Nine years after the birth and implementation of the Pension Reform Act 2014 (PRA 2014), some Nigerians still confuse the provisions of the act with the repealed and replaced Pension Reform Act 2004 (PRA 2004).
On July 1, 2014, President Goodluck Jonathan signed into law the PRA 2014, thereby officially burying the PRA 2004, which was for 10 years the unified legislation for the regulation and supervision of the pension landscape in Nigeria.
The PRA 2014 was novel in its modifications and changes in Nigeria’s pension sector operations. The new act is the enabling legislation for administering the Contributory Pension Scheme (CPS).
Recall that the PRA 2004 established the National Pension Commission (PenCom) as the overall supervisory body for the pension sector in Nigeria. The commission is responsible for licensing, regulating and monitoring the operations of all Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs).
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Checks by Daily Trust on Sunday show that the PRA 2014 brought some significant amendments to the act such as the exemption of military personnel and Department of State Services (DSS) personnel from the CPS.
The PRA 2014 Act also incorporated subsequent reviews to the 2004 Act, such as the Universities (Miscellaneous) Provisions Act 2012 (which revised the retirement age and benefits of university professors) and the Third Alteration Act (which places responsibility of pension matters with the National Industrial Court).
This explainer outlines some of the major modifications and new provisions in the PRA 2014:
Upward review of pension contributions
In the PRA 2014, the contribution rate was increased to 18 per cent of employees’ monthly emolument from 15 per cent stipulated in the 2004 Act. Employers are to contribute 10 per cent while the employees contribute eight per cent. Furthermore, the PRA 2014 allows employers to shoulder the total burden of pension contributions of their employees.
In addition to increasing the pension contribution rate, the PRA 2014 also expanded the CPS to cover private sector employers with three staff and above, enabling broader participation in the CPS. The PRA 2004 covered only employers with five staff and above.
Opening of temporary RSA for employees
The PRA 2014 provides that an employer opens a Temporary Retirement Savings Account (TRSA) on behalf of an employee that failed to open a Retirement Savings Account (RSA) within three months of assumption of duty. Worthy of note is that this was not required under the repealed act of 2004.
The 2014 act also expanded the scope of monthly emoluments by leaving its determination to employees’ contracts. However, it shall not be less than the total of basic salary, housing allowance and transport allowance.
Similarly, the act has reduced the waiting period for accessing benefits in the event of job loss by employees from six months to four months.
Licence revocation/penalties for erring operators
Daily Trust recalls that the PRA 2004 only allowed PenCom to revoke the licence of erring pension operators but does not provide for other temporary measures that PenCom may take to settle inherent challenges.
However, the PRA 2014 empowers PenCom to take proactive corrective measures on licenced operators whose situations, actions or inactions jeopardise the safety of pension assets.
The PRA 2014 prescribes upward review of penalties and sanctions to pension defaulters and employers who fail to remit deducted monies of their employees. This provision further fortifies the pension assets against mismanagement and systemic risks.
It also empowers PenCom to institute criminal proceedings against employers for persistent refusal to remit pension contributions subject to the authorisation of the Attorney General of the Federation, which will be to the delight of employees right now.
This is an improvement from the PRA 2004, which only allowed PenCom to revoke the license of erring pension operators but does not provide for other interim remedial measures that may be taken by the Commission to resolve identified challenges in licensed operators.
Similarly, the sanctions provided under the PRA 2004 were no longer enough deterrents against infractions of the law. Consequently, the PRA 2014 has provided stiffer penalties that will serve as deterrence against mismanagement or diversion of pension funds assets under any guise. Thus, operators who mismanage pension funds will be liable on conviction to not less than 10 years imprisonment or a fine of an amount equal to three times the amount so misappropriated or diverted or both imprisonment and fine.
Utilisation of pension funds for national growth
Daily Trust checks show that the PRA 2014 also makes provisions that will enable the creation of additional permissible investment instruments to accommodate initiatives for national development, such as investment in the real sector, including infrastructure and real estate development.
This is already being implemented as the National Pension Commission recently approved the use of 25 per cent RSA savings for mortgage
PenCom, operators’ stand on PRA 2014
Daily Trust notes that although there are two bills before the National Assembly seeking to exclude personnel of the Nigeria Police Force (NPF) and the National Assembly from the CPS. But PenCom, Licenced Pension Fund Operators (LPFOs) and analysts in the sector have cautioned on the dangers of such move.
According to the commission, PRA 2014 deals principally with occupational pensions, which aims to provide means of livelihood to workers upon their retirement, while adding that the primary objective of the PRA 2014 is to ensure that everyone who works receives his/her retirement benefits as and when due.
Also, LPFOs have collectively called on Nigerians to ensure that the Contributory Pension Scheme is sustained in order to achieve this objective.
The LPFOs have also warned that the two Bills are out to undermine the essence of pensions and social security cover as enshrined in the Constitution of the Federal Republic of Nigeria 1999 (as amended), as both would ultimately deny retirees adequate periodic incomes in retirement and should be discouraged by Nigerians.
Similarly, Daily Trust recalls that a former president of the Trade Union Congress (TUC), Comrade Bobboi Kaigama, explained why the federal government should uphold the provisions of the Pension Reform Act 2014 to sustain the CPS.
He added that allowing any Ministry, Department or Agency (MDA) of government to exit the scheme would further plunge the country into more debt.
Expressing his disapproval for the exemption of permanent secretaries, heads of service, Accountant General of the Federation and other top government functionaries, Comrade Kaigama recalled that when in 2004 the Obasanjo administration enacted the PRA, it was to address the problem bedevilling the pension system.
He said the federal government proposed to spend N577bn on payment of pension and gratuity in 2022 alone and that exempting any government agency would further increase government’s annual budgets for pension and gratuity.
“Sometimes, some of the budgetary provisions are not funded. If the budget is not funded 100 per cent, those you want to dole out N577bn will not get it. That is why we are saying the CPS is more stable. You can predict it,” he said.
On automation of services to ease access to retirement benefits, Kaigama said, “Before now, you would go from table to table when you retire, but now you don’t have to go to any desk. Only your details are needed and your retirement benefits are processed.”
He urged state governments which have not keyed into the CPS to do so in order to keep paying accrued rights and contribute their portions of monthly pension as the employees contributed theirs too.