Why Pension Reform Act 2014 is being reviewed

The Pension Reform Act 2014 is being reviewed.Omobola Tolu-Kusimo writes on how the changes will affect workers, retirees and other stake holders.

A LOT of misrepresentations, anomalies, typo errors and wrong cross-referencing have made the review of the Pension Reform Act (PRA) 2014 imperative.

One major problem found by The Nation is in Section 2(2) of the Act. It stipulates that the coverage of the Contributory Pension Scheme (CPS) in the private sector is for organisations with three or more employees, but it was gazetted as 15 employees.

Another error occurred in Section 106(4) that was inappropriately placed in Section 106 of the PRA 2014, which is on ‘Dispute Resolution’. The proposed amendment seeks to ensure appropriate placement of the provision.

It was also observed that sections where ‘officers’ are referred to as ‘officer’ instead of employee, where ‘category’ is used instead of ‘categories’; inadvertent insertion of words; misplaced sections and other errors could mean different things at different times.

But very critical is the change that will occur to Section 116(1), which allows insurance firms to keep pension funds through sales of annuity in their kitty. This caused a major fight between the insurance and the pension industry in 2017. With the review, pension assets will be held exclusively by licensed Pension Funds Custodian and not insurance firms.

In the same vein, employers will now be mandated to effect the payment of claims arising from the death of any staff member.

A new provision as ‘Section 25(2)(d)’ would also be inserted to provide for the power of the Board to approve the Commission’s budget

In a document cited by The Nation entitled: “Proposed Amendments of the Pension Reform Act 2014”, the Commission seeks to correct Section 2(2) in what it stated as Amendment of the figure ‘15’ to read ‘3’.

The Act, which established the CPS in 2004, was repealed by the National Assembly and enacted the PRA 2014 under the former Director-General, National Pension Commission (PenCom), Mrs Chinelo Anohu-Amazu.

In the latest compilation of proposed amendment for the National Assembly, PenCom said: “Section 4(4)(b) states amendment of the figure 20 per cent to read 18 per cent. The Section 4(1)(a) and (b) of the PRA 2014 stipulates a minimum of 10 per cent contribution by the employer and a minimum of 8% by the employee, totaling a minimum of 18 per cent monthly contribution in respect of individual employees. Section 4(4)(b) in stipulating that an employer may elect to bear the full burden of the monthly contribution, erroneously stipulated the total; monthly contribution as 20 per cent. There is, therefore, the need to amend the figure 20 per cent to read 18 per cent in order to align with Section 4(1).

“Section 4(6) Deletion of the phrase “make arrangement to” the proposed amendment would emphatically stipulate the obligation of an employer to effect the payment of claims arising from the death of any staff in its employment. “Section 19(2)(d)(ix) Deletion of ‘Nigerian Stock Exchange’. It is noted that the Nigerian Stock Exchange is a regulated entity under the regulatory purview of the Securities and Exchange Commission. It is, therefore, a misnomer to have a regulated entity on the Board of PenCom, being the regulator of the pension industry.

‘’Furthermore, it is noted that Section 19(2)(d)(ix) of the PRA 2014 already provides for the composition of the Commission’s Board to include the Securities and Exchange Commission. Accordingly, the proposed amendment seeks to remove the Nigerian Stock Exchange from the Board of PenCom.”

The Commission continued: “Section 20(2) should be redrafted to read “A member of the Board, other than the Chairman, the Director-General and ex-officio members shall hold office for a term of four years in the first instance and may be reappointed for another term of four years and no more subject to the provisions of Section 2(1) (a) to (g) of this Act”.

It is noted that the institutions listed in Section 19(2)(d) of the PRA 2014 are ex-officio members of the Board and their tenure is indefinite. They are, therefore, not subject to tenure of office as obtains in the case of the Chairman and the Director-General. Also, the provisions of Section 20 should be subject to the occurrence of any of the events stipulated in Section 21(1) (a) to (j), and not only paragraph (g) as stated in subsection (2).

“To insert a new provision as Section 25(2)(d). The new provision would provide for the power of the Board to approve the Commission’s budget. The proposed amendment would be in tandem with subsisting Financial Regulations. Similarly, Section 42(2) should be amended to read that the appointment of the Executive Secretary of the Pension Transitional Arrangements Directorate shall be made by the President.

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“Section 42(2) stipulates that the Management Team of the Pension Transitional Arrangements Directorate shall be appointed by the Minister. It is noted that the appointment of the Executive Secretary, who is the head of the agency cannot be made by the Minister as the power to appoint a Permanent Secretary in any Ministry or Head of any Extra-Ministerial Department of the Government of the Federation howsoever designated vests exclusively in the President in line with Sections 171 (1) and 171(2)(d) of the 1999 Constitution (as amended).

“Section 72 on deletion of the phrase “or outside”. It is noted that the businesses of Pension Fund Administrator and Pension Fund Custodian are undertaken within Nigeria, hence it is superfluous to allow PFAs and PFCs open branch offices outside Nigeria. Furthermore, the legal framework outside Nigeria may not permit such an arrangement. Lastly, it is noted that the Commission would not be able to monitor branch offices of PFAs and PFCs outside Nigeria.

“Section 116(1), which states amendment of the phrase “in the custody of any insurance company” to read “in the custody of any Pension Fund Custodian”.

Section 56 of the PRA 2014 stipulates that pension funds and assets shall only be held by Pension Funds Custodian licensed by the Commission. Accordingly, pension life annuity funds and assets which, by virtue of Section 120 of the PRA 2014, are pension assets must be held exclusively by licensed PFCs and not insurance companies. The proposed amendment would, therefore, ensure clarity and correctness”, the document read.

The Acting Director-General, Mrs Aisha Dahir-Umar in an interview with The Nation said the review is not in the interest of any individual but for people’s interest in general.

She stated that the Commission have been working assiduously to compile relevant sections that would address the identified challenges and public clamour.

“Within the last three years, there have been persistent clamour for amendment from individuals and interest groups as well as several legislative attempts on the amendment of some Sections of the PRA 2014. We want to reposition the CPS and consolidate the gains of the pension reform for the benefit of Nigerians.

“Accordingly,  and consistent with our guiding philosophy of consultation and the imperative of ensuring the conduct of a comprehensive and constructive review exercise, the Commission has reached out to seek the input.

“We have called for input of social partners, pension industry operators, financial regulators and other relevant stakeholders and we are confident that the input received from stakeholders would immensely benefit the exercise and result to a workable and acceptable pension legislation,” she added.