The Need for Review of Pension Reform Act



THE pension reform carried out in Nigeria in 2004, brought about the enactment of the Pension Reform Act 2004, which introduced the Contributory Pension Scheme (CPS). Ten years down the line, in 2014, the Pension Reform Act 2004 was repealed and replaced with the Pension Reform Act 2014. The National Pension Commission (PENCOM) has now commenced actions for the review of the Act.

PENCOM has already signified this intention by contacting critical stakeholders in the pension industry, among them, employers, employees and operators in the industry for their inputs into the review. The Nigeria Employers Consultative Association (NECA) is the umbrella body of employers in the organised private sector while the Nigeria Labour Congress (NLC) and the Trade Union Congress of Nigeria (TUC) are the labour centres to which all trade unions in the country that organise workers in both the public and private sectors are affiliated. NECA, NLC and TUC are all represented in the Board of PENCOM.

The need for review

There is no law that is perfect. Therefore laws are from time to time subjected to reviews with a view to correcting errors or additions and removals. The Act has been found to contain some typographic errors, misrepresentations and anomalies that need to be corrected. Moreover, there have been agitations especially from the contributors, who are owners of the scheme established under the Act, for the review of certain provisions in the Act.

Consequently, the Commission has to be praised for being bold enough to have commenced the process of the review of the Act. Some agencies of government shy away from bringing their enabling laws out for public review because they fear the outcome of such reviews. This action of the Commission portrays its officials as having no other interest in the law, other than having a good law for the overall interest of the contributors and the industry at large.

Provisions likely to be reviewed

Stakeholders are expected to come up with areas that they want to be reviewed. As it is the case with amendments of other laws, the positions of the different stakeholders are going to be subjected to critical analyses by other stakeholders and  the National Assembly that has the final decision, haven been guided by the positions of all stakeholders. One will therefore not want to pre-empt or speculate on what they will be bringing to the table.

Non-compliance greatest challenge to implementation

As germane and important as the reasons for the review of the Act are, to employees who are the principal beneficiaries of the review, the review is not as critical to them and the labour movement as the issue of non-compliance with some provisions of the Act. To them, if the current provisions of the Act are not being complied with, there is nothing to guarantee that any new provisions will be complied with.

Provisions not being complied with

Below are critical provisions of the Act which employers are either not complying with or are partially complying with and for what they are worth, it bears repetition and that’s what we are doing here.

Rates of contributions

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 emoluments. The rates are with effect from 25th July, 2014. The previous rates were seven and a half percent 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 her employees thereby not complying with the provisions of the Act.

One of the concerns of employees with regard to the CPS is its inadequacy. The reason for the review of the rates of contribution was with a view to increasing the pension in the long run.

Group Life Insurance Policy

Section 4(5) of the Act provides that in addition to the rates specified in subsection (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.

Section 8(1) provides that where an employee dies, his entitlements under the Life Insurance Policy maintained under Section 4(5) of this Act shall be paid by an underwriter to the named beneficiary in line with section 57 of the Insurance Act. Employers are avoiding the implementation of this provision. As a pre-emptive measure to take care of evasion, subsection (6) 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.

In a proactive action aimed at enforcing compliance, PENCOM appointed Recovery Agents to conduct regular checks on employers including recovering unremitted contributions by employers. Unfortunately, these agents have only succeeded to enforce compliance on employers in the private sector. Although the federal government is complying with this provision, the delay in paying premium for the group life policy is responsible for the delays in the payment of benefits.

Timely remittance of contribution into RSAs

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. Subsection 6 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 PENCOM.

Non-compliance with the above provisions is a fraudulent act against the employee by the employer. The amount deducted immediately becomes 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 to generate adequate retirement benefit for the employee.

Unfortunately, all employers, federal, states and those in 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 among them, being those that deduct and remit only employees contributions without contributing.

The agents engaged by PENCOM to monitor compliance, are doing so in the private sector.  So far PENCOM has been able to recover 16.37 billion outstanding pension contributions and penalties from defaulting employers from inception of the CPS in 2004 to September 2019.

Review of accrued rights

Section 15(4) provides that the accrued pension rights and entitlements of employees of the public service of the federation as provided for under subsection (1) shall be reviewed by the federal government from time to time in line with the provisions of Section 17(3) of the Constitution of the Federal Republic of Nigeria 1999 (as amended), provided that the variation so derived from the salary reviews shall be provided by the federal government and credited directly into the RSA of individual retirees. The provisions in section 15(4) have never been complied with by the Federal Government.

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 in 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 subsection 5 that the amount in the Redemption Fund shall be used by the CBN, as prescribed by the Commission, 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 RSAs 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 its 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, the owner of 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 subsection 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.

The good news is that on Friday 14th August, 2020, the federal government released the sum of 14.96 billion naira for the payment of Accrued Rights of employees who retired in the months of June, July, August and September 2019. Employees who retired from October to date are still being owed until the federal government makes another batch payment.

Pension Protection Fund

Section 82 provides that PENCOM shall establish and maintain a fund to be known as the Pension Protection Fund for the benefits of eligible pensioners covered by any pension scheme established, approved or recognised under the Act. The Pension Protection Fund shall be funded by the federal government, PENCOM and licensed pension operators, including the income accumulated from the investment of the Fund.

Subsection (3) provides that PENCOM shall utilise the Pension Protection Fund for the funding of the minimum guaranteed pension and the payment of compensation to eligible pensioners for shortfall or financial losses arising from investment activities, etc. The provisions of section 84 on minimum guaranteed pension are yet to be implemented.

Penalties for Non-compliance

Penalties for non-compliance with the provisions of the Act are imbedded in various sections of the Act. However, section 99(1) provides the omnibus penalty for non-compliance with any provision of the Act. The subsection 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

Officials of any organisation covered by the Act are personally liable for non-compliance by their organisations with any obligation imposed on the organisation, as 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 proceeded against in accordance with this Act”.


Non-compliance with the provisions of the Pension Reform Act 2014 by employers is the greatest challenge facing the CPS. Federal government’s non-compliance with the obligations the Act places upon it as an employer has put a dent on the pension reform; questioned the benefits of the reform to employees and no doubt, has placed a burden on the regulator.

For effective regulation, there cannot be two different sets of rules or frameworks in regulating the industry, one for the public sector and another for the private sector. Any employer who chooses to comply with the provisions of the law only when it is convenient for it cannot be said to be complying with the law. More so, the burden of non-compliance weighs heavily on the lives and welfare of its employees and places a moral burden on the regulator who reports to him.

Ivor Takor mni, can be reached directly for comments and reactions via Email: [email protected]; WhatsApp: 2348037861900. Comments and observations can also be made through the interactive platform at the bottom of this page.


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