MULTI-FUND STRUCTURE

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.



FREQUENTLY ASKED QUESTIONS

Q. 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.

Q. 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 Maximum Exposure to Variable Investment Instruments Minimum Exposure to Variable Investment Instruments Membership
Fund I 75% of Portfolio value 20% of Portfolio value Strictly based on request but not accessible to Retiree and active contributors of 50 years and above.
Fund II 55% of Portfolio value 10% of Portfolio value Default for active contributors of 49 years and below.
Fund III 20% of Portfolio value 5% of Portfolio value Default for active contributors of 50 years and above.
Fund IV 10% of Portfolio value 0% of Portfolio value Strictly for Retirees.


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

Q. 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 loses (if any). Once a person is nearing retirement, it is advisable that they limit the amount 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.

Q. Can I decide which Fund Type to be assigned to?

On 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. However, subsequently an active contributor can make a request to switch between Funds. An active contributor can switch from Fund II to Fund I, while an active contributor in Fund III can switch to Fund II. However, an active contributor in Fund III cannot switch to Fund I while an active contributor in Fund II cannot switch to Fund III.

Q. How often can I move between Fund types?

Active contributor can 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 further requests for switches among Funds within a 12 month period by the active Contributor shall attract a fee, of an amount to be determined by PenCom from time to time.

Q. When will the 12 month period start counting?

PenCom will provide details on the 12 months period in the operational framework that would guide the transition to the Multi-Fund structure.

Q. Are there any benefits in this multi-fund structure?

The Multi-Fund structure allows RSA holders more control over how their pension funds are invested based on their risk tolerance. For instance, an RSA holder in Fund III owing to the default classification based on age, may have more tolerance for risks and uncertainty and could opt to be assigned to Fund II.

Q. Who takes the ultimate switch responsibility between the contributor and the PFA?

The active contributor has the right to switch between funds depending on his or her preference, whilst the PFA will be responsible for effecting the switch upon receipt of a formal request from the active contributor. The PFA is also in a position to provide financial advice to contributors to assist in assessing risk and making an informed decision.

Q. What are the impacts on my pension balance when my PFA moves into the multi-fund structure?

The balance in your RSA will not change due to the movement to the multi-fund structure because the entire balance would be moved to the appropriate fund without charges. However subsequent growths in your balance would depend on contributions such as the mandatory monthly contributions, voluntary contributions and returns generated by the PFA.

Q. What is/are the requirement(s) for switching from one fund type to another?

To switch from one fund type to another, a formal request must be submitted by the active contributor to his or her PFA.

Q. Do I need to seek an advice from external financial advisor or my PFA before taking a decision to switch?

Whilst you are at liberty to seek advice from external financial advisers, we would make information available on the fund performance and indices to enable you take an informed decision.

Q. If my date of birth is wrongly captured, which Fund Type will my PFA profile me?

Kindly check and update your information before the commencement of the new structure.

Q. Can I split my voluntary contribution in a separate Fund Type while my mandatory Contribution goes into another Fund Type?

Every RSA holder is entitled to only one Pin for all types of contributions. Consequently, your voluntary contribution will be in the same Fund as your mandatory contribution.

Q. Will the RSA and VC funds have separate fund price or the same?

The RSA and VC will have the same fund price because they will be invested in the same fund the contributor selects.

Q. What are the multi-funds options for Approved Existing Schemes?

Approved Existing Schemes are governed by the Board of Trustees who have the right to structure the portfolios in the best interest of the beneficiaries subject to PenCom’s approval. Consequently, the BOTs of contributory AESs can amend their agreements and restructure them along the lines of the Multi-Fund structure.

Q. What impacts does Multi-Fund structure have on my future pension assets at the point of retirement?

The Multi-Fund structure provides more alignment between your retirement goals, risk appetite and age. Consequently, there will be a better chance for your pension assets to meet your expectations when you retire.

Q. Once an RSA holder makes a withdrawal such as 25% and then becomes unemployed, can he request that his funds be moved to another fund structure since no contributions are entering his RSA?

The regulation does not restrict movements due to withdrawal of 25%. As long as the individual is below 50 years, the option is to switch between Fund I and Fund II.

Q. If I decide to switch from Fund II to Fund I, can I switch back to Fund II?

Yes, however it will be at a cost if you intend to switch back to Fund I within 12 months.

Q. Will I have access to the financial reports of other funds?

The fund prices would be published daily on the websites of the PFAs. Also, annual financial reports of the RSA Funds of all PFAs are published once a year in at least 2 national dailies.

Q. With the new multi-fund structure, can I be given the option to choose which specific variable income instruments my funds can be invested in?

No, the regulation only allows contributors to select a Fund, but the PFAs would continue to have the responsibility of selecting the specific instruments that the Funds would be invested in, subject to regulatory requirements.

Q. Will the charge for moving between funds be deducted from the RSA or paid as a separate amount into the bank?

The charge would be deducted from the RSA balance of the contributor.