The Pension Reform Act 2014 (PRA 2014) confers certain rights on contributors which provide some level of protection and comfort to them and their loved ones during their working years, and upon retirement. These rights cover all employees in the Public Service of the Federation, Federal Capital Territory, and States that have implemented the Contributory Pension Scheme (CPS), as well as the private sector. It is therefore important for contributors to know what some of these rights are, in order to be guided accordingly.
Right to Choose a Pension Fund Administrator
The contributor’s journey through the CPS begins with the opening of a Retirement Savings Account (RSA) with a Pension Fund Administrator (PFA). Every individual under this Act has a right to choose a PFA, without any interference by their employer or by any third party and is required by the PRA 2014 to register with a PFA, obtain a Personal Identification Number (PIN) for their RSA and provide the details to their employer to commence remittance of their pension contributions.
Right to Timely Complete Remittance of Pension Contributions
The employer is required to deduct at source from the salary of the employee, an amount comprising their pension contribution, and remit the same along with the employer portion to the Pension Fund Custodian specified by the Pension Fund Administrator of the employee, not later than seven working days from the date salaries are paid. The minimum rate of contribution is 18% of the employee’s monthly emoluments where 10% is contributed by the employer and 8% is contributed by the employee. The constituent of monthly emoluments is as may be defined in the employee’s contract of employment, but should not be less than the total sum of basic salary, housing, and transport allowances. For employees whose salaries are not classified into basic, transport, and housing allowances, the pension contributions should be based on the gross salary payable.
Right to Transfer RSA from One PFA to another
Contributors have the right to determine which PFA manages their pension contributions and retirement benefits. Therefore, if a contributor feels the need to transfer their RSA from one PFA to another PFA, they can do so, though, no more than once a year. This is pursuant to Section 13 of the PRA 2014. In order to facilitate its implementation, the National Pension Commission (PenCom) deployed the RTS on November 20, 2020. The RTS is a fully automated, efficient, and transparent process that has pre-defined timelines, ensuring the hassle-free movement of RSAs between PFAs. The transfer process is free of charge and the contributor has the liberty to choose the PFA they prefer for this purpose.
Right to Earn Penalty Charge Of 2% on Late Remittance of Pension Contributions
Where an employer fails to deduct or remit the contributions within the stipulated time frame of 7 working days from the day salaries are paid, they shall in addition to making the remittances already due, be liable to a penalty, which shall not be less than 2 percent of the total contributions that remain unpaid for each month or part of each month the default continues. This amount of the penalty will be recovered as a debt owed and paid into the employee’s RSA.
Right to Receive RSA Statement of Account
The contributor has the right to receive an RSA statement from their PFA at least once every quarter. The RSA statement has some minimum information and disclosure requirements mandated by the Commission. PFAs may also send RSA balances via text messages and the contributor has the option of checking the performance of their RSA online or by physically visiting the nearest branch of their PFA to obtain a hard copy of the RSA statement.
Right to Receive Up To 25% of RSA Balance Upon Temporary Loss Of Employment
In the event of temporary loss of employment, a contributor may fall back on their RSA balance to tide them over till they are able to secure another job. This is in line with Section 7 (2) of the PRA 2014 which states that “where an employee voluntarily retires, disengages or is disengaged from employment as provided for under section 16 (2) and (5) of the PRA 2014, the employee may with the approval of the National Pension Commission (PenCom), withdraw an amount of money not exceeding 25% of the total amount credited to their retirement savings account. Such withdrawals can be made if the employee is unable to secure another employment after 4 months of such retirement or cessation of employment.
Right to Insurance Cover
All employees in the Public Service of the Federation, Federal Capital Territory, and States that have implemented the Contributory Pension Scheme as well as the private sector, have the right under Section 4(5) of the PRA 2014 to have a Life Insurance policy taken on their behalf by their employers for an insured amount of not less than three times their annual total emolument.” The annual total emolument is the total sum of basic salary and all allowances payable as their remuneration for one year, as may be provided under the salary structure or terms and conditions of his/her employment. The policy which ensures that dependents of a deceased employee receive three times his total annual emolument is meant to cushion the effect of death on a deceased worker’s family.
Right to Choose Mode of Exit from the CPS
Upon retirement, the contributor has the right to choose the mode of accessing their retirement benefits. The PFA is to provide information in this regard.
The responsibilities of the contributors are to ensure that they,
- Provide updates to their PFA in cases of change of employment, personal details, or contact information.
- Ensure that they receive their quarterly RSA statements from their PFA and review them in order to identify any irregularities.
- Confirm that their employer is making timely, complete monthly remittances to their RSA i.e. both employee and employer portion as stipulated by the PRA 2014.
- Verify that their employer has subscribed to a Group Life Insurance policy for them and the premium is being paid annually, consistent with relevant laws
It is in the interest of employees covered to ensure that the aforementioned are implemented and report any breaches via PenCom’s reporting channels in order to have them addressed.
