The National Pension Commission (“PenCom”) recently published/released the Amended Regulation on Investment of Pension Fund Assets for the Pension Industry. The new investment guideline introduces a multi-fund structure, which would replace the “one size fits all” structure that puts all active contributors into one Retirement Savings Account (“RSA”) Fund without consideration for age or risk profile of such contributors.

What is the multi-fund structure?

The Multi-Fund structure is a framework that aims to align the age and risk profile of RSA holders by dividing the RSA Fund into four distinct Funds. The current RSA Fund will be sub-divided into three separate Funds, while the RSA Retirees Fund would be the 4th Fund.

What is the difference between the 4 Funds?

The respective funds differ based on their overall exposure to variable income instruments such as equities (that is, Ordinary Shares) and the age profile of the members.

Fund Type

Exposure to Variable Investment Instruments

Asset Class

Actual Weight

Membership

Fund I

20% to 75% of Portfolio

  • Variable income instrument
  • Fixed income instrument

10.39%

89.61%

Strictly based on request but not accessible to Retiree and active contributors of 50 years and above.

 

Fund II

10% to 55% of Portfolio

  • Variable income instrument
  • Fixed income instrument

13.28%

86,72%

Default for active contributors of 49 years and below

 

Fund III

5% to 20% of Portfolio

  • Variable income instrument
  • Fixed income instrument

 3.99%

96.01%

Default for active contributors of 50 years and above

 

Fund IV

0% to 10% of Portfolio

  • Variable income instrument
  • Fixed income instrument

 0.20%

99.80%

Strictly for Retirees

 

 

What are variable income instruments?

Variable income instruments are investments that generate income or returns that cannot be pre-determined from the date the investments were made. In addition, the prices of such instruments fluctuate daily. Instruments in this category include Ordinary Shares, Collective Investment Schemes (“CIS”) such as Mutual Funds, Real Estate Investment Trust; Infrastructure Funds, and Private Equity Funds.

Such investments have the potentials to generate high returns over the long term but could be risky owing to uncertainty and fluctuations in market prices and returns.

What has age and risk profile got to do with how my pension funds are invested?

In investing money, everyone has a limit to the amount of risk that they can take and the amount of uncertainty they can handle. This is known as risk tolerance. Typically, younger people tend to have more capacity for risk because they still have time to recover from losses (if any). Once a person is nearing retirement, it is advisable that they limit the number of risks they take and reduce exposure to uncertainty as they would start drawing down on their pensions within a short period.

Consequently, the allowable exposures to variable income instruments have been designed such that Fund I has the highest allowable limit, followed by Fund II, III, and IV respectively. This reduces the risk and uncertainty of contributors in line with their ages.

Can I decide which Fund Type to be assigned to?

On the day of commencement, a default mechanism shall apply. According to the default mechanism, all active contributors that are 49 years and below would be placed in Fund II while active contributors that are 50 years and above would be placed in Fund III. Subsequently, an active contributor can make a request to his PFA to move between Funds subject to certain restrictions. An active contributor of 49 years and below can opt for Fund I, while an active contributor in Fund III may elect to be assigned to Fund II. However, an active contributor in Fund III is not allowed to opt for Fund I while an active contributor in Fund II is not allowed to opt for Fund III. Fund III is strictly for active contributors above 50 years. To be assigned to any fund based on the preceding, an RSA holder must make a formal request to his/her PFA.

How often can I move between Fund types?

An active contributor may switch from one Fund type to another Fund type within a PFA, once in 12 months without paying any fees (subject to a formal application).

 Any additional requests for switches among Funds within a 12 month period by the active Contributor shall attract a fee, of an amount not less than a minimum value, to be determined by PenCom from time to time.