…as PenCom approves enhancement scheme
Employees whose employers are not complying with the provisions of the Pension Reform Act 2014 will not benefit from the Additional Benefit Scheme (ABS) recently approved by the National Pension Commission (PenCom).
To qualify to be part of the scheme, PenCom expects the employer to have fully complied with not only opening Retirement Savings Accounts (RSAs) for its employees, but be up to date with the remittance of contributions as well as providing group life insurance for the staff.
PenCom, on its website, announced the release of the Framework for the Establishment of Additional Benefits Scheme under the Contributory Pension Scheme (CPS).
The framework, according to the commission, is issued to outline the modalities for the establishment and management of ABS by employers, in complementing the retirement benefits of their employees under the CPS.
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Section 4 (4) (a) of the Pension Reform Act (PRA), 2014 allows the payment of additional benefits to employees upon retirement by their employers.
In addition, Sections 54 and 56 of the PRA 2014 permit only institutions licensed by PenCom to hold and manage pension funds and assets, while Section 59 stipulates minimum penalties for contravening Sections 54 and 56 of the PRA 2014.
Commenting on the ABS, Oguche Agudah, chief executive officer of Pension Fund Operators Association of Nigeria, said it offers a structured approach for employers to provide extra benefits to their employees through the pension system.
“It prioritises compliance with PRA 2014 to safeguard employees’ interests and maintain regulatory oversight.”
Oguche said the framework emphasises documentation, transparency, and compliance. “Reporting requirements ensure financial transparency. Dispute resolution mechanisms benefit all parties, and clear guidelines for scheme termination protects participants’ interests. Overall, this framework ensures a structured, regulated approach to additional benefits schemes, balancing employer and employee interests while complying with regulations.”
On how the ABS will affect, he said while its primary focus is on ABS setup and management, it indirectly affects contributors.
He said: “Employers must show compliance with pension contributions and group life insurance, ensuring contributors’ funds’ safety. ABS rules dictate benefit access, safeguarding contributors’ interests and adherence to scheme rules.
“Reporting requirements enhance fund transparency for contributors, and a dispute resolution mechanism prevents benefit access delays due to disputes. The ABS’s full funding requirement secures contributors’ long-term financial stability, preventing contribution interruptions. Overall, the ABS framework strengthens pension fund regulation, benefitting contributors by safeguarding their funds and ensuring rule-based retirement benefits.”
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According to Oguche, organisations that will be willing to buy into the ABS framework are those with a strong commitment to employee financial well-being, the financial capacity to meet additional benefit obligations, and a responsiveness to employee demands.
“As for pension fund administrators (PFAs), they play a pivotal role in assisting organisations with the establishment and management of ABS. PFAs can provide guidance on regulatory compliance, investment strategies, and the administration of ABS. They can help organizations navigate the complexities of offering additional retirement benefits,” he said.
Remittance is still a challenge for many private sector firms.
Ogwuche added that the ABS aims to tackle remittance challenges and improve the pension system. “It requires employers to demonstrate compliance with pension contributions, mandates external audits to detect irregularities, emphasises timely remittances and insurance coverage for employees, and promotes transparency through regular reporting to PenCom.”
Oguche said the new scheme is expected to enhance pension assets in several ways.
“It enables employers to offer extra benefits to employees, diversifying investment opportunities for PFAs and potentially increasing returns. By providing added benefits, employers can encourage more employee participation, leading to higher contributions and asset growth,” he said.
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The PenCom framework states that employers may set up ABS to allow for the payment of additional benefits to its employees upon exit from the services of the employers.
“An employer that wishes to establish an ABS for its employees shall be required to show evidence of compliance with the provisions of the PRA 2014 in terms of up-to-date remittance of pension contributions for its employees, Group Life Insurance Cover for employees and execution of Portfolio Management Agreement with PFA(s) of its choice,” it said.
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