Worried by the rising cases of poor pension remittances by employers in the public and organised private sectors as stipulated by the Pension Act, the National Pension Commission (PenCom) is already wielding the big stick against defaulters. Ibrahim Apekhade Yusuf in this report, examines the issues
The performance rate of the contributory pension scheme in terms of compliance by some stakeholders is nothing really to cheer about if the submission of the National Pension Commission (PenCom) is anything to go by.
PenCom is the regulatory agency charged with the responsibility of ensuring that organisations both within the public and private sector players fulfill their obligations in terms of payment and remittances of employees/employers’ contributory pensions to its coffers for onward administration and management by the respective Pension Fund Administrators.
Besides, PenCom is empowered by the law to punish defaulters. This has benefited Nigerians in so many ways, especially with the new scheme that has helped to resolve the delays in pension payment and reduction of corruption, a development peculiar with the defined benefit scheme of past years.
How the current pension scheme came to being
Hitherto the government had the defined benefit scheme, which ran into murky waters until in 2004 when the Federal Government enacted the Pensions Reform Act (PRA 2004) which introduced the Contributory Pension Scheme (CPS) and made it mandatory for employers and employees in both the public and private sectors to contribute towards the retirement benefits of employees.
Subsequently, in 2014, the PRA 2004 was repealed and a new act PRA 2014 was signed into law. This new act made it mandatory for state and local governments to implement contributory pension schemes for their employees.
Update on pension assets
Pension assets under the Contributory Pension Scheme maintained its steady rise at the beginning of the year as it gained N183.81 billion between December and January.
The increase, according to the PenCom brought the total assets to N13.61 trillion as at January 31, 2022.
According to the Commission, the total number of Retirement Savings Account (RSA) holders stood at 9.55 million as at the period under review.
Checks by our reporter revealed that employers in the private sector under the scheme had continued to record impressive contribution as they remitted a total of N101.71 billion to Retirees Savings Accounts in the fourth quarter of 2021.
According to PenCom, a total pension contribution of N208 billion was remitted to individual RSAs during the period.
Report on the Commission’s website shows that out of this total, the public sector accounted for N107.78 billion or 51.82 per cent while the private sector contributed N101.71 billion balance, representing 48.12 per cent.
It also put the total value of the assets at N13.42 trillion as of December 31, 2021, adding that the cumulative pension contributions from inception to the end of the fourth quarter of 2021 amounted to N7.58 trillion, representing an increase from N7.37 trillion as at the end of Q3’21.
The N13.42 trillion comprised of N9.47 trillion in RSA’ Active’ Funds (i.e., RSA Funds I, II III and V); N1.07 trillion in RSA Retiree Fund IV; N1.52 trillion in CPFAs; N1.35 trillion in Approved Existing Schemes (AES) Funds and N16.13 billion for RSA Fund VI (Non-Interest Fund), Active and Retiree.
To ensure safety of the funds and good return on investment, the assets are mainly invested in capital market instruments with Federal Government securities taking the lead as it attracts 65.35 per cent of total investments.
According to the investment details, investments FGN Bonds takes 94.90 per cent; Treasury Bills, 2.91 per cent; while Agency, Sukuk and Green Bonds accounted for about 2.19 per cent.
To strengthen the sector, the Commission has approved some acquisition and mergers.
It also approved merger between Tangerine Pensions Limited and APT Pension Funds Managers Limited and subsequent change of name of the merged entity to Tangerine APT Pensions Limited.
No fewer than four Pension Fund Administrators got into merger and acquisition ahead of the April 2022 deadline stipulated for pension companies to raise their minimum capital from N1 billion to N5 billion.
The National Pension Commission had in 2020 circular in directed PFAs to raise their shareholders’ fund, giving them a 12-month transition period.
The Commission argued then that its oversight function had shown that the required minimum capital was no longer adequate to meet the operational expenses of the PFA business.
Earlier, the Commission had raised the minimum capital of the PFAs from N150 million in 2011 to N1 billion in 2012.
The new capital base of N5 billion has led many PFAs to consider merger and acquisition as the April 2022 deadline approaches.
It may be recalled that last year, PenCom confirmed about 10 Pension Fund Administrators (PFAs) had met or exceeded the minimum capital base of N5 billion specified by the Commission.
The country’s pension fund assets as at January 31, 2022 rose to N13.61 trillion, from N13.43 trillion in December, according to PenCom’s unaudited report on pension funds industry portfolio.
PenCom charmed offensive against defaulters
It is mandatory for your employer to remit the pension contributions, and any non-remittance or late remittance is illegal.
The penalty, according to the pension law will not be less than 2 percent of the total contribution that remains unpaid for each month, or part of each month that the default continues, and the amount of the penalty will be recoverable as a debt owing to the employee’s retirement savings account as the case may be.
Section 11 (6) of the Pension Act 2014, states that any employer who fails to remit the contributions within the time prescribed shall, in addition to making the remittance already due, be liable to a penalty to be stipulated by the commission.
The penalty, according to the pension law will not be less than 2 percent of the total contribution that remains unpaid for each month, or part of each month that the default continues, and the amount of the penalty will be recoverable as a debt owing to the employee’s retirement savings account as the case may be.
If after seven days of the payment of salaries any employer refuses to remit the pension contributions of his employee to the PFA, the PFA is obligated to report the employer to PenCom if the funds are not received by the 14th day from the payment of salaries. Such an employer will be liable to a penalty in addition to the funds due, a senior official of PenCom said.
Employers that fail to remit their employees’ pensions after deductions are facing stiffer penalties, the National Pension Commission (PenCom) has confirmed.
Through appointed recovery agents of the Commission, the defaulting employers are made to pay unremitted contributions alongside accrued interest and penalties.
According to the fourth quarter 2021 report of the commission, appointed recovery agents realised from 36 defaulting employers N984.23 million, representing N406.42 million as principal contribution and N577.87 million as penalty.
This is as another 18 defaulting employers have also been recommended for appropriate legal action.
A case for pension remittances
The employer is required to deduct at source from the salary of the employee, an amount comprising their pension contribution, and remit the same along with the employer portion to the Pension Fund Custodian specified by the Pension Fund Administrator of the employee, not later than seven working days from the date salaries are paid. The minimum rate of contribution is 18% of the employee’s monthly emoluments where 10% is contributed by the employer and 8% is contributed by the employee. The constituent of monthly emoluments is as may be defined in the employee’s contract of employment, but should not be less than the total sum of basic salary, housing, and transport allowances. For employees whose salaries are not classified into basic, transport, and housing allowances, the pension contributions should be based on the gross salary payable.
Contributors have the right to determine which PFA manages their pension contributions and retirement benefits. Therefore, if a contributor feels the need to transfer their RSA from one PFA to another PFA, they can do so, though, no more than once a year. This is pursuant to Section 13 of the PRA 2014. In order to facilitate its implementation, the National Pension Commission (PenCom) deployed the RTS on November 20, 2020. The RTS is a fully automated, efficient, and transparent process that has pre-defined timelines, ensuring the hassle-free movement of RSAs between PFAs. The transfer process is free of charge and the contributor has the liberty to choose the PFA they prefer for this purpose.
In the view of Ivor Takor, director general, Centre for Pension Right Advocacy pension remittance should be taken seriously by employers because it has been deducted from their salaries and the law says the deduction should be paid into the RSAs of the employees, not later than seven days after salaries are paid.
Echoing similar sentiments, Oguche Agudah, CEO, Pension Funds Operators Association of Nigeria (PenOp) said the concept of using recovery agents to tackle the issue of unremitted pensions is a good development and they have been doing quite well.
He said their efforts are applauded and encouraged. However, in addition to the recovery agents, we need to do more on enlightenment of the public (both employers and employees) on the benefits of taking an active part in the contributory pension scheme.
Specifically, Agudah also said that “Taking part in the scheme, reduced a company’s effective tax rate, because their contributions are tax exempt. In addition, it is a tool for employee engagement, retention and attraction.”
According to the letters and spirit of the law, defaulting employers are to ensure remittance of outstanding pension contributions and interest penalty; obtain evidence of remittance of outstanding pension contributions with interest penalty to the employees’ RSAs; and forward the evidence of remittance made by defaulting employers to the commission.
Expectedly, other measures that could be taken include instituting legal action on recalcitrant employers that failed to remit all outstanding pension contributions with the interest penalty to employees RSAs; submit progress reports to the commission of all recoveries made and challenges encountered; and perform any other duty that may be specified by the commission for ensuring compliance with the Pension Act. To make the job easier, the commission has assigned specific defaulting employers to each agent for the recovery of outstanding pension contributions including the interest penalty.
Each agent’s performance is being monitored based on set performance standards which would be documented in a Service Level Agreement (SLA) to be executed with the recovery agents.
No longer at ease with defaulters
The National Pension Commission says it has recovered N608.5 million from employers who deducted monthly pensions of their workers.
However, it mentioned that these employers did not remit to their retirement savings accounts with their respective pension fund administrators.
According to the 2021 first quarter report released by the commission, the amount consists of N162.3 million principal contribution and N446.1 million penalty.
“Following the issuance of demand notices to defaulting employers whose pension liabilities had been established by the Recovery Agents, the sum of N608,554,747.59 representing principal contribution (N162,385,260.05) and penalty (N446,169,487.54) was recovered from 25 defaulting employers during the quarter under review,” the report reads.
From January to March 2021, PenCom said it received a total of 14,741 applications from private sector organisations for the issuance of pension clearance certificates (PCCs).
Out of this number, PCCs were issued to 9,299 organisations which remitted the sum of N41.9 billion into the RSAs of 163,286 employees while 5,442 applications were being processed.
“The total pension contributions remitted to the RSAs in the first quarter of 2021 stood at N203.10 billion. Out of this total, the public sector accounted for N115.83 billion or 57.03 percent while the private sector contributed N87.27 billion or 42.9 percent,” the report added.
“The cumulative pension contributions received from both the public and private sectors from inception to the end of the first quarter of 2021, therefore, amounted to N6.91 trillion, up from the N6.70 trillion as at the end of the Q4 2020.”
PenCom said the pension industry recorded a marginal growth of 0.91 percent in scheme membership, rising from 9.27 million contributors as at the end of Q4 2020 to 9.36 million in Q1 2021.