Contributory pension scheme protecting workers in job mobility

In establishing the Contributory Pension Scheme for all employees both in the private and public sectors, the Pension Reform Act 2004 provides that each contributor shall open a Retirement Savings Account (RSA) in his name with a Pension Fund Administrator (PFA) of his choice.

Should circumstances demand, for instance an employee leaving one job for the other, Section 13 of the Pension Reform Act stipulates that “Where an employee transfers his service or employment from one employer or organisation to another, the same retirement savings account shall continue to be maintained by the employee.”

The implication of this is that the RSA is portable such that workers don’t need to obtain a new PIN after changing jobs. The pension scheme in the country has given workers to seek better glory whenever the need arises without any fear that they may lose their pension contributions.

It must be noted, however, that the employee, is not allowed, more than once in a year, to transfer the retirement savings account from one pension fund administrator to another without adducing any reason for such transfer. Effort will therefore be made in this piece to highlight what the elements of RSA are so that every contributor to the nation’s pension scheme can have a better understanding of the scheme.

After the employee might have registered with the Pension Fund Administrator of his choice, the employee also has a responsibility to notify his employer of the pension fund administrator chosen and the identity of the retirement savings account opened. Besides, the employee, according to the Pension Act, shall not have access to his retirement savings account nor have any dealing with the custodian with respect to the retirement savings account except through the pension fund administrator.

To ensure sustainability of the scheme, the employer is empowered to deduct at source, the monthly contribution of the employee in his employment and not later than seven working days from the day the employee is paid his salary, remit an amount comprising the employee’s contribution and the employer’s contribution to the Pension Fund Custodian (PFC) specified by the pension fund administrator of the employee to the exclusive order of such pension fund administrator.

Upon receipt of the contributions remitted by the employer, the custodian is required to notify the pension fund administrator who shall cause to be credited the retirement savings account of the employee for whom the employer had made the payment.

In case any employer fails to remit the contributions within the seven working days from the day the employee is paid his salary, in addition to making the remittance already due, such defaulting employer is liable to a penalty not be less than 2 per cent of the total contribution that remains unpaid for each month or part of each month the default continues and the amount of the penalty shall be recoverable as a debt owing to the employees retirement savings account as the case may be.

In accordance with the “Framework for Recovery of Outstanding Pension Contributions and Interest Penalty from Defaulting Employers,” the defaulting employers will pay interest penalty of 24 per cent per annum for outstanding contributions.

Government contribution to the pension of employees of the Public Service of the Federation and Federal Capital Territory is to be a charge on the Consolidated Revenue Fund of the Federation. Thus, the Accountant-General of the Federation shall, at the request of the commission, effect the deductions stipulated in the Act.

The contribution for any employee to which the Act applies is to be made in circumstances relating to his monthly emoluments. In the case of the Public Service of the Federation and Federal Capital Territory, a minimum of 7.5 percent by the employer and a minimum of 7.5 percent by the employee. Before the Military was excluded from the scheme, the rate of contribution was a minimum of 12.5 percent by the employer and a minimum of 2.5 percent by the employee.

In other cases, the specified rate of contribution is a minimum of 7.5 percent by the employer, and a minimum of 7.5 percent by the employee.

Upon retirement or attaining the age of 50 years, whichever is later, a holder of a retirement savings account, the Pension Act noted shall utilise the balance standing to the credit of his retirement savings account for the certain benefits.

These are a programmed monthly or quarterly withdrawals calculated on the basis of an expected life span; annuity for life purchased from a life insurance company licensed by the National Insurance Commission (NAICOM) with monthly or quarterly payments; and a lump sum from the balance standing to the credit of his retirement savings account, provided that the amount left after that lump sum withdrawal shall be sufficient to procure an annuity or fund programmed withdrawals that will produce an amount not less than 50 percent of his annual remuneration as at the date of his retirement.

The point to note here is that should an individual contributor under the new pension regime changes his job; he does not need to open another retirement savings account. He can always continue with the account in his new place of employment.

Already, PenCom has licensed 20 PFAs and four PFCs to operate under the contributory pension scheme in the country. The members of the public are therefore advised to open their RSAs with any of the licensed PFAs. Employees must also make sure that their employers do not force the choice of PFA on them. The right to choose PFA resides with the employees alone.