To ensure that every retiree is financially independent at retirement, the Pension Reform Act 2014 reviewed upwards, the minimum rate of pension contribution from 15 per cent to 18 per cent of monthly emolument, where 8 per cent will be contributed by employee and 10 per cent by the employer.
In establishing contributory pension scheme for all employees in the public service of the Federation, Federal Capital Territory and the private sector where there are a minimum of three employees, the Pension Act mandates all the employees to whom the scheme applies, to open RSA with a Pension Fund Administrator (PFA) of their choice.
Since the employer is empowered by the Pension Act to deduct at source, the monthly contribution of the employee in his employment and remit same to the custodian, it will be helpful if all the employees to whom the Act applies, know the actual rate of contribution to the scheme. This will ensure that no one is shortchanged.
Under the old law, it was 7.5 per cent contribution each by both the employee and the employer. This upward review of rate of pension contribution is aimed at providing additional benefits to workers' Retirement Savings Accounts (RSAs) and thereby enhances their monthly pension benefits at retirement.
However, an employer may agree or elect to bear the full burden of the scheme, provided that in such a case the employer's contribution shall not be less than 18 per cent of the monthly emoluments of the employee.
The rates of contribution highlighted above may, upon agreement between any employer and employee, be revised upwards, from time to time, and the
In addition to the specified rates, employers are mandated to maintain life insurance policy in favour of their employee for a minimum of three times the annual total emolument of the employees.
Besides, any employee to whom the Act applies may, in addition to the total contributions being made by him and his employer, make voluntary contributions to his retirement savings account.
It should also be borne in mind that notwithstanding anything in any enactment or law, contributions by an employee to the scheme under the Pension Act form part of tax deductible expenses in the computation of tax payable by an employer or employee under the relevant income tax law.
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