BACKGROUND

Following the staggering magnitude of fraud and embezzlement that fraught the traditional Defined Benefit Pension Scheme operated in Nigeria, the Federal Government took a ground-breaking step in 2004 to ameliorate the hardship experienced by retirees and allay the fears of the working class in the pension administration sector by passing into law the Pension Reform Act, 2004. The Pension Reforms Act, 2004 which introduced the Defined Contribution Pension Scheme and also established bodies such as the National Pension Commission (PenCom), Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) was a welcome development by all and sundry. This acceptance was illustrated by the 5.7 million workers that had enrolled in the Scheme by 2013.
However, the massive frauds -though associated with the Defined Benefit Scheme- uncovered by the National Assembly in 2012 and the outrage that greeted the ridiculous sentence passed by a FCT High Court on a convicted pension fraudster caused worker’s confidence in the new Pension Scheme to dip. These among other factors forced stakeholders in the sector back to the drawing board to address certain issues and loopholes in the 2004 Act. These efforts reached a climax on 1st July, 2014 when President Goodluck Jonathan signed into law the ‘Pension Reform Act, 2014’, which repealed the Pension Reform Act, 2004. The new Act is an improvement of the former and offers more assurance and safety to workers and retirees. Some of these major improvements are highlighted below.

PENSION REFORM ACT, 2014: IMPROVEMENTS AND BENEFITS

Increased Contribution Base: Under the repealed Act, the contribution base for an employee and employer were 7.5% of the employee’s monthly emolument respectively. However, the new Act provides for an improved contribution base of 8% and 10% for the employee and employer respectively. Where the employer opts to bear the full responsibility of both contributions, he would pay a minimum of 20% of the employee’s monthly emolument. It should be noted that these deductions are made before taxation of the employee’s monthly emolument.

Scope of Participation: The Act applies to employees in both the private and public sectors. Private organizations in which there are 15 or more employees are directly under the operation of the Act, while private organizations with less than 15 members will participate in the scheme in accordance with regulations to be stipulated by PenCom at a later date.


Offences and Sanctions: The Act places an attempt to commit a pension offence on the same pedestal with actual commission of the offence. It stipulates the same penalty for an attempt to commit an offence and the actual commission of the said offence. The Act stipulates increased and stringent penalties for misappropriation. Upon conviction, a pension fraudster will be liable to a minimum of 10years imprisonment, a fine of three (3) times the amount misappropriated and forfeiture of assets and funds in his/her control to the Federal Government.

A fine of at least N10million is imposed upon conviction, where a PFC fails to hold funds to the exclusive preserve of the PFAs and PenCom. A fine of N50 million (previously N10 million) upon conviction, for a corporate entity that act as a PFA or PFC without being licensed by the commission.

Furthermore, the courts vested with jurisdiction can lift the veil of incorporation when necessary to punish directors of corporate bodies involved in any of these offences.

Dispute Resolution: Under the new Act, aggrieved employees and parties can approach the Commission, the Federal and State High Courts as well as the National Industrial Court to seek redress. This is an improvement on the former Act which provided arbitral tribunals and the Investment and Securities Tribunal (IST) as the mediums of dispute resolution.

Pension Protection Fund: Since the PFAs as fiduciaries to the contributors invest these contributions in stocks, government bonds etc, the Act took into cognizance the possibility of a shortfall - as every investment has a probable downside risk- by creating the Pension Protection Fund. The aim of the fund is to act as a guarantee for the benefit of contributors. Money from the fund is paid to contributors in the form of minimum guaranteed pension, as compensation for shortfall in investment of pension funds and any other use as the Commission may direct from time to time.

Withdrawal from Retirement Savings Account (RSA): An employee who has lost his job and is under the age of retirement can now access the funds if after 4 months from disengagement he/she is still unemployed. The waiting period under the old Act was 6 months.

Tax Exemption: As stipulated in the repealed Act, the new Act provides that any interests, profits, dividends, investments and other income accruable to pension funds or asset are not taxable.

Life Insurance Policy: The Act mandates employers to continue to maintain a group life insurance policy for a minimum of three (3) times the annual emolument of each employee.

CONCLUSION

The upward review of penalties and sanctions is expected to serve as a deterrent to pension crimes. The increased contribution base, the creation of the Pension Protection Fund and the access to three superior courts of record in the case of a dispute among other improvements make this revised contribution pension scheme provided by the Pension Reform Act, 2014 a sure winner for all workers in both the private and public sectors in Nigeria.

To ensure that Nigerian workers take full advantage of this scheme more enlightenment campaigns, workshops and media sensitization must be facilitated by stakeholders and government so as to help alleviate the sufferings and poverty that are today synonymous with retirement.

C.U Okoye, Esq.

yeah. this makes a lot of sense. i like the fact that employers now have to pay 10% compared to the former 7.5% .

Evaluation of Pension Administration in the Nigerian Public Service (A Study of the Imo State Civil Service from 2004-2009)

Nigerian’s first ever legislative instrument on pension matters was the person ordinance of 1951 which had retrospective effects from 1st January 1946. However, under this audience, pension was said to not be “an automatic rights of Nigerians”.

http://www.scharticles.com/evaluation-of-pension-administration-in-the-nigerian-public-service/