Nigeria's No. 1 pension information website

Employers stand to gain a lot from complying with the Pension Law. Here’s how

Spread the love

Employers are required to deduct and remit pension contributions on behalf of their employees under the mandated Contributory Pension Scheme (CPS). They are also required to maintain a Group Life Insurance Premium Policy (GLIP) for their employees. These are really the basic or minimum requirements that the employer is supposed to meet as far as pension compliance is concerned. Failure to comply with this requirement of Section 4 of the Pension Reform Act (PRA 2014) results in sanctions and penalties for such employers.

Although the National Pension Commission (PenCom) has been at the forefront of enforcing compliance, as evidenced by its last report, sanctioning erring firms and recovering over N553 million in primary contributions and penalties from defaulting employers. In practice, however, most firms continue to flout the pension requirements. They regard the cost of a pension as an additional running cost that does not provide them with any immediate benefits.

Rather than complying, some employers go further to also disallow pension contributions on behalf of their employees in their organizations. While in some extreme cases, some of them, having deducted pension contributions from the employee’s pay, fail to remit to the employee’s PFA, an act that is flagrant disobedience to the extant pension law.

What Is Expected From The Employer And Employee?

From the employee or Worker:

  1. Open a Retirement Savings Account (RSA) with a Pension Fund Administrator (PFA) of choice.
  2. Submit RSA details (RSA PIN and PFA name) to the employer.
  3. In addition, if he or she decides to make an Additional Voluntary Contribution (VC), the total amount so decided should be communicated to the employer, who will deduct such VC every month in addition to the statutory deductions (see below).

From the employer or Organization:

  1. Deduct and remit pension contributions on a monthly basis on behalf of its workers. Such employer is expected to remit a statutory deductible minimum of 18% of the worker’s monthly emoluments (i.e. Basic salary, Housing and Transport at the minimum). The worker is expected to contribute a minimum of 8%, while the employer is expected to contribute 10% minimum.
  2. Open a Retirement Savings Account for the employee if he or she doesn’t have one 6 months after joining the employer’s workforce according to S11(5) of the Act.
  3. Maintain a Group Life Insurance Policy (GLIP) that is a minimum of 300% of the worker’s total annual emoluments with a life insurance company. The employer is expected to display the GLIP certificate at the office premises conspicuously. In a recent circular from PenCom, employers have been issued an ultimatum to display their GLIP certificate failure of which will attract sanctions.

Pension Cost is not just an Operational Cost

Employers should not consider pension contributions to be merely “operational costs,” but rather as a fixed expenditure that is both required and mandatory.

Compliance with the pension legislation (the PRA) should be treated with the same gravity as compliance with other laws, such as tax regulations when failure to do so can result in sanctions and penalties.

The benefits of complying with the current pension system are substantial, particularly for businesses, and considerably surpass the cost or loss of revenue it represents.

The Benefits Of Complying With The Pension Law:

  • Employees will feel a sense of belonging and security, especially at old age when they eventually retire from work. Knowing that at retirement they get to live a comfortable life, will not only make them be committed to their work, it will also have a sense of security at retirement and thus make the work worthwhile after all.
  • In addition to the benefits to the employee, complying with the pension law saves the company money on additional compliance costs incurred as a result of non-compliance with the Act. Employers are spared penalties and fines, as well as the disruption of corporate operations.
  • Compliance with the pension law establishes the company as a responsible and socially conscious institution. Only a competent corporate organization will prioritize its employees’ well-being. More importantly, according to the current legislation of the nation at the risk of their profitability demonstrates the organization’s level of responsible management.
  • The National Pension Commission (PenCom) will also provide a Certificate of Pension Compliance to a complying firm. This certificate attests to the entity’s degree of conformity with current pension legislation. Only organizations with this certificate are permitted to bid on federal government contracts.

In conclusion

While it can be seen as an additional cost to the organization, there are immeasurable benefits that the organization will derive from complying with the extant pension laws. It is advisable that employers should ensure strict compliance or ask for assistance where it is required.


Spread the love
Chat
1
Need help?
Pension Talk
Thank you for visiting .
How may we help you?