Towards the end of 2015 it was announced that Nigeria’s Pension Funds had risen to over N5 trillion in its 10 years of operation. Despite this achievement a lot of mystery still surrounds the Pension Scheme and it’s not unusual for Employers to see it as an unnecessary burden whilst Employees don’t know how they can leverage on the scheme.
Whilst the pension scheme is seen as generally favourable to the Employee, the fact remains that if Nigerian Employers (especially in the Private Sector) adopt the “Cost to Company” model of compensation, they would feel less aggrieved about the seeming burden of remitting pensions. Our discourse this week highlights key areas of the Pension Regime in Nigeria and how it affects you as a Business Owner or Employee.
PENSION REFORM ACT 2014
Pension contributions in Nigeria is provided for by the Pension Reform Act of 2014 and regulated by the National Pension Commission. The crux of the Act is to encourage participation in the Contributory Pension Scheme (Scheme). The Scheme applies to two categories of employees. These include all employees in the public sector and employees of private organisations in which there are 15 or more employees. The Act also provides that in the case of private organisations with less than 3 employees, Participation in the Scheme would be governed by guidelines issued by the National Pension Commission (PenCom).
- Both Employer and Employee are required to make a minimum of 10% and 8% respectively of the employee’s monthly emoluments.
- An Employer can take full responsibility of the contribution. In that case, the contribution shall not be less than 20% of the Employee’s monthly emolument.
- An Employee who disengages from employment or is disengaged before the age of 50 and is unable to secure employment within 4 months of disengagement is allowed to make withdrawals from the account although not exceeding 25% of the total amount credited to the retirement savings account (RSA).
- Any employee aggrieved with his employer or Pension Fund Administrator (PFA) is obligated to approach PENCOM for redress before exploring arbitration or commencing an action at the National Industrial Court.
- Employees have the right to choose their PFA. Where an employee fails to open a Retirement Savings Account (RSA) within 6 months after assumption of duty, his employer can now request a PFA to open a nominal RSA for such employee for the remittance of his pension contribution.
- Pension Fund Administrators (PFA’s) manage pension contributions. They invest the monies in equities and other investment securities and assets to ensure that there is increased value for contributions. Pension Fund Custodians (PFC) on the other hand have the responsibility of warehousing pension fund assets e.g. whenever your organization deducts money from your salary as pension, the amount deducted is deposited with the PFC’s. The PFC’s now notify the PFA’s that money has been deposited following which the PFA’s can now access it for investments.
- The Pension Reform Act criminalizes any attempt to misappropriate or mismanage pension funds and imposes a prison term of 10 years and a fine of three times the amount misappropriated. A convicted person would refund the amount misappropriated as well as forfeit to the federal government any property, asset or fund which are proceeds of any unlawful activity under the Act in his/her possession.
- The 2014 Act also empowers PenCom, subject to the fiat of the Attorney General of the Federation, to institute criminal proceedings against employers who persistently fail to deduct and/or remit pension contributions of their employees within the stipulated time.
- If a Contributor dies either in active service or after retirement, the next-of-kin as provided by the deceased to the PFA will be contacted to provide relevant documents for processing the contributions. The contributions will be paid to the named beneficiary in the Will or the Letter of Administration.
In conclusion, the Pension Law has come to stay and it is essential for all Employers of Labour to understand and support this laudable initiative. Employees are also advised to monitor their Pension remittance and ask questions when clarifications are necessary.