The main purpose of the pension reform that culminated in the introduction of the contributory pension scheme (CPS) was to have a pension system that is sustainable and can provide a stable, predictable and adequate source of retirement income for employees in Nigeria.
The Pension Reform Act (PRA) 2014 allows employees to make voluntary contributions into their Retirement Savings Account (RSA), in addition to their mandatory pension contributions, with the aim of enhancing their retirement benefits.
The National Pension Commission (PenCom) explains that voluntary contributions are “non-obligatory contributions made by any employee in the formal sector through the employer.”
Employees of organisations with less than three employees as well as self-employed persons as provided in Section two subsections three of Pension Reform Act 2014 (PRA 2014) are covered under micro pensions plan.
Section two subsection one of the PRA 2014 provides that CPS shall apply to any employee in the Public Service of the Federation, the Public Service of the Federal Capital Territory, the Public Service of the State Government, the Public Service of the Local Government Councils and the Private Sector.
Section two subsections three of the PRA 2014 provides that employees of organisations with less than three employees as well as self-employed persons shall be entitled to participate under the Scheme in accordance with the Guidelines issued by the Commission.
Section four subsections three of the PRA 2014 provides a platform for an RSA holder to make Voluntary Contributions, in addition to the statutory contributions being made by him and his employer.
The following individuals are qualified to make voluntary contributions: an employee in an organisation with three or more employees, who is making mandatory contributions under the CPS; a worker/retiree in an organisation that operates a Closed Pension Fund Administration and employed prior to June, 2014 as well as employees/retirees in an organisation with Approved Existing Scheme (AES).
Others include any person who retired, disengaged or whose employment was terminated and is currently receiving pension under the CPS, but secures another employment on contract basis; any retiree under the defunct Defined Benefit Scheme, who secures another contract employment and members of the Armed Forces and the Intelligence and the Secret Services of the Federation.
Guidelines released by PenCom stated that voluntary contributions must be made only in Nigerian Currency (Naira) and will be remitted into and withdrawn from a duly registered RSA, managed by a licensed PFA.
The guidelines provide that all eligible contributors desirous of making additional voluntary contributions shall maintain existing RSA, while the new contributors shall open RSA with any PFA of their choice, into which their contributions shall be remitted.
The process of starting voluntary contribution starts from notifying the employer in writing of intention to make voluntary contributions and the amount to be deducted from emoluments and remitted as voluntary contributions.
PenCom says voluntary contributions must be made from employee’s legitimate income, which shall not be more than 1/3 of the month’s salary in line with the Labour Act, 1990 and all such contributions must be remitted through an employer into the RSA.
There are penalties for failure to deduct or remit voluntary contributions within the stipulated time on behalf of a contributor by an employer and the frequency of voluntary contribution shall not be more than once a month for all categories of contributors.
Once the voluntary contribution is remitted, the PFC shall notify the PFA within 24 hours of receipt of the remittance from an employer.
PenCom warns that in line with the Money Laundering Act (MLA) 2011 and Nigerian Drug Law Enforcement Agency (NDLEA) requirement, PFC shall report any single voluntary contribution lodgement of N5 million and above.
For active contributors, the voluntary contributions shall be divided into two: 50 per cent shall be the contingent, available for withdrawal, and 50 per cent fixed for pension shall only be utilised at date of retirement to augment pension.
The guidelines provide that all voluntary contributions made by the active or mandatory contributors shall be retained in the RSA for a minimum of two years before access and the first date of pension contributions into the RSA shall be the date for counting period for the two years’ maturity after conversion from mandatory to voluntary contributions.
Note that any income accrued on voluntary contribution shall be taxable in accordance with relevant tax laws, where the withdrawal is made before the end of five years from the date the voluntary contribution was made.
PenCom stated that the tax deductions shall be based on both incomes earned and principal amount when withdrawal is less than five years for the exempted, foreign, retirees under the defunct DBS and retirees under the CPS.
