• Saturday, May 18, 2024
businessday logo

BusinessDay

Compliance datelines in the Pension Reform Act 2014

businessday-icon

Beginning from 1 July 2014, the newly revised pension law that was recently signed by President Goodluck Ebele Jonathan takes effect. This means that employers of labour affected by the provisions of this law were expected to have complied immediately by ensuring that their employees open Retirement Savings Account with Pension Fund Administrators (PFAs) for those that are just joining the Contributory Pension Scheme (CPS), while those already part of the scheme under the Pension Reform Act 2004 were to augment their contribution rates as provided in the revised law.

Therefore, failure, refusal or neglect by employers of labour or organisations affected to comply with provisions of thePension Reform Act 2014constitutes an offence.

Compliance

According to the National Pension Commission (PenCom), it is now mandatory with effect from 1 July 2014, for employers of labour including the Ministries, Departments and Agencies of the Federal Government of Nigeria, Federal Capital Territory, Government of a State in Nigeria, Local Government Council and any organisation or business in the private sector that employs three persons or more to participate in the contributory pension scheme.

What this means is that the catch-net has been expanded to increase participation of organisations in the informal and semi-informal sector for the benefit of their employees, who hitherto had no formal pension programme and where they had may not have the kind of security and protection enjoyed by contributors in the CPS supervised by the National Pension Commission(PenCom).

This aims to expand the pension base as it revises the obligatory criteria by bringing organisations with as few as three employees into the contributory pension scheme. The 2004 Act compels only organisations with five or more employees to participate in the pension scheme but this has been reduced to three in the 2014 Act.

Rate of contribution

The PRA 2014 further provides that the contribution for any employee to which the Act applies shall be made in the following rates relating to his monthly emoluments – a minimum of ten percent (10 percent) by the employer and a minimum of eight percent (8 percent) by the employee.

What this means now is that employers that were already complying with the scheme before now would have to increase their rate of contribution to the minimum level of 18 percent (18 percent). Accordingly, the employer may elect to bear the full responsibility of the contribution provided the employer’s contribution shall not be less that 18 percent of the monthly emolument of the employee.

Monthly emoluments

The PRA 2014 defines total monthly emoluments as may be defined in the employees contract’s of employment but shall not be less that 18 percent of the monthly emoluments of the employee. This is emphasised to address issues of disparity in amount of contributions as many organisations could have different salary structures that do not enable employees get the expected value in their pension pack.

Group life insurance

Furthermore, every employer is required to maintain a group life insurance policy in favour of each employee for a minimum of three times the annual emolument. And premium shall be paid not later than the date of commencement of the cover. Here, annual total emolument in relation to group life insurance policy to be maintained by an employer implies the “gross emoluments of an employee or deceased person”

According to the guidelines for group life insurance policy for employees jointly issued by the National Insurance Commission (NAICOM) and National Pension Commission (PenCom), the employer is required to fully bear all costs in relation to procurement of this policy, and this shall be in addition to the contributions to be made by the employer to each employee’s Retirement Savings Account.

The policy provides cover to the insured against death and the insurance cover is mandatory for all employees as long as they are in employment. This means that the policy provides for the payment of the sum assured in the event of the death of a member of the scheme from any cause, natural and accidental.

Objectives of the CPS

The CPS was introduced to replace the old pension scheme, where employees had to rely entirely on the employer for monthly pension pay-outs after retirement.

The Act has recently successfully undergone an amendment in the National Assembly to take care of grey areas and have the objectives 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; (b) assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age; and (c) 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.