Having a pension plan is one of the most secure insurance policies for an employee’s future upon retirement. It is a way of ensuring stable income even upon retirement. Unfortunately, there are lots of cases and complaints by employees in Nigeria over regular deductions of pension contribution by their employers and non-remittance of same to their Retirement Savings Accounts. This article seeks to address this issue, enlighten employees on their rights under the Pension Reform Act, body regulating the pension contribution scheme and steps to be taken where an employer has consistently and persistently failed or refuse in remitting pension contributions having deducted same.
WHAT IS PENSION?
A pension or pension plan is an employee benefit plan established or maintained by an employer or by an employee organization or both, that provides retirement income or defers income until termination of covered employment or beyond.
It is a regular payment made during a person’s retirement from an investment fund or account to which that person and their employer so contributed during their time as an active member of the labour force.
WHAT LAW GOVERN THE FRAME WORK AND PROCEDURE FOR PENSION IN NIGERIA?
The Pension Reform Act 2004 (PRA 2004) as amended in 2014, is the law that governs the framework and procedure for pensions in Nigeria.
WHAT IS CONTRIBUTORY PENSION SCHEME?
The PRA establishes a Contributory Pension Scheme for all employees in the country to ensure that every person who works either in the Public Service of the Federation or Private Sector receives their retirement benefits as and when due.
Under this scheme, an employee contributes 8 percent of his monthly wage, that is the sum total of basic salary, transportation and housing allowance, while the employer contributes 10 percent of the employee’s monthly wage towards the retirement benefits of the employee.
Furtherance to this, every eligible employee shall maintain a Retirement Savings Accounts (RSA) with any Pension Fund Administrator (PFA) of their choice. Once that is done, the employee must inform their employer by submitting the RSA identification number (pin issued by the PFA). The employer in turn pays the monthly contributed money into the RSA.
WHEN IS MY EMPLOYER REQUIRED BY THE LAW TO DEDUCT AND REMIT MY PENSION?
The employer is required to deduct the monthly contributions of the employee, not later than 7 working days from the day salary is paid. This amount should comprise of 8% of employee’s contribution and 10% of employer’s contribution making a total of 18% to the Pension Fund Custodian (PFC).
Please note that this 18% total contribution is the prescribed minimum of the law, the employer can decide to pay up the entire 18% or decide to pay more than his required 10%
WHY SHOULD I TAKE MY PENSION REMITTANCE SERIOUS?
Your pension remittance should be taken serious as an employee because it has been deducted from your salary by your employer. Further, the law demands that the deduction made by your employer should be paid into your RSA not later than 7 days after payment of salaries as had earlier been stated.
WHAT IS THE PUNISHMENT/ PENALTY FOR NON-REMITTANCE OR LATE REMITTANCE OF PENSION CONTRIBUTION BY MY EMPLOYER?
Failure to remit deducted pension contribution by an employer is illegal and offence punishable under the Pension Reform Act 2014.
By virtue of Section 11(6) of the Pension Act 2004, an employer who however fails to deduct or remit the said contributions within 7 working days from the day salaries are paid shall be liable to a penalty which shall not be less than 2% of the total contributions that remain unpaid for each month or part of each month the default continues. This penalized amount shall be recovered as a debt owed and paid into the employee’s RSA. The PFA is therefore obligated to report the employer to National Pension Commission (PENCOM) if the funds are not received by the 14th day from the payment of salaries.
WHO IS RESPONSIBLE FOR RECOVERY OF PENSION CONTRIBUTIONS FROM THE EMPLOYER?
The recovery of outstanding pension contributions is done by Recovery Agents (RA). With the help of the RAs, employers that failed to remit employees’ pension contributions have been made to pay the amount even with penalties as reported by PENCOM report on recovery in the fourth quarter of 2022. Also, some have been recommended for appropriate legal actions. There are presently as at the time of this article 28 RAs. The commission mandates the RAs to follow up with the defaulting employers to ensure remittance of outstanding pension contributions.
There is a recovery process/steps stipulated by the law, this recovery process begins with obtaining a list of assigned defaulting employers from PENCOM. After the processes/ steps are successfully completed by the RAs, the principal contributions are remitted along with the penalties recovered and paid into the employees’ RSA to compensate for the accruable income from investment of pension funds lost due to non or late employer remittances. PENCOM and PFAs bear the recovery cost due to RAs. Therefore, recovery of pension contributions is at no cost to RSA holders.
WHAT AM I EXPECTED TO DO TO ENSURE MY PENSION IS REMITTED AS AND WHEN DUE?
The PENCOM prosecutes recalcitrant employers who persistently default on the remittance of pension contributions.
PENCOM encourages employees to report employers who are not remitting pension contributions or are not paying the correct rates (10 % employer and 8% employee) as specified in the PRA 2014.
If you have need advice regarding your pension contribution, you can contact us for legal advise on labour and employment related matters.
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Watch out for our next article on taxation and legal remedies for employers who have failed to remit pension and tax deducted from employees’ salaries.
