Of Pencom and the Challenge of Compliance


The Contributory Pension Scheme has been in place for 12 years, however, several employers of labour and their employees are yet to key into the scheme. Ebere Nwoji reports that enforcing compliance presents a major challenge for the National Pension Commission

The National Pension Commssion (PenCom), since its inception 12 years ago, has recorded a lot of achievements in its efforts to fulfill the objectives of adopting the Contributory Pension Scheme (CPS) by the federal government which among others are: To ensure that those who worked in either the public service of the federation, Federal Capital Territory or private sector receive their retirement benefits as at when due; To assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age as well as to establish 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 the private sector.

The Commission has also gone far in achieving its principal objective of establishment, which is to regulate, supervise and ensure effective administration of pension matters in Nigeria.

But having done these, the biggest challenge still staring on the face of the Commission has remained effective enforcement of the CPS among Nigerian employers especially private sector employers.
Indeed, the commission, still has a long way to go in this regard as the level of non compliance with the scheme among formal and informal sector employers is still very high.

Their non compliance in this regard is of two fold.
First, some employers fulfill the aspect of the law on opening of Retirement Savings Accounts for their employers but fail to remit the deducted salaries of the employees to their RSA.

The 2014 pension Reform Act, requires that employers should contribute 10 percent to the employees’ Retirement Savings Account (RSA) while deducting 8per cent from their salaries meaning that each month, a total of 18percent of each employee’s salary contibuted by him and his employers should be paid into his retirement savings accounts.

Unfortunately, many employers, not only default in paying their own 10 percent to the employees’ RSA, but also deduct their salaries and fail to remit same into the employees’ RSA.

The implication of this is that while PenCom is calculating the number of workers that have keyed into the scheme, it does not reflect in the quantum of savings as many employees have nothing in their Retirement Savings Accounts, though they were numbered among the contributors.

The second set of employees are those who within these 12 years, have not deemed it necessary to comply with the law as such, their employees have not been registered with any Pension Fund Administrator( PFA) therefore have nothing set aside for their retirement.

As earlier stated, this is more prevalent among private sector employers and has raised the question on what PenCom should do to get them comply with the law and secure better future for their employees.

The Commission, on its part is not ignorant of this set of employers who break the law as it had a few years ago, taken some steps to call them to order but this has not yielded the desired results.
For instance, in 2013, PenCom said it had sanctioned about 1,105 organisations for failing to open RSA for their employees.

The Commission, said it also issued caution letters to 487 firms for failing to comply with the provisions of the law, as well as imposed penalties on 618 erring firms during the period for the same offence.
Late last year, PenCom’s Director-General Mrs. Chinelo Anohu-Amazu, said she would instruct the law enforcement agents to prosecute employers who deduct the contributory pension from their employees’ salaries but fail to remit the deductions to the designated pension managers.

Describing the act as a criminal offence, the PenCom DG said the commission had devoted a department to this effect.
“Right now, even in PenCom, we have a whole department devoted to enforcement and compliance. We have also engaged recovery agents because the compliance is on many levels. Some people have made deductions from their salaries and have not remitted into their Retirement Savings Account (RSA). We are calling out on those people and we are going to work with the appropriate law enforcement agencies because it is a financial crime to take money out of an employee’s salary and does not remit it into his Retirement Savings Account”, the DG said.

She also noted that there were those who had not even complied with the Pension Act at all by opening a pension account adding that the commission would reach out to them.

She told State house Correspondents after a recent visit to President Muhammadu Buhari in Abuja that one of the commission’s priority this year was to ensure that every one, whether in a formal employment or not was brought under the scheme adding ensuring compliance with the Pension Act has remained a challenge to the commission.

A challenge indeed, but more challenging is the actual steps to take to ensure total compliance by Nigerian employers.
Apparently, between the year 2004 to 2016,any employer of labour who has not put in place pension scheme for his workers in accordance with the law does not want to do so and is therefore playing with the future of his workers and law of the nation. This therefore calls for a more decisive step by PenCom against such employers.

A critical look at the behaviour of private sector employers towards the future welfare of their workers shows that while only very few comply with the law majority do not.

A section of the Pension Reform Act, talks about group life insurance and contributory pension scheme which greater percentage of private sector employers do not comply with.

Section 9(3) of the Pension Reform Act (PRA) 2004 ammended in 2014 and Section 5.5 of the guidelines for Life Insurance Policy for employees, says that employers of labour covered by the PRA are required to submit copies of the Insurance Certificates and schedule of benefits to the National Pension Commission and Pension Fund Administrators (PFA) where the employees maintain their Retirement Savings Accounts.

The Act also requires that every employee should open a Retirement Savings Account (RSA) with his or her preferred Pension Fund Administrator (PFA). On monthly basis, the employer should from its purse, pay 10 percentage of the employee’s monthly emolument into that RSA for the benefit of the employee. In addition to what the employer contributes, the employee is also required to “sacrifice” 8per cent of his monthly emolument into that account.

The employee’s contribution is deducted from his monthly income by the employer and remitted into the RSA (along with the employer’s contribution) on a monthly basis. This therefore means that the account that has been opened by the employee should always contain both the employee’s contributions and what the employer has also contributed for him; together with the investment income generated on the fund so contributed.

The Act, gives a clear definition of what monthly emolument means for the purpose of computing the contributions. It says that “monthly emolument” is “a total sum of basic salary, housing allowance and transport allowance.”
An investment expert heading pension unit of one of the banks in Lagos who spoke to THISDAY on anonymous ground said although in the developed world, pension issue is also associated with a lot of controversy.
He said Nigerians need some level of force to get people obey the law.

But a critical look at the level of violation of the pension act by Nigerian employers and PenCom’s attitude towards disciplining them shows that the commission is yet to be hard on them therefore has given room for continued violation of the law.

This is despite the fact that the 2014 Pension Reform Act had provided tougher penalties that will serve as deterrence against mismanagement or diversion of pension funds assets under any guise.
The Act, recommends a 10-year imprisonment or fine of an amount equivalent to three-times the amount so mismanaged or diverted or both. In addition, the Act empowers the Attorney General of the Federation to initiate criminal proceedings against employers for persistent refusal to remit pension contributions, among many other items of reference.

In recent times, it is not certain how many of these employers, especially those that deduct employees’ salaries and fail to remit same to their RSA that the commission has dragged to court or taken to the Attorney General of the federation.

Industry observers said the commission was more active in taking steps against such employers in the years past than now, a situation which they attributed to the fact that perhaps the huge amount currently accruing as pension asset has made the commission to be mild in its actions against the defaulting employers.

Few years back, former president of Pension Operators Association of Nigeria (PenOp) Mr. Dave Uduanu had informed the media that recovery agents appointed by PenCom to go after companies and organisations registered under the Contributory Pension Scheme, which had failed to remit employees’ contributions to their various Pension Fund Administrators, visited 5,584 firms out of 15,750 firms identified as non-compliant with the law, and was able to make recoveries from 105 of the firms.

In the past two years, none of such efforts from the commission has been heard of despite the fact that violation of the law has been on the increase.
While PenCom is pursuing employers whose employees registered for the contributory pension scheme but who do not remit their contributions and those of their employees the question on people’s lips is what about the employers whose employees have not registered with any PFA?

Investigations show that their employees did not register with any PFA not because they don’t like pension but because given the nature of the contributory pension scheme, it is the employer that selects two or three PFAS among the existing ones and invite them to his company for his workers to choose among them whom to open account with.
But recent discoveries have shown that such employers do not even talk about pension let alone inviting PFAs for his staff to make their choice.

Such workers, having waited for too long without seeing anything have resolved not to put hope on any pension benefit at the end of their service.

PenCom should equally fish out such employers and deal decisively with them and compel them to comply with the law.
There is also a new trend among workers whose employers do not remit their deductions. The workers have now chosen not to service their RSA account by instructing their employers not to deduct anything from their salary. One of such workers told THISDAY that he has chosen that option because it does not make sense that his employer would deduct 8 percent of his salary every month when he knows that at the end of the day, it will not be remitted to his account. He said he has chosen the option of having his salary in full and know that he spent it by himself instead of leaving it in the pocket of his employer.

This goes to show the enormous task still waiting for PenCom in its effort to ensure the smooth running of the contributory pension scheme.
On the other hand, PenCom, had advised such employees to report their case to the commission, to enable it fight for their interest.

It is left for this category of employees, to alert the commission through any channel that will not jeopardise their work to enable the commission act in their interest.