The Pension Reform Act mandates employers of labour (individual and government) to enroll in the Contributory Pension Scheme (CPS). Since June 2004 when the CPS started, there have been awareness upon awareness to encourage employers of labour especially in the private sector to participate in the CPS.
While participation is compulsory for employers with 15 or more workers, it is not so for those employing less than 15. However, they are encouraged to participate. Just recently, the scheme for the informal sector which comprises mostly of the SMEs and self-employed was launched to cater for the workers in this sector of the economy, thereby completing the full coverage for all the types of workers in the country.
Despite the drive by the pension regulator to ensure that everyone is covered and at least have a functioning Retirement Savings Account (RSA), some employers still find ways to avoid participation in the CPS. Some of them even go as low as deducting employees’ pension contributions and fail to remit to their PFAs as required.
Experience has shown that some employers avoid participation totally due to the fact that they do not see the benefits especially as it affects their business. They see the pension contributions as another staff cost which they should minimize or avoid totally.
While it can be argued that pension contributions especially the employer portion (10% minimum and life insurance policy) is an additional staff cost, it is worthy to note that it is the law. Avoiding it is like evading the law. While complying is obeying the law. There are employers today who even agree to take a larger portion of the pension contributions because they know the benefits that it serves them and their business in the immediate, short and long run.
Benefits of Participating in the CPS to the employer and business
There are numerous benefits that the employer and ultimately the business will derive by participating in the CPS. Some of these benefits are highlighted below:
1. Pension Costs are Tax deductible: Every deduction relating to pension contributions enjoys tax benefits. This means that those pension expenses are allowed to be deducted before arriving at a taxable figure. This is an incentive to the business. It means that at the end of the day the employer will pay a reduced amount of tax liabilities if it complied with the pension law.
2. Employers get issued certificate of compliance: From time to time, the National Pension Commission (PenCom) publishes list of employers that have complied with the CPS and they are issued Certificate of compliance. This certificate is a testimony to the fact that such employers are responsible players in the industry. With the certificate, such employer can transact, negotiate or bid for contracts with government and its agencies. It is also a pointer to the fact that such employer treats its workers minimally well.
3. Helps to boost the business environment: When employers participate in the CPS, they help to contribute to the growth of the economy. This is because pension funds are collectively invested in critical sectors of the economy which in turn help to serve the interest of business owners. For instance, government infrastructure bonds are some of the investment instruments where pension funds are invested. The proceeds of these infrastructure bonds are used to build critical infrastructures like road, rail, electricity, etc which in turn serve the business. It is a cycle.
4. Social needs of workers are secured in old age: Old age is what everyone prays for. It is also a time to be dreaded because in that period there is really little the person can do in terms of productive work. It is considered to be a time of rest or retirement after having worked almost in the entire youthful and younger periods. It is considered a noble thing to truly have retired and therefore not seen to be hustling or doing hard menial jobs just to sustain life at old age. Having a pension retirement account helps to avoid old age trauma and troubles. A society that takes care of its older generation is a great society. This is what having a pension plan helps to achieve.
5. Helps to build a motivated workforce: A happy worker becomes a motivated worker. A motivated worker therefore gives her best to help the business achieve its goals and objectives. When employees know that their future has been adequately secured, they are happy working for the business. One of such ways to help employees secure their future is by participating in the pension scheme. An employer has that responsibility to ensure that this is done. This ultimately helps to build a motivated worker and consequently sustain the business.
6. Avoids penalties and fines: By participating the CPS as required by law, the employer avoids paying huge fines and penalties. These fines and penalties can become a burden on the business operations and cash flow will definitely be impacted negatively. This is not to talk of the negative image this will paint the entity in the business environment where it operates. The business can lose credibility and even some important clients due to this.
Employers of labour should see participating in the CPS not as an end in itself but a means to various positive ends that will ultimately help both business and the society in which the business operates.