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Employers face stiffer penalties on non-remittance of pensions

Pension sector set for transformation on new capital

Employers that fail to remit their employees’ pensions after deductions are facing stiffer penalties, the National Pension Commission (PenCom) has confirmed.

Through appointed recovery agents of the Commission, the defaulting employers are made to pay unremitted contributions alongside accrued interest and penalties.

According to the fourth quarter 2021 report of the commission, appointed recovery agents realised from 36 defaulting employers N984.23 million, representing N406.42 million as principal contribution and N577.87 million as penalty.

This is as another 18 defaulting employers have also been recommended for appropriate legal action.

Section 11 (6) of the Pension Act 2014, states that any employer who fails to remit the contributions within the time prescribed shall, in addition to making the remittance already due, be liable to a penalty to be stipulated by the commission.

The penalty, according to the pension law will not be less than 2 percent of the total contribution that remains unpaid for each month, or part of each month that the default continues, and the amount of the penalty will be recoverable as a debt owing to the employee’s retirement savings account as the case may be.

If after seven days of the payment of salaries any employer refuses to remit the pension contributions of his employee to the PFA, the PFA is obligated to report the employer to PenCom if the funds are not received by the 14th day from the payment of salaries. Such an employer will be liable to a penalty in addition to the funds due, a senior official of PenCom said.

Ivor Takor, director general, Centre For Pension Right Advocacy said pension remittance should be taken seriously by employers because it has been deducted from their salaries and the law says the deduction should be paid into the RSAs of the employees, not later than seven days after salaries are paid.

Oguche Agudah, CEO, Pension Funds Operators Association of Nigeria (PenOp) said the concept of using recovery agents to tackle the issue of unremitted pensions is a good development and they have been doing quite well.

He said their efforts are applauded and encouraged. However, in addition to the recovery agents, we need to do more on enlightenment of the public (both employers and employees) on the benefits of taking an active part in the contributory pension scheme.

Read also: EXPLAINER: These are where your pension funds are invested

Agudah also said that “Taking part in the scheme, reduced a company’s effective tax rate, because their contributions are tax exempt. In addition, it is a tool for employee engagement, retention and attraction.”

The Pension Reform Act 2004, as amended in 2014 establishes a Contributory Pension Scheme (CPS) for all employees in the country 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.

The scheme empowers employers to deduct pension contributions at source and remit such deductions to the employees’ Pension Fund Administrator, which then ensures that each contributor’s PIN is credited with the amount due.

Under the scheme, an employee contributes 8 percent of his monthly emolument, that is, the sum total of basic salary, transportation and housing allowance, while the employer also contributes 10 percent of the employee’s monthly emolument towards the retirement benefits of the employee.

While employers with outstanding pension contributions yet to be remitted to their employees’ RSAs are being identified through the review of monthly return of contribution not received from employers submitted by PFAs, the details of defaulting employers, including the name of employees whose pension contributions were not remitted, the amounts involved and the period covered, are being generated and verified to ensure accuracy.

The primary duty of the recovery agents is to recover all outstanding contributions from defaulting employers together with the interest penalty within a specified period.

Specifically, the duties of the recovery agents include: Serve demand letter to defaulting employers to request for payment of outstanding pension contributions with interest penalty; reconcile outstanding pension contributions with employers where necessary; compute interest penalty in line with PRA, 2004,as amended in 204; follow up with the defaulting employers to ensure remittance of outstanding pension contributions and interest penalty; obtain evidence of remittance of outstanding pension contributions with interest penalty to the employees’ RSAs; and forward the evidence of remittance made by defaulting employers to the commission.

Others are institute legal action on recalcitrant employers that failed to remit all outstanding pension contributions with the interest penalty to employees RSAs; submit progress reports to the commission of all recoveries made and challenges encountered; and perform any other duty that may be specified by the commission for ensuring compliance with the Pension Act. To make the job easier, the commission has assigned specific defaulting employers to each agent for the recovery of outstanding pension contributions including the interest penalty.

Each agent’s performance is being monitored based on set performance standards which would be documented in a Service Level Agreement (SLA) to be executed with the recovery agents.

The country’s pension fund assets as at January 31, 2022 rose to N13.61 trillion, from N13.43 trillion in December, according to PenCom’s unaudited report on pension funds industry portfolio.

According to the Commission, the fund assets gained N183.81 billion between December 31, 2021 and January 31, 2022, while the total number of Retirement Savings Account (RSA) holders rose to 9.55 million as at the end of January.

PenCom noted that the fund in dollar terms was $32.77 billion at an exchange rate of N415.26/$.

The Commission maintained that N8.35 trillion of the N13.61 trillion was invested in Federal Government securities, while state government securities got N170.33 billion and local money market securities gulped N2.28 trillion.