• Tuesday, March 05, 2024
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Challenges in the administration of pension reform Act, 2014 (1)

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The Pension Reform Act 2014 which replaces the Pension Act 2004 was signed into law by President Goodluck Jonathan of the Federal Republic of Nigeria on 1st July 2014. The Act has significantly altered the scope of the employer’s and employees’ responsibility as well as regulatory powers of the Pension Commission.

I shall attempt in this review to highlight some of the challenges in the administration of the new Pension Act 2014. My approach shall be to reproduce relevant sections of the Act in this review and then comment as appropriate.

Application of Provision of the Act

The provisions of the 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 States, the Public Service of the Local Governments and the Private Sector-Section 2 (1)

In the case of Private Sector, the Pension Scheme shall apply to employees who are in the employment of an organization in which there are 15 or more employees-Section 2(2)

Notwithstanding the provisions of subsection (2) of this section, employees of organizations with less than 3 employees as well as self-employed persons shall be entitled to participate under the scheme in accordance with guidelines issued by Pension Commission (PENCOM)-Section 2 (3)

Comment

The Pension Reform Act 2014 is mute on organizations with a workforce of 3 to 14. It appears the omission is due to typographical inadvertence and/or omission. Pending clarification and/or rectification by the Pension Commission, my recommendation is that organizations apparently missed out should continue to maintain their Pensions and Group Life Policies in accordance with basis of contributions stipulated in the new Act. It is pertinent to mention that under the old Pension Act 2004, the minimum eligibility number of employees was 5 and above.

Those organizations which do not presently have a Pension scheme are urged to incept one. For those falling within the eligibility bracket, an offence is being committed if one has not been incepted. Infraction of the Act has its attendant sanction and these sanctions are severe.

The recommendation is based on the reality that the accumulated Pension Liability together with the Group Life liability remains the employer’s responsibility under the Act. Should an employee suffer death during his/her tenure of employment while the default persists, the employer remains potentially liable for the employee’s entitlements. The employer would have to source for fund from elsewhere to fund the liability. Nigerians are increasingly becoming conscious of their legal rights.

Contributions To Pensions

Contributions for any employee shall be made in the following rates relating to monthly emoluments-Section 4 (1)

• Minimum of 10% by the Employer

• Minimum of 8% by the Employee

Any employee under the scheme may, in addition to the total contribution being made by him and his employer, make voluntary contributions to his retirement savings account-Section 4 (3)

An employer may agree

• On the payment of additional benefit to the employee upon retirement or

• Elect to bear the full responsibility of the Scheme provided the employers contribution is not less than 20% (instead of 18%) of the monthly emolument of the employee-Section 4 (4)

Definition of Monthly Emolument

It means Total Emolument as may be defined in the employee’s contract of service but shall not  be less than the total sum of basic salary, housing allowance and transport allowance-S120.

Comment

Under the Pension Reform Act 2004, the contributions used to be 7.5% by the employer and 7.5% by the employee, giving an aggregate of 15%. The Pension Act 2014 has increased the employer’s contribution to 10% and that of the employee to 8%, giving a revised aggregate of 18%. It is however curious that the employer’s contribution is revised to 20% by the Act if the employer chooses to fund the whole contribution. We can only guess the rationale that must have informed the additional 2%. The new Act also preserves the employer prerogative to pay gratuity in addition to pension. Thus a Pension Scheme and a Gratuity Scheme are not mutually exclusive. Staff motivation is tremendously enhanced if both schemes exist in an organization. 

Group Life

Every employer shall maintain a Group Life Insurance Policy in favour of each employee for a minimum of 3 times the annual total emolument of the employee and premium shall be paid not later than the date of commencement of the cover-Section 4 (5)

Annual Total Emolument in relation to the Group Life Insurance Policy means the Gross Emoluments of an employee or deceased person.-Section 120

Death of Employee

Where an employee dies, his entitlement under the life insurance policy maintained under Section 4 (5) of the Act shall be paid by an underwriter to the named beneficiary in line with Section 57 of Insurance Act 2003.-Section 8

The relevant section under the Insurance is hereby reproduced for ease of reference: A policy of insurance shall not be made on the life of a person or other event without writing in the policy the name of the person interested in it or for those whose benefit or on whose account the policy is made- Insurance Act 2003- S 57

Employees Declared Missing

Where an employee is missing and is not found within 12months from the date he was declared missing and the Board of Enquiry by the Pension Commission (PENCOM) makes a declaration…….that it is reasonable to presume that the employee is dead, the provisions of Section 8 of the Pension Act 2014 will apply. – Section 9.

Consequence of Default in Arranging Group Life Cover

Where there is default in making payment for Group Life as at when due, and the policy becomes legally inoperative, the employer shall make arrangement to effect the payment of claims arising from death of any staff in its employment during such period.-Section 4 (6)

Definition of Annual Total Emolument

It is the Gross Emoluments of an employee or of a deceased person.-S 120

Comment

The payment of benefits to the estate of deceased employees under both Pension Contribution and Group Life has always remained a nightmare to most claimants. The process of obtaining a

Letter of Administration from Probate Division of the courts is an open ended journey. It may take months or a year plus with attendant legal fees and probate fees.

The reviewer has a case where the employee died on 25th November 2013. The Burial expenses benefit and the death benefits were settled by insurers on 4th and 27th December 2013 respectively. Whilst the burial expense benefit was released almost immediately to the bereaved family, the Death benefit remains till date marooned in the PFA’s safe awaiting the issuance and release of the letter of Administration.

OLAGUNJU B. Bashir