security of pension fund assets.


The circular is expected to guide PFAs in revisiting their investment strategies, especially for those considering high-risk banking instruments.

Financial experts suggest that while AT1 capital is attractive for banks seeking to meet CBN’s capital thresholds, it is unsuitable for pension fund investments due to its perpetual nature and lack of redemption incentives.

As Nigeria’s banking and pension sectors continue to intersect in the capital markets, regulatory clarity from PenCom is pivotal.

Pensioners’ funds remain a cornerstone of financial stability, and PFAs are expected to adhere strictly to the outlined investment guidelines to ensure the security and growth of retirement savings.