The Multi-Fund Investment Structure (MFIS) is an innovation by the National Pension Commission (PenCom) that provides a framework enabling pension contributors to have a guided say in the choice of the nature of investment assets which their contributions can be invested in.
Inception in 2005, contributors have always been grouped into two, namely, the RSA Fund for active contributors and the Retiree Fund for those who have retired from active service.
The essential difference between the two Funds was that the RSA Fund was allowed to have a higher content of risky assets than the Retiree Fund. The risk content has to do with the percentage of assets in the portfolio with variable incomes.
It is generally believed that the higher the risk in an asset class, the higher the income. On this premise, the argument has been that while some people prefer higher risks so as to predispose them to higher income, there are different levels of risk preference or appetite for different people.
Some people therefore felt that restricting contributors to the above two categories was not fair enough, prompting PenCom to think of ways of increasing the number of Funds to accommodate more shades of contributors.
In line with the above thinking, PenCom has created four different Funds, namely, Fund I, Fund II, Fund III and Fund IV and PFAs are required to transfer, in accordance with the guidelines, contributors in the previous two groups into the newly created four Funds, effective July 1, 2018. The existing RSA (Active) Fund is now to be replaced with Funds I – III, while the Retiree Fund now becomes Fund IV.
Download Mutli-Fund Transfer Request form
Features Of The Funds
- Subscribers must be below 50 years
- Must request to be moved to this Fund
- Only subscribers in Fund II can move to Fund I
- Will be more aggressive in terms of asset allocation
- More risky assets included and thus, more target returns
- Minimum of 20% of assets will be invested in variable income assets
- Maximum of 70% of assets can be invested in variable income assets.
- Subscribers must be below 50 years and will be moved into this fund automatically except they indicate otherwise
- Can only move to Fund I
- Will be moderately aggressive in terms of asset allocation
- Minimum of 10% of assets will be invested in variable income assets
- Maximum of 55% of assets can be invested in variable income assets
- Returns will most likely replicate the current RSA Fund’s ROI
- Subscribers must be 50 years and above and will be moved into this fund automatically except they indicate otherwise
- Can only move to Fund II [but not Fund I]
- Will be more conservative in terms of asset allocation
- Minimum of 5% of assets will be invested in variable assets
- Maximum of 20% of assets can be invested in variable assets
- This is the current Retiree Fund
- Operated in accordance with guidelines of the existing Retiree Fund
- Subscribers cannot move to Funds I, II or III
- Will be more conservative in terms of asset allocation
- Minimum of 0% of assets will be invested in variable assets
- Maximum of 10% of assets can be invested in variable assets
- Returns will be similar to the existing Retiree Fund’s
Frequently Asked Questions
01. How does this Multi-Fund classification apply to me as a contributor?
Previously, as an active contributor you could only belong to the RSA Fund and income earned by the Fund was distributed equitably to all contributors under the Fund. But now you are allowed to choose from amongst Funds I –III, depending on your age.
02. What difference does it make if I belonged to Fund I, II or III?
Contributors in Fund I have their contributions invested in assets that have a high content of variable income (risky) assets, which by investment logic also positions them for higher income. The degree of risk varies progressively from Fund 1 to Fund III.
03. Does it mean each Fund will earn different amounts of income?
Yes, each Fund, because of the mix of assets in its portfolio will produce its own level of income different from other Funds.
04. But don’t you think you are unnecessarily bothering contributors by creating 4 Funds to replace the existing 2 we are used to?
The creation of 2 additional Funds to make 4 was a response to the yearnings of many contributors who felt that they deserved the right to choose between Funds since different contributors have different risk appetites.
05. How will you give me my share of the income in the old Fund if I am moving to a new one?
The unit value of the old Fund the day before the transfer has captured your share of the income earned to date. That unit value is used to calculate the transfer value using the number of units you have accumulated.
06. How often can I transfer from one Fund to the other?
Once a year.
07. Are there fee to be paid for switching from one Fund to another?
One change per year attracts no fee charge. Subsequent changes within the same year will attract fees at a fee yet to be announced by PenCom.
08. What happens if I do not communicate my choice of Fund to you on the implementation day?
Depending on your age, every contributor, on the date of implementation must default to Fund II or III as described above. So on that date you will be in either II or III. But if you want to switch 1, you must apply in writing.
09. Can I give my PFA instructions as to what assets to invest my contributions in?
No. PenCom only created boxes (Funds) and attached specific levels of risks/returns to each box and then gave contributors a chance to choose which box to belong subject to some conditions (as listed above).
10. Assuming my PFA invested 10% of my RSA balance in stocks, can I ask them to increase or
decrease this percentage from time to time?
No, investment decisions with regard to selection of specific investment instruments are done by the PFAs who are duty bound to exercise due diligence and professionalism in their pre-investment analyses. The Multi-Fund regulation only allows contributors to select one out of the available Funds, subject to their age brackets. When you choose a Fund, you belong to a group and PenCom’s rules guiding that group applies to contributor in the group.
11. If, for instance, I ask you to move my account from Fund 2 to Fund 1, and the day you move it, Fund 1 loses money while Fund 2 gains, will I be credited with the gain in Fund 2?