The Pension Reform Act 2014 which replaces the Pension Act 2004
was signed into law by President Goodluck Jonathan of the Federal Republic of
Nigeria on 1st July 2014. The Act has significantly altered the scope of the
employer’s and employees’ responsibility as well as regulatory powers of the
Pension Commission.
I shall attempt in this review to highlight some of the
challenges in the administration of the new Pension Act 2014. My approach shall
be to reproduce relevant sections of the Act in this review and then comment as
appropriate.
Application of Provision of the Act
The provisions of the Act shall apply to any employment in the
Public Service of the Federation, the Public Service of the Federal Capital
Territory, the Public Service of the States, the Public Service of the Local
Governments and the Private Sector-Section 2 (1)
In the case of Private Sector, the Pension Scheme shall apply to
employees who are in the employment of an organization in which there are 15 or
more employees-Section 2(2)
Notwithstanding the provisions of subsection (2) of this section,
employees of organizations with less than 3 employees as well as self-employed
persons shall be entitled to participate under the scheme in accordance with
guidelines issued by Pension Commission (PENCOM)-Section 2 (3)
Comment
The Pension Reform Act 2014 is mute on organizations with a
workforce of 3 to 14. It appears the omission is due to typographical
inadvertence and/or omission. Pending clarification and/or rectification by the
Pension Commission, my recommendation is that organizations apparently missed
out should continue to maintain their Pensions and Group Life Policies in
accordance with basis of contributions stipulated in the new Act. It is
pertinent to mention that under the old Pension Act 2004, the minimum
eligibility number of employees was 5 and above.
Those organizations which do not presently have a Pension scheme
are urged to incept one. For those falling within the eligibility bracket, an
offence is being committed if one has not been incepted. Infraction of the Act
has its attendant sanction and these sanctions are severe.
The recommendation is based on the reality that the accumulated
Pension Liability together with the Group Life liability remains the employer’s
responsibility under the Act. Should an employee suffer death during his/her
tenure of employment while the default persists, the employer remains
potentially liable for the employee’s entitlements. The employer would have to
source for fund from elsewhere to fund the liability. Nigerians are
increasingly becoming conscious of their legal rights.
Contributions To Pensions
Contributions for any employee shall be made in the following
rates relating to monthly emoluments-Section 4 (1)
• Minimum of 10% by the Employer
• Minimum of 8% by the Employee
Any employee under the scheme may, in addition to the total
contribution being made by him and his employer, make voluntary contributions
to his retirement savings account-Section 4 (3)
An employer may agree
• On the payment of additional benefit to the employee upon retirement
or
• Elect to bear the full responsibility of the Scheme provided
the employers contribution is not less than 20% (instead of 18%) of the monthly
emolument of the employee-Section 4 (4)
Definition of Monthly Emolument
It means Total Emolument as may be defined in the employee’s
contract of service but shall not be
less than the total sum of basic salary, housing allowance and transport
allowance-S120.
Comment
Under the Pension Reform Act 2004, the contributions used to be
7.5% by the employer and 7.5% by the employee, giving an aggregate of 15%. The
Pension Act 2014 has increased the employer’s contribution to 10% and that of
the employee to 8%, giving a revised aggregate of 18%. It is however curious
that the employer’s contribution is revised to 20% by the Act if the employer
chooses to fund the whole contribution. We can only guess the rationale that
must have informed the additional 2%. The new Act also preserves the employer
prerogative to pay gratuity in addition to pension. Thus a Pension Scheme and a
Gratuity Scheme are not mutually exclusive. Staff motivation is tremendously
enhanced if both schemes exist in an organization.
Group Life
Every employer shall maintain a Group Life Insurance Policy in
favour of each employee for a minimum of 3 times the annual total emolument of
the employee and premium shall be paid not later than the date of commencement
of the cover-Section 4 (5)
Annual Total Emolument in relation to the Group Life Insurance
Policy means the Gross Emoluments of an employee or deceased person.-Section
120
Death of Employee
Where an employee dies, his entitlement under the life insurance
policy maintained under Section 4 (5) of the Act shall be paid by an
underwriter to the named beneficiary in line with Section 57 of Insurance Act
2003.-Section 8
The relevant section under the Insurance is hereby reproduced
for ease of reference: A policy of insurance shall not be made on the life of a
person or other event without writing in the policy the name of the person
interested in it or for those whose benefit or on whose account the policy is
made- Insurance Act 2003- S 57
Employees Declared Missing
Where an employee is missing and is not found within 12months
from the date he was declared missing and the Board of Enquiry by the Pension
Commission (PENCOM) makes a declaration…….that it is reasonable to presume that
the employee is dead, the provisions of Section 8 of the Pension Act 2014 will
apply. – Section 9.
Consequence of Default in Arranging Group Life Cover
Where there is default in making payment for Group Life as at
when due, and the policy becomes legally inoperative, the employer shall make
arrangement to effect the payment of claims arising from death of any staff in
its employment during such period.-Section 4 (6)
Definition of Annual Total Emolument
It is the Gross Emoluments of an employee or of a deceased
person.-S 120
The payment of benefits to the estate of deceased employees
under both Pension Contribution and Group Life has always remained a nightmare
to most claimants. The process of obtaining a
Letter of Administration from Probate Division of the courts is
an open ended journey. It may take months or a year plus with attendant legal
fees and probate fees.
A case where the employee died on 25th November
2013. The Burial expenses benefit and the death benefits were settled by
insurers on 4th and 27th December 2013 respectively. Whilst the burial expense
benefit was released almost immediately to the bereaved family, the Death
benefit remains till date marooned in the PFA’s safe awaiting the issuance and
release of the letter of Administration was cited
Source Businessday Newspapers
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