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Curbing the unfriendly practice of unremitted pension contributions

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A key feature of the Contributory Pension Scheme is the joint contributions of monthly pension deductions and remittances. The contributory feature means that both the employer and employee contribute their statutory portion into the employee’s retirement savings account.

It is expected that on a monthly basis, the employer remits its and the Employee’s portion of deducted pension contributions to the employee’s Pension Fund Administrator (PFA). And this is expected to be done, latest by 7th working day after the salary was paid (PRA S11(3)).

However, as simple and straightforward as this appears, some employers still refuse to comply with this statutory and important law.

Whenever an employee’s pension deductions are not remitted, the following happens:

  1. The employee is automatically denied the Growth on such contributions which is much needed in retirement.
  2. The PRA or the pension law is contravened which potentially puts the Employer at the risk of sanctions and penalties by the Authorities.

According to PenCom, in the 4th quarter of 2021 alone, the sum of ₦577.8 million was recovered from defaulting employers as penalties for non-remittance of their employees’ pension contributions. This number increased from ₦164.5 million and ₦154.6 million in the third and second quarter respectively.

This trend of rising non-compliance only shows that some employers still don’t see the importance of complying with the Pension Reform Act (PRA).

It is important to stress that the compliance with the PRA, like all other statutory regulations, is sacrosanct and failure to do so could result in penalties and jail terms for the deviants.

Why do some employers default?

Perhaps, it is important to know why some employers default on remittance of pension deductions for their employees so that we can critically address the issue objectively.

  1. Some employers see it as an unnecessary cost: Our findings show that some of these non-complying employers termed the cost of pension as unnecessary personnel cost. They, therefore, do not see the need to necessarily comply even when it is the law!
  2. Some employers believe that they can get away with it because they know most employees cannot report them to the authorities, especially while still working with them because they want to protect their jobs.
  3. Some employers delay remittance to such period until when they need the pension compliance certificate for one thing or the other and only then will they remit. The cycle is repeated in this manner.

How Can this practice be Curbed?

It is often believed in some quarters that in Nigeria, anything goes. This is ONLY true to the extent where there is no law or legislation. Where the law exists, nothing goes as long as there is enforcement by the regulating authority.

Having critically studied the situation over the years, we have come to realize some of the major reasons why there remains so much non-compliance:

  1. Most employees whose pensions are not being remitted are afraid to speak out because of the fear of losing their jobs. Nonetheless, employees can report such practices to PenCom through its various reporting channel.
  2. Some employers delay remittance to such time when they only need the pension compliance certificate in bidding for a contract or for other uses where it is needed.
  3. Some employers delay remittance to maintain cash flow balance within their business operation.
  4. Some employers delay or even will not remit for no reason and believe that they will get away with it.
  5. Some employers are completely ignorant of the PRA, especially the small and medium enterprises, even though ignorance is not an excuse under the law.

The way forward

In order to curb this unfriendly practice, we want to suggest that:

  1. The major players in the pension industry enforce compliance. This should be done in such a way that the actors will genuinely see the need to perform their statutory duties. Examples of which include amplifying the benefits of compliance and the penalties of non-compliance.
  2. PenCom should revise or issue a guideline that will strictly address the issue of non-compliance which should include empowering the PFAs to automatically render statutory returns on defaulting employers on a periodic basis. This is believed to also help the employees who couldn’t report their employers directly.
  3. Continuous stakeholder engagement by the major players in the pension industry on the benefits and overall advantages of compliance with the PRA. This is believed will also help sensitize and reorientate them to play their part as expected.

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