The recent change in investment regulations by the National Pension Commission (PENCOM) marks a turning point for Nigeria's pension industry. By September 2025, the new rules allow pension fund administrators (PFAs) to diversify beyond traditional government securities, allowing investments in exchange-traded derivatives, gold safekeeping receipts, agricultural funds, repurchase agreements (repos) and more.
The move, the first full-fledged reform in years, aims to reduce excessive reliance on sovereign debt, expand investment opportunities for retirement savings and ultimately provide better returns to contributors.
“Pension capital should not be seen simply as a tool for returns, but as a catalyst for growth, channeled into projects that create jobs, build infrastructure and diversify the economy.”
Under the revised framework, PFAs can now use a wider range of instruments – exchange-traded derivatives (ETDs), including futures, options and other contracts, which allow funds to hedge against market fluctuations or take positions without the need to own the underlying asset. These are now authorized for use by pension funds, although under strict regulation.
Gold-backed instruments, particularly tradable gold receipts (sometimes through ETFs or commodity exchanges), provide pension funds exposure to the perceived safe-haven appeal of gold without the burden of physical storage.
Agriculture-linked funds and commodity-backed assets, giving pension funds a stake in Nigeria's agribusiness and commodity value chain, are a welcome sign of real sector investment. Repurchase agreements (repos) and securities-lending mechanisms provide PFAs with liquidity and cash-flow management options while maintaining security through regulated counterparties.
Additionally, PenCom has reduced the share of pension assets that must be invested in federal government securities. This signals a deliberate shift from a conservative, sovereign-heavy portfolio towards a more diversified and potentially higher yielding mix.
To keep the risks under control, the regulation also imposes a limit, as no PFA can hold more than 25 per cent of its assets in instruments issued by a single corporate entity across all fund categories.
For pension plan contributors, this regulatory reform could translate into higher, inflation-resilient returns. Historically, pension funds in Nigeria have placed a heavy emphasis on government securities, which are safe but with limited returns, especially in a high inflation environment. By branching out into gold, commodities, infrastructure-linked assets and market-based instruments, PFA now have the tools to better preserve purchasing power and potentially increase real value over time.
Beyond individual retirement savings, the reform could mobilize long-term capital into productive sectors of the economy. Agriculture, which is often underfunded, could benefit, which would help deepen investments in agricultural value chains, boost food security, and create rural employment. Commodity-backed investments and infrastructure-linked securities can also help fund projects with solid socio-economic impact.
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Furthermore, the introduction of derivatives and repo markets adds liquidity, flexibility and sophistication to Nigeria's capital market.
These tools provide PFAs with risk-management options and the ability to respond to economic shifts, a sign that Nigeria's pension industry is maturing and aligning with international investment best practices.
This change is not risk free, he said. There is volatility in derivatives and commodities. If the PFA (or underlying fund manager) misprices the risk, exposure to commodities, agriculture, or corporate debt may underperform, especially if not appropriately diversified. Effective governance, strong diligence and transparency will be essential to ensure that pensioners' savings are safe.
To truly carry out this reform, there must be balanced diversification. PFA should spread investments across asset classes (derivatives, commodities, agriculture, infrastructure, corporate debt, etc.) rather than focusing heavily on any one sector or instrument.
Risk-control measures such as the 25 per cent issuer limit should be strictly enforced.
Given the long horizon of pension funds, investments in agriculture, infrastructure and commodity-backed assets, which often yield over years, should be prioritized over short-term instruments.
Regulators (Pencom, Securities and Exchange Commission and commodity exchanges) must ensure that there is transparency, solid valuation practices and compliance with environmental, social and governance (ESG) standards. Indeed, the new regulation already emphasizes ESG considerations.
Effective management of derivatives, commodity-backed securities and alternative investments requires expertise. PFA should invest in training, risk-management capabilities, and strong internal processes.
Pension capital should not be seen merely as a tool for returns, but as a catalyst of growth, channeled into projects that create jobs, build infrastructure and diversify the economy.
The 2025 improvements by Pencom represent more than just a technical update. They open the door to a reimagined pension industry that can mobilize long-term savings into productive sectors of the Nigerian economy. But getting there will require courage, discipline and foresight.
And the public and contributors should view their pensions not just as a retirement cushion but as a civic resource, a part of the long-term national investment story. As pension assets grow and find their way into farms, factories, infrastructure and capital markets, ordinary Nigerians benefit not only as retirees, but also as potential entrepreneurs, workers and citizens who enjoy better public goods and economic opportunities.
PenCom's new investment rules are more than a policy change; They indicate a paradigm shift. For decades, Nigerian pension funds have been viewed as conservative pools of capital, largely invested in low-yielding government securities.
With access to derivatives, gold-backed securities, agricultural and commodity-linked funds, repos and much more, the pension industry is ultimately evolving into a dynamic storehouse of long-term capital.
But capital in itself does not guarantee profit.
What matters is how this power is deployed.
With solid risk management, disciplined governance and a focus on impact and returns over speculation, Nigeria's pension funds can emerge as a key driver of economic growth.
In a country desperate for jobs, infrastructure and diversified investment, this would be a change worth believing in.
