Employee pensions: The bigger picture

The pension system as provided in the Pension Reform Act 2004 as amended in 2014 provided a ‘cover net’ that not only guarantees pleasurable retirement to the employee, but also gives him a sense of belonging in the organisation he works. By these promises, the employee is motivated to give his best in terms of contribution to the growth of the organisation, discouraged from stealing for a guarantee future, which subsequently offers greater protection to the employer and the organisation.

The pep of these promises are that the pension contributions as enshrined in the law are implemented satisfactorily such that they are deducted accordingly and remitted as at when due.

The Pension Reform Bill 2014 signed into law on July 1, 2014 further elicited critical issues bothering on contributor benefits, employers’ responsibility as well as regulatory empowerments, says analysts at Augusto & Co.

Part11 section 3(1) of the Act provides that there are established for any employment in the Federal Republic of Nigeria, a contributory Pension scheme for payment of retirement benefits of employees to whom the scheme applies. (2) This shall apply to all employees in the public service of the federation, the federal capital territory, state, local governments and the private sector subject to the provisions of the Act.

Section 5 says in addition to rates, every employer shall maintain a group life insurance in favour of each employee for a minimum of three times the annual total emolument of the employee and premium shall be paid not later than the date of commencement of the cover.

Section 6 of this act further stated that where an employer failed, refused or omitted to make payment as and when due, the employer shall make arrangement to effect the payment of claims arising from the death of any staff in its employment during such period.

An employee whom this act applies having opened a Retirement Savings Account (RSA) with a Pension Fund Administrator of his choice, shall notify his employer with the name of the PFA and the identity of the RSA opened for him.

Where the employee is still new and was yet to have an RSA, employer is mandated to open a Temporary Retirement Savings Account (TRSA) on behalf of the employee within three (3) months of assumption of duty.

According to the Act, any employer who fails to remit the contributions after 7 working days from the day the employee is paid his salary, an amount comprising the employee’s contribution to the custodian specified by the pension fund administrator of the employee shall be liable to a penalty to be stipulated by PenCom.

The penalty shall not be less than 2 percent of total contribution that remains unpaid for each month or part of each month if the default continues while the amount of the penalty shall be recoverable as a debt owed to the employee’s RSA as the case may be.

The National Pension Commission (PenCom) according to this Act is empowered to carry out criminal proceedings against employers who fail to remit their share of the pension contributions within a specified time. The 2014 Act introduces two significant reforms. The first of which is the upward review of the minimum rate of pension contribution from 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).

The second expands the pension base as it revises the obligatory criteria, bringing organisations with as few as three employees into the contributory pension scheme from organisations with five or more employees as provided in the Pension Reform Act 2004.

The objectives of this act are to establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the public service of the Federation, the Public Service of the Federal Capital Territory, the Public Service of the State Government, the Public Service of the Local Government Councils and the private Sector;

It is also to make provision for the smooth operations of the contributory pension scheme; ensure that every person who worked in either the public Service of the Federation, Federal Capital Territory, States and Local government or the Private Sector receives his retirement benefits as and when due; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

The provisions of this Act shall apply to any employment in the public service of the Federation, the public Service of the Federal Capital Territory, the Public Service of the state, the public service of the local governments and the private sector.

In the case of the Private Sector, the Scheme shall apply to employees who are in the employment of an organization in which there are 3 or more employees.

Notwithstanding the provision of subsection (2) of this section, employee of organization with less than three employees as well as self-employed persons shall be entitled to participate under the scheme in accordance with guidelines issued by the commission.