The
new pension scheme is contributory, fully funded, privately third party custody
of the funds and assets based on individual accounts. It ensures that everyone who has worked
receives his or her retirement benefits as and when due. It covers all employees in the Public Service
of the Federation, the Federal Capital Territory and the Private Sector of the
economy. The existing pensioners,
employees who have three years or less to retire and the categories of persons
covered by the provisions of section 291 of the 1999 Constitution of the
Federal Republic of Nigeria are exempted from the new pension scheme. Any employee with more than three years to retire
comes under the new pension scheme.
The
new pension scheme is mandatory for all categories of employers and employees
covered under the Pension Reform Act.
There is no merger of private sector pension with that of the Public
Sector pension since the sources of funding are not the same. However, both are now being regulated under
same rules and regulations. The main
objectives of the Pension Reform Act 2004 are as follows:
·
To ensure that every person who worked in
either the Public Service of the Federation, Federal Capital Territory or Private
Sector receives his or her retirement benefits as and when due.
·
To assist improvident individuals by
ensuring that they save in order to cater for their livelihood during old age
and
·
To establish a uniform set of rules,
regulations and standards for the administration and payments of retirement
benefits for the Public Service of the Federation, Federal Capital Territory
and Private Sector.
This
is different from the old pension scheme because most of the old pension
schemes are not fully funded. Therefore,
upon retirement, there were no ready funds to pay the pensioners. The new pension scheme is fully funded. Money is contributed into individual
employee’s Retirement Savings Account [RSA] and when he or she retires, there
will be money in his or her RSA to pay his or her pension. Private sector pension schemes will be
allowed to continue provided if there is evidence to show that the pension
scheme is fully funded at all times, any shortfall made up within 90 days,
pension fund assets are segregated from the assets of the employer/company, the
pension fund assets are held by a licensed Custodian and the scheme is
specifically approved by the National Pension Commission [PenCom].
An
employee shall make monthly contributions of a minimum of 7.5% of the total of
his or monthly emoluments [that is, monthly basic salary, transport allowance
and housing allowance] into the RSA. The
employer also shall contribute a minimum of 7.5% of the employee’s monthly
emoluments towards the retirement benefits of the employee. However, an employer can make all the
contributions on behalf of the employee without making any deduction from the
employee’s salary except that such contribution by the employer shall not be
less than 15% of the monthly emoluments of the employee. Your contributions are just savings out of
your emoluments towards your old age and the employer’s contribution will only
increase such savings. Pension
contributions are paid directly to the PFC to be held on the order of the
PFA. A fully funded pension scheme
exists where pension funds and assets match pension liabilities at any given
time.
The
Retirement Savings Account [RSA] is similar to a bank account except that no
contributor can withdraw money from the RSA before his or her retirement. The PFA is required to invest the money and
issue statements of account at least once every quarter to the
contributor. Movement from one
employment to another does not affect pension under the new scheme. The Reform has removed the bottleneck
associated with transfer of service from one organization or sector to another,
especially with regard to qualification for pension and the sharing formula for
payment of pension as between employers.
When you change jobs, the RSA remains with the PFA of your choice for as
long as you want. You simply notify new
employer of the details of the PFA that manages your account and thereafter,
your contributions will be sent to the Custodian of the PFA.
Employee’s
right to accrued retirement benefits for the previous years he or she has been
in employment is guaranteed by the Pension Reform Act 2004. In the case of the Public Service of the
Federation and the Federal Capital Territory, where pension scheme was
unfunded, the right would be acknowledged through the issuance of a “Federal
Government Retirement Bond” to such employee.
The bond will be redeemable upon retirement of the employee. The Federal Government has established a
Retirement Benefits Bond Redemption Fund Account in the Central Bank of
Nigeria. The Federal Government is
already making a monthly payment into the Fund of an amount equal to 5% of the
total monthly wage bill payable to all employees of the Federal Government and
the Federal Capital Territory. Any
company operating a Defined Benefit Scheme must, in addition to satisfying
other conditions specified in the Act, open RSAs so that the pension funds can
be held by a Custodian.
In
the case of funded pension schemes in the public service of the Federation and
the private sector, employers shall undertake actuarial valuation of the
employee’s accrued benefits and credit the Retirement Savings Accounts [RSAs]
of the employees with such funds and in the event of any deficiency, the shortfall
shall become a debt and shall be treated with same priority as salaries
owed. The employer shall also issue a
written acknowledgement of the debt and take steps to meet the shortfall.
When
a PFA [Pension Fund Administrator] fails or is liquidated, the pension funds
and assets in the Retirement Savings Account [RSA] are kept by the PFC [Pension
Fund Custodian] and as such the liquidation of the PFA will not affect the
funds and assets. Besides, every PFA is
expected under the Pension Reform Act 2004 to maintain a statutory reserve fund
as contingency fund as may be determined by National Pension Commission. The Pension Reform Act 2004 allows any
employee to complain about any PFA to the National Pension Commission [PenCom].
The
Government cannot tamper with the pension funds in your RSA because the
Government cannot have access to the account.
Besides, the Government is primarily concerned with ensuring the safety
of the money in your RSA through the enforcement of strict rules and
regulations. The new pension scheme
entrenches the principles of transparency and accountability as reflected in
the reporting requirement of the PFAs and PFCs to the Contributor and the
National Pension Commission. An employee
has the right to choose who manages his RSA and the right to receive statements
of his account on quarterly basis with details of contributions made and
returns on investment.
Upon
retirement, an employee can withdraw a lump sum from the balance standing to
the credit of his or her RSA provided the balance after the withdrawal could
provide an annuity or fund monthly payments that would not be less than 50% of
his monthly pay as at the date of his or her retirement. However, an employer may choose to pay any
other severance benefits over and above the retirement benefits payable to the
employee subject to the terms and conditions of his or her employment. A programmed withdrawal is a method by which
the employee collects his or her retirement benefits in periodic sums spread
throughout the length of an estimated life span. While an annuity is an income purchase from
an approved life insurance company which provides monthly or quarterly income
to the retiree during his or her life time.
Where
an employee who has been contributing under the new pension scheme dies before
his or her retirement, the retirement benefits shall be paid to his or her
beneficiary under a Will or the Spouse and children of the deceased or in the
absence of a wife and child, to the recorded next-of-kin or any person
designated by him or her during his or her life time or in the absence of such
designation, to any person appointed by the Probate Registry as the
Administrator of the Estate of the deceased.
