CPS: Let your employer know you have right to pensions

The Pension Reform Law 2014 mandates organizations having up to three employees and above to enroll their employees into the Contributory Pension Scheme (CPS).

This means that employees working in small sized firms that have three employees and above have the right to demand for their enrolment into the CPS, so that at the end of their working career they will have something to fall back on for retirement.

Whereas this law has existed since 2014, there are still so many employers in this category that were yet to comply with the provisions of this law, showing no interest and further impoverishing their employees.

The 2014 lawincreased theminimum rate of pension contribution from initial 15 percent (with employee and employer contributing 7.5 percent apiece) to a minimum of 18 percent (with contributions from employee and employer increasing to 8 percent and 10 percent respectively).

When the CPS came into being following the Pension Reform Act 2004, only organisations having up to five employees and above had the opportunity to be covered by this scheme. So, employees in these organisations, since then have began accumulating funds for retirement and then looking forward to a descent retirement in old age, as they continued their working career.

While other employees in organisations having less than thatnumber had little or no formal arrangement for their pensions, particularly in most firms that were largely informal, so majority of these employees are left to their faith and what their employers decided for them.

But with the revised pension law 2014, there is new hope for employees working in organisations having up to three employees. There is new hope for a blissful retirement for you as long as your employer would key in, by complying with the pension reform law, which empowers you as Nigerian worker to benefit from the CPS.

It is obvious that some employers may not willingly want to implement this law because it means extra expenses on their budget, the employees affected should right away draw the attention of their employers to this new law and persuade them to open Retirement Savings Account (RSA) for them with their chosen Pension Fund Administrators (PFAs). This may not come easy as expected, so talking to your employer as a group would go a long way to ring the bell clear and loud to the employers.

The objectives of the scheme, as stated in the Act establishing it, are to ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due; assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age; and establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the Public Service of the Federation, Federal Capital Territory and the Private Sector”.

An employee contributes a percentage of his monthly emolument that is; sum of basic salary, transportation and housing allowance and the employer also contributes a percentage of the employee’s monthly emolument towards the retirement benefits of the employee.

Now, being part of the scheme, you may be questioning about the safety of the monthly deductions from your salaries in the name of pensions.

The first point to make is that these worries are unfounded. In fact, there is no need to worry because the CPS is structured in a way that it is safe, secured and guaranteed to ensure that workers have a blissful retirement.

Secondly, the way it is structured, the scheme is foolproof. This is because no one has access to the fund, including fraudsters and cyber criminals; not even the account holder. Each account holder has a unique account number and a Personal Identification Number (PIN) with which to access the account, but only for the purpose of checking of balance. So, even with the PIN, neither the account holder nor a third party can tamper with the money in the account.

In the case of the employer, even though he is the one that remits the monthly contribution to the Pension Fund Administrator (PFA), once the money has been remitted, the employer can no longer access it. And since the retirement savings account is not domiciled with the employer but with the PFA, whether the company continues running or folds up, it’s immaterial. The fund in the employee’s account remains safe.

Similarly, neither the Pension Fund Custodian that keeps the pension fund nor the Pension Fund Administrator that manages it has direct access to the money. The money in an employee’s account is accessible only by the employee after the attainment of the age of 50 or on meeting other conditions stipulated in the Pension Act.

So, don’t be troubled. Just relax, feel at ease, work hard now that you have the strength, ensure that the monthly deductions from your salary are promptly remitted to the appropriate PFA, and then be rest assured that at retirement, you will have a pool of funds to sustain you through old age.

Your Pension fund administrator and your Pension Fund Custodian (PFC) have a serious role to play in management of your pension fund.

A PFA is charged with the responsibility of managing and investing the pension funds and assets. It is the responsibility of the PFA to open a Retirement Savings Account (RSA) for all employees who choose it; invest and manage pension funds and assets; maintain books of account on all transactions relating to pension funds managed; provide regular information on investment strategy; market returns and other performance indicators to the RSA holders; Provide customer service support to RSA holders and ensure that retirement benefits are paid to employees and be responsible for all calculations in relation to retirement benefits.

Your PFA shall invest the pension funds strictly within the guidelines provided by the National Pension Commission (PenCom). Every PFA is mandated to have both an Investment Strategy Committee and a Risk Management Committee. The functions of these committees include the formulation of strategies for complying with the investment guidelines issued by PenCom and determining the risk profile of any such Investment.

While the PFC on the other hand is charged with holding contributions and investment instruments on behalf of the Pension Fund Administrator. Within seven (7) days of the payment of salaries, the employer remits the contributions to the PFC, who receives it on behalf of the PFA and within 24 hours notifies the PFA of receipt of the contributions. The PFC’s functions also include holding all the pension fund and assets in safe custody and settling transactions and undertaking activities relating to the administration (such as collection of dividends) on behalf of the PFA.