PENSION REFORM ACT, 2014

PENSION REFORM ACT, 2014

The Pension Reform Act was signed into law by President Goodluck Jonathan on 1 July 2014. The new Pension Reform Act 2014 replaces the old Pension Reform Act of 2004 and takes immediate effect.

Key features are as follows:

Employers and Employees

·     Minimum total contribution into the Scheme is now 18%, up from the previous 15%.

·   Employers are required to contribute a minimum of 10% (previously 7.5%) of their employees’ monthly emoluments.

· Employees are required to contribute a minimum of 8% (previously 7.5%) the employees’ monthly emoluments.

·   Base for pension contribution calculation is the employees’ monthly emoluments, which cannot be less than the employees’ basic salary, transport and housing allowances. Previously, the base was only the basic salary, transport and housing allowances.

·  Employers with a minimum of 15 employees must operate the scheme. Previously the minimum threshold was 5 employees.

 Pension Fund Administrators and Custodians

· Pension funds may now be invested in specialist investment funds and other financial instruments as PenCom may approve from time to time.

·      Criminalisation of contravention of the provisions of the Act.

·      Imposition of fines and penalties on Pension Fund Administrators and Custodians for failing to meet their obligations to the pension contributors and for failing to comply with the provisions of the Act.

·     Imposition of a penalty of up to 3 times the amount or a minimum of 10 years imprisonment or both fine and imprisonment for persons convicted for misappropriating pension funds.

·     Refund of any amount misappropriated.

·      Possible additional penalty of forfeiture of property upon conviction for offence under the Act.

The Act takes immediate effect and employers need to make the requisite changes to their payroll to ensure full compliance.

It may be necessary to restructure staff compensation to manage the impact of the likely increase in staff cost.

  Additional Comments

1.  The Act compels organizations with more than 15 employees to comply and provides for voluntary participation by organizations with less than 3 employees. There is no provision for organizations with more than 3 but less than 15 employees. We assume the organizations and employees in this category may choose to participate.

 2.  It is unclear if organizations and employees that choose to participate voluntarily are bound to contribute up to the minimum rates, i.e. 10% and 8% respectively, or may contribute lower amounts.

3.   The Act is silent on whether employees of organizations that no longer have to contribute may request for a refund of all contributions under the old Act or whether their contributions are trapped until they meet the conditions for a payback under the Act.

      4 A recent guideline released by the Pencom on the pages of the Newspaper indicated that employers with less   than 15 but more than 3 must comply with the provisions of the Pensions Act 2014. This however, is contrary to the existing Section2(2) of the Act.

5.   Monthly emoluments mean total emoluments as may be defined in the employee's contract of employment but shall not be less than a total  sum of Basic salary, Housing allowance and Transport allowance" 

Olatunji is a Manager (International Tax & Advisory Services) with Saffron Professional Services(Member firm of Geneva Group International), Lagos, Nigeria.

E-mail:Oabdulrazaq@saffron-ng.com,Oabdulrazaq11@gmail.com