THE Pension Reform Act 2014 ("The Act") was enacted by the
A major innovation of the Act is the creation of a uniform Contributory Pension Scheme ("the Scheme") that applies to both the public and private sectors in
It is instructive to note that the Act retains the policies of earlier pension laws, including the Pension Reform (Amendment) Act of 2011 which exempts personnel of the Military and the Security Agencies from the Scheme; the Universities (Miscellaneous) Provisions Act 2012, which reviewed the retirement age and benefits of University Professors, and the creation of Pension Fund Administrators ("PFA"), Pension Fund Custodians ("PFC") and the
Details of developments in the Act are as follows:
Contribution to & participation in the Scheme
Section 4 of the Act changes the rate of contribution to be made by employers and employees to the Scheme by increasing monthly contributory rate of employers and employees to a minimum of 10% and 8% respectively to be drawn from an employee's monthly emolument. This position differs from Section 9 (1) (a) and (c) of the 2004 Act which pegs employer/employee contribution in the public and private sectors at 7.5%. In cases where an employer elects to bear the full responsibility of the Scheme, the employer would be required by the Act to pay a minimum of 20% of the employee's monthly emoluments, which is 5% more than the provision made under the 2004 Act.
The definition of "Monthly Emoluments" contained in Section 102 of the 2004 Act that defines it as "a total sum of basic salary, housing allowance and transport allowance" has been modified by Section 120 of the Act which defines it as "total emolument as may be defined in an employee's contract of employment but shall not be less than a total sum of basic salary, housing allowance and transport allowance". This new definition by the Act is advantageous to employees' participating in the Scheme, as it curtails unfavorable interpretation of "total emolument" in contracts of employment
In addition to other forms of investments of pension funds open to PFA's under the 2004 Act, Section 86 of the Act has included Specialist Investment Funds to the list of options available to PFA's to invest pension funds. However, Section 86 of the Act provides that all investment portfolios should ensure the safety of pension fund assets.
Offences and Penalties
Pension offences and penalties have been broadened by Part XIV of the Act and are as follows:
1.Section 99 (2) criminalizes any attempt to commit an offence under the Act and imposes an equal penalty for attempting to commit a crime as the commission of the crime itself.
2.Section 100 increases the penalty for misappropriation of pension funds and provides that in addition to a minimum prison term of 10 years and a fine of three times the amount misappropriated, a convicted person would be required to refund the amount misappropriated and forfeit any property, asset or fund with accrued interest or the proceeds of any unlawful activity under the Act in his/her possession, custody or control to the Federal Government.
3.Section 99(4) criminalizes the act of a PFA or PFC reimbursing or paying a fine imposed on a staff, officer or director under the Act and imposes a penalty of a minimum of N5 million on any such PFA or PFC.
4. By virtue of Section 101 and 70, where a PFC fails to hold the funds in its possession to the exclusive preserve of a relevant PFA and the Commission or where it applies the funds to meet its own financial obligations, a minimum penalty of N10 million would be imposed on it upon conviction (in the case of a Director N5 million or a term of 5 years imprisonment or both).
The Commission can now, in addition to revoking the license of erring pension operators, take proactive corrective measures on licensed operators who may want to deal fraudulently with pension assets.
By virtue of Section 82 of the Act, the Commission is now empowered to establish a
The Commission is also mandated to utilize the Fund as a hedge or guarantee for the benefit of eligible pensioners, to be distributed in form of a minimum guaranteed pension, and as compensation for shortfalls in investment of pension funds and any other use that may be determined from time to time.
Quicker Access to Retirement Savings Account in Event of Voluntary or Involuntary Disengagement from Work
Where an employee disengages from employment or is disengaged before the age of 50 and is unable to secure another employment within 4 months of disengagement, Section 16 (5) of the Act permits such persons to make withdrawals from their retirement savings account (not exceeding 25% of the total amount credited to the retirement savings account). Under the 2004 Act, the waiting period was 6 months.
Exemption from tax
By virtue of Section 10 of the Act, contributions to the Scheme now form part of tax deductible expenses. In addition, all interests, dividends, profits, investment and other income accruable to assets from tax, pension funds and retirement benefits are also exempt from tax.
Application of Public Officers Protection Act and Requirement of Pre-action Notice
Section 108 of the Act makes the Public Officers Protection Act applicable to limit actions commenced against an officer or employee of the Commission for any act done in execution of the Act or any other law, if the suit is not commenced within 3 months of the act or in the case of a continuous act, within 6 months after the act ceases.
Furthermore, before an action can be filed in Court against the Commission or any of its officers or employees, a pre-action notice must be served on the Commission one month prior to the commencement of the suit and must set out the cause of action, particulars of the claim, name and place of abode of the intended plaintiff and the reliefs sought. The purpose of the pre-action notice is to give the Commission an opportunity to avoid litigation by resolving matters amicably where possible.
Section 106 of the Act now vests the National Industrial Court with jurisdiction in matters where an employee or beneficiary of a Retirement Savings Account is dissatisfied with a decision of the Commission, that was referred to it for review from a decision of a PFA or employer, to ensure that the decision complied with relevant provisions of the Act or regulations made thereunder.
Additionally, arbitral awards made under Section 107 of the Act can now be enforced by courts of competent jurisdiction and is no longer limited to only the
Generally speaking, it is advisable for employers and employees in the private or public sector to be fully abreast of the contents of this Act, as it is a stride in the evolution of pension laws in
The importance of an efficient pension system in
Ajogwu, SAN, is principal partner,
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