Background
Compliance is ensuring that everyone abides by laws, rules, and regulations. The definition of compliance can also encompass efforts to ensure that organisations are abiding by both industry regulations and government legislation. The Pension Reform Act 2014 places certain obligations on the part of employers, which they are bound to comply with. We will be discussing these obligations today.
Coverage
Section 2 of the Pension Reform Act 2014 provides that the Act shall apply to any employment in the public service of the federation, the public service of the Federal Capital Territory, the public service of the states and the public service of local governments and the private sector.
Sub-section 2 provides that in the case of the private sector, the pension scheme shall apply to employees who are in the employment of an organisation in which there are 15 or more employees. Sub-section 3 of the section establishes a Contributory Pension Scheme and makes the scheme applicable to employees of the aforesaid public services and the private sector. The scheme is therefore mandatory to all the applicable employers in the country.
Rates of Contribution
Section 4(1) provides that the rate of contribution for any employee to which the Act applies shall be made in the following rates relating to his monthly emoluments: (a) a minimum of 10% by the employer; and (b) a minimum of 8% by the employee. The contribution of the employer and employee is based on total monthly emolument. The rates are with effect from 25th July, 2014. The previous rates were 7.5% each for the employer and employee. It is now six years since the rates were reviewed and the federal government is yet to implement the new rates for its employees therefore not complying with the provisions of the Act.
Life Insurance Policy
Section 4(5) of the Act provides that in addition to the rates specified in sub-section (1) of this section, every employer shall maintain a group life insurance policy in favour of each employee for a minimum of three times the annual total emolument of the employee and premium shall be paid not later than the date of commencement of the cover.
Employers are avoiding this because they see it as additional contributions. As a pre-emptive measure to take care of evasion, sub-section (6) of the section provides that where the employer fails, refused or omitted to make payment as and when due, the employer shall make arrangement to effect the payment of claims arising from the death of any staff in its employment during such period.
The Act places certain obligations upon the employer who are therefore expected by law to comply with such obligations. Non-compliance is unacceptable because it puts the future of the employee at risk. The Act provides PENCOM, the regulator, with powers to enforce compliance. Where there is non-compliance by the regulator, the Act also has provided regimes of sanctions for non-compliance. The non-compliance of the federal government, with some of the obligations placed upon it in the Act as the largest employer in the country, is the weakest link in the pension reform; the Contributory Pension Scheme; and the regulation of the pension industry.
The National Pension Commission has appointed agents who conduct regular checks on private sector organisations in an attempt to ensure compliance by employers in the private sector. The federal government is complying with this provision. Unfortunately, only a negligible number of state governments, who may not be more than ten, are implementing this policy for their staff. It is an area where employees and their unions have to pay attention to and act as compliance agents.
Retirement Savings Account and remittance of Contribution
Section 11(1) provides that every employee to whom the Pension Reform Act applies shall maintain a Retirement Savings Account (RSA) in his name with any Pension Fund Administrator (PFA) of his choice. Sub-section (5) provides that where an employee fails to open such RSA within a period of six months after assumption of duty, his employer shall, subject to guidelines issued by the Commission, request a PFA to open a nominal retirement savings account for such employee for the remittance of his pension contributions.
Timely remittance of Contribution into Retirement Savings Accounts
Section 11(3) provides that the employer shall (a) deduct at source the monthly contribution of the employee; and (b) not later than 7 working days from the day the employee is paid his salary; remit an amount comprising the employee’s contribution and the employer’s contribution so deducted to the Pension Fund Custodian (PFC) specified by the PFA. Sub-section 6 of the section provides that an employer who fails to deduct and remit the contributions within the time stipulated shall, in addition to making the remittance already due, be liable to a penalty to be stipulated by the Commission.
Non-compliance with the above provisions is a fraudulent act against the employee by the employer. The amount deducted is the money of the employee therefore non-remittance as stipulated in the Act amounts to stealing from the employee as the money is supposed to be in the RSA of the employee, to be invested thereby generating additional retirement benefit for the employee.
Section 103 states that: “Where an offence under this Act is committed by a body corporate, the body corporate or every (a) director, manager, secretary or other officers of the body corporate; (b) person who was purporting to act in such capacity mentioned in paragraph (a) of this section, who had knowledge or believed to have had knowledge of the commission of the offence and who did not exercise due diligence to ensure compliance with the Act shall be deemed to have committed the offence and shall be prosecuted in accordance with this Act.”
Unfortunately, almost all employers, federal, states and the private sector are guilty of non-compliance with this provision, thereby defrauding their employees. The guiltiest are majority of state governments, with the most fraudulent ones being those that deduct and remit only employees contributions without contributing. The Commission, in order to ensure compliance, has engaged agents to monitor compliance. The unfortunate thing is that these agents are only active in the private sector. Here also, the unions and labour centres should be interested in what goes on here as the representatives of workers.
Federal Government Retirement Benefit Bond Redemption Fund
Section 39 directs the Central Bank of Nigeria (CBN) to establish, invest and manage a fund to be known as the Federal Government Retirement Benefit Bond Fund, which the Act refers to as Redemption Fund in respect of the federal public service.
The section places an obligation on the federal government as the employer of employees of the federal public service to pay into the Redemption Fund an amount not less than 5% of the total monthly wage bill payable to employees in the public service of the federation.
The section further provides in sub-section 5 that the amount in the Redemption Fund shall be used by the CBN as prescribed by PENCOM to redeem any retirement benefit bonds issued pursuant to section 15(1)(a) of the Act. Section 15(1) states that: “As from 25 June 2004, being the commencement of the Pension Reform Act 2004, the accrued pension rights to retirement benefits of any employee who is already under any pension scheme existing before the commencement of that Act and has over 3 years to retire shall (c) in the case of employees of the Public Service of the Federation, Federal Capital Territory or in the Private Sector, where the Scheme is funded, credit the Retirement Savings Accounts of the employees with any fund to which each employee is entitled and in the event of an insufficiency of funds to meet this liability the shortfall shall immediately become a debt of the relevant employer and shall have priority over any other claims.”
If there is any obligation under the Act that the Federal Government’s non-compliance as an employer has put to question the sincerity of the government to cater for the welfare of it workers; questioned the benefits of the 2004 pension reform to employees; and has brought untold hardship to retirees of the Federal Public Service, it is the issue of redeeming the retirement benefits bond. The irregular funding of the redemption fund with the CBN by the Federal Government is responsible for employees of the Federal Public Service to stay for years after retirement before being able to collect their retirement benefits.
Retirement Benefits Bonds are federal government bonds that mature on the date an employee, who owns the bond, retires. In respect of accrued pension rights, section 5(1)(a) of the Act provides that “in the case of employees of the public service of the federation where the scheme is unfunded, be recognised in the form of an amount acknowledged through the issuance of Federal Government Retirement Benefits Bonds by the Debt Management Office in favour of the employees and the bond issued under this sub-section shall be redeemed upon the retirement of the employee in accordance with Section 39 of this Act and the amount so redeemed shall be added to the balance of the retirement savings account of the employee and applied in accordance with the provisions of section 7 of this Act”.
The business and moral question staring the federal government and the Debt Management Office on the face is why and how is this bond different from other federal government bonds? The time for retired employees and unions in the public sector to seek a judicial answer to this question, is now.
Penalties for Non-compliance
Penalties for non-compliance with the provisions of the Act are also imbedded in the Act. Section 99(1) provides that: “A person who contravenes any of the provisions of this Act commits an offence and where no penalty is prescribed, shall be liable on conviction to a fine of not less than N250,000 or to a term of not less than one year imprisonment or to both fine and imprisonment.”
Section 99 (2) further provides that: “Any person or body who attempts to commit any offence specified in this Act commits an offence and is liable, on conviction, to the same punishment as is prescribed for the full offence in the Act.”
Offence by body Corporate
Section 103 statesthat: “Where an offence under this Act is committed by a body corporate, the body corporate or every (a) director, manager, secretary or other officers of the body corporate; (b) person who was purporting to act in such capacity mentioned in paragraph (a) of this section, who had knowledge or believed to have had knowledge of the commission of the offence and who did not exercise due diligence to ensure compliance with the Act shall be deemed to have committed the offence and shall be prosecuted in accordance with this Act.”
Power to make Regulations
Section 115 empowers PENCOM to make regulations, rules and guidelines as it deems necessary or expedient for giving full effect to the provisions of the Act. The contravention of any regulation issued pursuant to any of the provisions of the Act shall constitute and offence and shall be punishable as prescribed in the particular regulation”.
Conclusion
The Act places certain obligations upon the employer who are therefore expected by law to comply with such obligations. Non-compliance is unacceptable because it puts the future of the employee at risk. The Act provides PENCOM, the regulator, with powers to enforce compliance. Where there is non-compliance by the regulator, the Act also has provided regimes of sanctions for non-compliance. The non-compliance of the federal government, with some of the obligations placed upon it in the Act as the largest employer in the country, is the weakest link in the pension reform; the Contributory Pension Scheme; and the regulation of the pension industry.
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