The first Pension Reform Act was enacted in 2004 (the “2004 Act”) by the Obasanjo government to address the chaos and abnormalities in the existing pension arrangements where there were unfunded pension schemes, delays in pension payments and other financial malpractices which hampered the success of the pension scheme.



Ten years later and on July 1, 2014, President Goodluck Jonathan repealed the existing Pension Reform Act and replaced it with the 2014 Pension Reform Act (the “2014 Act”). As an SME/start-up owner, the first questions on your mind will most likely be – “How does this recent law affect my business?” “Do I have more financial obligations?”, “What are my rights? obligations? duties?”



To answer these questions and enlighten you on the new Act, we have listed 10 provisions of the Act that should be of interest to you as an SME owner:



1. Too soon? Too quick?

The 2014 Act does not state the date of commencement. However, considering that the 2004 Act was repealed with immediate effect, the date of commencement will be the day it is signed into law. This means that as of July 1, 2014, the provisions of the 2014 Act will take effect.



As an employer who has been contributing under the 2004 Act and you have up to 5, but less than 15 employees, this means that you are no longer obliged to contribute to the scheme. What then happens to the employees already registered on the scheme? Do I stop their contributions abruptly? A lot will depend on your employee handbook (if any). Also, such employees may, continue with the scheme, but in accordance with the guidelines issued by the National Pension Commission (“Commission”).



2. I have few employees, do I still have to contribute to the scheme?

If you have less than 15 employees, you are not obliged to be part of the scheme, where however, you have less than 3 employees or you are self-employed, you can voluntarily join the pensions scheme.



This is a deviation from the existing law which makes it mandatory for employers with 5 or more employees to join the scheme. This was previously a huge burden for SMEs/start-ups that were still trying to get established and stabilize financially. The new amendment is definitely good news for SMEs and start-ups with less than 15 employees.



3. What is my contribution liability?

You are now liable contribute a minimum of 10% of the each employee’s total monthly emolument (unlike the 2004 Act which was restricted to basic salary, housing allowance and transport allowance). Employees on the other hand are to contribute 8% of their total emoluments.



4. Can I make additional contributions to my RSA?

Employees are allowed to make voluntary contributions, Thus, in addition to the 10% (employer) + 8% (employee) contribution, one can opt to make additional voluntary contribution. Though not specifically stated, but as the business owner (and invariably, the No.1 employee of your business), you can also opt to invest some of your plough-back profit in your retirement days.



5. Can I withdraw from my RSA before I turn 50 years?

Withdrawals can be made from the RSA before the stipulated retirement age! This provision applies to an employee who disengages (which will include resignation) or is disengaged (through summary dismissal, termination of employment, redundancy etc). Such person can, with the approval of the Commission, withdraw up to 25% of savings, where the person will not gain employment for the next 4 months.



This may constitute a good source of funds for an employee-cum-budding entrepreneur as you are now able to withdraw from your RSA (subject to approval) and use the funds to kick-start your business (without worrying about interest rates and other repayment terms)

6. Do not attempt to commit an offence under the 2014 Act!

Be careful not to commit (much less, attempt to commit) any offence under the Act. The penalties for committing any offence under the Act will attract the same penalty as attempting to commit the offence.



One will think that there should be a lesser punishment for attempting to commit an offence, but, it is believed that this provision was included in order to discourage persons from attempting to commit, much less commit an offence under the PRA.



7. Dispute Resolution v. Criminal Prosecution.

The Act prescribes different methods for addressing disputes and for prosecuting offences. Offences are prosecuted in a court of competent jurisdiction, whilst civil disputes are first referred to the Commission, if it is not resolved, it is then referred to Arbitration and the arbitral award can be enforced in court.



This difference is probably due to the fact that criminal offences can only be tried in a court of law, while civil disputes may be resolved using alternative methods.



P.S: The above do not constitute any professional advice in any form. It only represents the findings of the writer. Should you require professional advice/assistance, please do not hesitate to contact us (pearlworthconsultants@gmail.com).

Source: http://www.pearlworth.com/apps/blog/show/42505678-7-interesting-facts-about-the-2014-pension-reform-act-


You are also invited to the SME Legal Clinic which gives insight into the provisions of Nigerian Business Law in the areas of corporate governance, taxation, dispute resolution, contracts & contractual liabilities. The course is scheduled to hold between November 20 – 21, 2014. Contact us for more information on registration.[font=Lucida Sans Unicode][/font]

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