Right of the worker under the Contributory Pension Scheme

Ivor Takor, director, Centre for Pension Right Advocacy in this article captures the right of the worker under the contributory Pension Scheme, and why all stakeholders should give the scheme all the attention it requires to succeed. Modestus Anaesoronye reports.

 On July 1, 2014 the Pension Reform Act 2014 or “the Act” was enacted into law commencing from July 1, 2014. The Act, which repealed the Pension Reform Act No 2 of 2004, governs and regulates the administration of the Contributory Pension Scheme in Nigeria.

The Act confers on workers certain legal rights, some of which will be discussed here. The Black’s law dictionary defines a right as something that is due to a person by just claim, legal guarantee, or moral principle; a legally enforceable claim that another will do or will not do a given act; a recognized and protected interest the violation of which is a wrong, a breach of duty that infringes one’s right.

The first right, is the right to pension. Section 3 of the Act, established a Contributory Pension Scheme for all employees of Public Services of the Federation, the Federal Capital Territory, States, local government and the Private Sector.

The worker also has a right to the employer’s contribution towards his/her pension. Section 4(1) of the Act provides that the rate of contribution to the Scheme shall be a minimum of ten percent of monthly total emolument of the employee by the the employer, while the employee shall contribute a minimum of eight percent.

The next right is the right to life insurance. Section 4(5) provides that in addition to the rates of contributions, every employer shall maintain a Group Life Insurance Policy in Favour of each employee for a minimum of three times the annual total emolument of the employee and that premium shall be paid not later than the date of commencement of the cover. For the enforcement of this right, the Act in Section 4(6) provides that where the 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.

The right to determine how to access retirement benefits under the Act. Section 7(1) provides that a holder of a retirement savings account shall, upon retirement or attaining the age of 50 years, whichever is later, utilize the amount credited to his retirement savings account for the following benefits: withdraw a lump sum from the total amount credited to his retirement savings account provided that the amount left after the lump sum withdrawals shall be sufficient to procure a programmed monthly or quarterly withdrawals calculated on the basis of an expected life span or annuity for life purchased from a Life Insurance Company licensed by the National Insurance Commission with monthly or quarterly payment. The decision to access benefits either through programmed withdrawal or annuity is the sole right of the employees.

The right to contributions to the Scheme forming part of tax deductible expenses in computation of tax payment as well as retirement benefits being exempted from taxation. Section 10 of the Act provides that notwithstanding the provisions of any other law, contributions to the Scheme under the Act shall form part of tax deductible expenses in the computation of tax payable by an employer and employee under the relevant Income Tax Law; moreover, all interests, dividends, profits, investment and other income accruable to pension funds and assets under the Act, as well as any amount payable as a retirement benefit under this Act shall not be taxable.

The other right, is the right to choose a Pension Fund Administrator (PFA). Section 11(2) provides that an employee to whom the Act applies shall notify his employer of the Pension Fund Administrator chosen by him. This means that the worker has the sole right to choose a PFA, with no interference by the employer.

The worker has a right to timely remittance of contributions into his/her retirement savings account (RSA). Section 11(3)(b) of the Act provides that not later than 7 working days from the day the employee is paid his salary, remit an amount comprising the employee’s and employer’s contributions to the Pension Fund Custodian (PFC) specified by the Pension Fund Administrator of the employee. As penalty for non compliance, Section 11(6) provides that an employer who fails to deduct or remit the contributions within the stipulated time frame, shall in addition to making the remittance already due, be liable to a penalty to be stipulated by the National Pension Commission (PenCom).

Section 13 confers on the worker, the right to transfer his/her RSA from one PFA to another. This section provides that subject to the guidelines issued by the Commission, a holder of a retirement savings account maintained under the Act may not more than once in a year, transfer his account from one Pension Fund Administrator to another.

There is also the right to transfer an RSA from one employer to another. Section 14 of the Act provides that where an employee transfers his employment from one employer or Organisation to another, the same retirement savings account shall continue to be maintained by the employee or be transferred.

Section 15 protects pension rights of employees in the Public Service of the Federation and the Federal Capital Territory accrued under the defined Benefits Scheme. The section provides that as from June 25, 2004, being the commencement of the Pension Reform Act 2004, the accrued pension right to retirement benefits of any employee in the Public Service of the Federation and the Federal Capital Territory who is already under any pension scheme existing before the commencement of that Act and has over 3 years to retire shall be recognized in the form of amount acknowledged through the issuance of Federal Government Retirement Benefits Bonds by the Debt Management Office, which shall be redeemed upon retirement of the employee.

The Act grants a worker, the right to regular information. Section 55 provides among other duties of the Pension Fund Administrator, the duty to provide regular information on investment strategy, market returns and other performance indicators to employees or beneficiaries of the retirement savings account. The PFA shall also provide customer service support to employee including access to employee account balances and statements on demand.

One of the new rights granted the worker after the commencement of the Contributory Pension Scheme is the right to apply a percentage of the pension assets in the RSA for residential mortgage. Section 89(2) of the Act provides that a Pension Fund Administrator May, subject to guidelines issued by the Commission, apply a percentage of the pension assets in the retirement savings account towards the payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account.

Each of these rights, carry regimes of sanctions ranging from letters of advice, caution, warning, monetary sanctions, naming and shaming and litigation for violations and non compliance by either the employer or the Pension Fund Administrator since the rights are derived from a duty imposed on them by provisions in the Act.