When you get paid your salaries at the end of the month, it is required by law that your employer remits your monthly pension contribution, both employee and employer portion, to your Pension Fund Administration (PFA) who will credit such remittance into your Retirement Savings Account (RSA).
By the PRA 2014, such remittance should be made by your employer no later than 7 working days after the payment of such salary according to Section 11(3b).
For this to happen, the following conditions must be met, however:
- Such employee should have an RSA opened with a PFA. If you don’t know how to open a RSA, read this article here.
- Where the employee does not have an RSA, the employer is obliged to open one for such worker when it’s at least 6 months that the worker has been in their employ according to Section 11(5). It is important to note that in this circumstance, all deducted pensions will be remitted in arrears up to when the RSA is opened.
It is therefore crucial for employees to open an RSA immediately after they are employed. This will make it easy for the employer for the remittance of monthly pension contributions. It will also help to eliminate or reduce the incidence of un-remitted contributions some employees eventually get to experience.
How to Calculate the monthly pension contribution
According to Section 4 of the PRA 2014, the monthly pension contribution is based on the monthly emoluments of the employee. The basis of calculation is premised on the following components of the employee remuneration package:
a. Basic salary
b. Housing allowance
c. Transportation allowance
The 3 is usually referred to as the BHT.
By law, the minimum rate of contribution is 18%, usually divided into:
- Employee: 8%
- Employer: 10%
The PRA also allows the employer and employee to make contributions higher than the 10% and 8% respectively upon agreement by both parties. In fact, Section 4(b) of the PRA 2014 allows the employer who wishes to bear full responsibility of the total contribution for the employee to do so but subject to a minimum of 20%.
Let’s get practical…
For the purpose of this article, let’s assume on your Payslip, your BHT for the month is totaling ₦100,000.
This means that the following amount will be deducted and remitted to your PFA:
Employee deduction: ₦8,000 (i.e. 8% of ₦100,000)
Employer contribution: ₦10,000 (i.e. 10% of ₦100,000)
This brings the total amount to ₦18,000.
Please note that the total amount to be remitted on behalf of the employee is ₦18,000 and not ₦8,000 that will be shown on the employee’s Payslip as deducted for pension purposes.
What is shown on the employee’s payslip is ONLY the employee portion of the total contribution. The Employer’s portion is not shown on the Employee’s payslip but in the Company’s record as part of the employee benefit expenses to the company.
In summary, your total contribution is basically calculated at 18% of your Basic, Housing, and Transport allowance (BHT). However, what you see on your Payslip is just 8% of your BHT as deducted.
This is important to note especially when you are claiming a backlog of unpaid or un-remitted contributions from some employers.
A quick check on this will be with your PFA to know exactly how much is being remitted to you on a monthly basis. You can do your calculation as stated above to confirm if your pension contributions are being correctly remitted.