Emerging & Frontier Capital (EFC) has warned that the new minimum capital requirements introduced by the National Pension Commission (PenCom) could hurt the profitability of Pension Fund Administrators (PFAs) and reduce investor returns across Nigeria’s pension industry.
In its latest report assessing the recapitalisation directive, EFC acknowledged that PenCom’s decision to raise the minimum capital threshold from N5 billion to N20 billion for PFAs with assets under N500 billion was “logical and consolidation-driven.” However, it cautioned that the policy would compress returns and make it harder for operators to sustain dividend payouts.
The rule also mandates that PFAs managing assets above N500 billion maintain N20 billion plus one percent of any amount exceeding that threshold. All operators are expected to comply by December 31, 2026.
EFC stated that the new requirements raise entry barriers and promote industry scale but have no clear link to prudential risk management.
“The adjustment seems more about increasing entry barriers and promoting scale than addressing systemic risk,” the firm said, adding that the change partly reflects currency realignment following the naira’s depreciation.
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The firm estimated that profitability will decline sharply under the new structure. A N5 billion investment that previously yielded a 10-year internal rate of return of 34.2 percent would now fall to 3.6 percent, while a N20 billion investment capped below N500 billion in assets could result in a negative IRR of -8.3 percent.
EFC projected that returns for major operators such as Stanbic IBTC Pensions and Access ARM Pensions could drop by about 20 percentage points by 2031.
As an alternative, the firm suggested that PenCom should have adopted asset-based capital thresholds, similar to the United Kingdom’s model, to encourage organic growth rather than burden operators with steep capital requirements.
It also advised that regulators promote listing of PFAs on the stock exchange to improve transparency and allow contributors to benefit through dividends.
Despite the concerns, EFC noted that the reforms would likely reshape Nigeria’s pension industry by driving consolidation and improving operational efficiency, even as profitability adjusts to the new regulatory landscape.
