ABC OF PENSION REFORM ACT 2014

Former President Goodluck Jonathan signing into law the Pension Reform Act 2014.

INTRODUCTION

The passage of the Pension Reform Act 2014 (PRA 2014) by the National Assembly and its subsequent assent by former President Goodluck Jonathan on July 1 2014, effectively repealed the Pension Reform Act 2004. The new Act has consolidated the gains of the pension sector and addresses some observed lapses in the implementation of the 2004 Act. The expectation is that the new Act will enhance the protection of the pension assets and strengthen the regulatory and enforcement capacity of the Commission, expand the coverage of the Contributory Pension Scheme and increase the rate of contributions of employers and employees. It is also expected, under the legislation, that the pension funds will become a catalyst for the development of the nation, particularly in the area of infrastructure. It has therefore become necessary to examine some compelling features/highlights of the Pension Reform Act 2014.

Increase in the Rate of Contribution

Unlike in the repealed law, which stipulated that the minimum rate of contribution be 15% (7.5% by the employee and 7.5% by the employer) of the employee's monthly emoluments, the Pension Reform Act 2014 reviewed upwards, the minimum rate of contribution to 18% (8% by the employee and 10% by the employer) of the employee's monthly emoluments. It is hoped that with the upward review, the employees' contributions will increase with attendant enhancement of the retirement benefits.

Restructuring of the system of pension administration under the Defined Benefits Scheme (Pay-As-You-Go)

The new legislation made provision for the Pension Transition Arrangement Directorate (PTAD) to ensure greater efficiency and accountability in the administration of the Defined Benefits Scheme which had in the past exposed pensioners who retired under it to untold hardship. This Department which is supervised by the Commission will ensure that pension benefits under the Defined Benefits Scheme are paid directly into pensioners' bank accounts.

Stiffer Sanctions and Penalties for Infractions

In the past, those who committed offences relating to misappropriation of pension funds got away with light penalties. Under the new legislation, a Pension Fund Administrator or Pension Fund Custodian or person or body who misappropriates or diverts pension funds is liable on conviction to a fine of an amount equal to three times the amount misappropriated or diverted or to a term not less than 10 years imprisonment or to both fine and imprisonment. In addition to the penalty any, person or body so convicted should refund the amount so misappropriated or diverted. There is also a provision in the new Act for a person so convicted, in addition to any punishment which the court may impose in respect of the offence, to forfeit to the Federal Government of Nigeria any property, asset or fund with accrued interest, or the proceed of any unlawful activity under this Act.

Eligibility for participation in the Contributory Pension Scheme

Unlike the repealed legislation which stipulated a minimum of 5(five) staff, a private firm with up to 3 (three) employees is now subject to the Scheme under S.2 of the Pension Reform Act2014. It further provides for the entitlement of employees of organizations with less than three employees as well as self-employed persons, to participate under the Contributory Pension Scheme. This thus aids more people to save towards their retirement in the long run.

Provision for Access to 25% of Funds for Temporary Loss of Employment

The enactment of the new Pension Reform Act brings forth the possibility of an individual to withdraw not more than 25% of the total amount of money from his Retirement Savings Account(RSA) within four months of being willfully or otherwise disengaged from his previous employment. This is however subject to approval by the Commission. This provision made under Ss.16 and 7 of the Act, could go a long way in ensuring the well-being of an individual till he finds another employment.

All New Employees to be covered by the Contributory Pension Scheme

New employees of organizations that operated a Closed Pension Fund Administrator system are now required to open a Retirement Savings Account under the Contributory Pension Scheme, by virtue of S. 51 of the Pension Reform Act 2014.This is a change from the old act of 2004, which did not provide for this, but instead allowed both old and new employees of such organizations to participate in existing schemes and closed schemes.

Expansion of Investible Instruments for Pension Funds

The Pension Reform Act 2014 has made provision that allows contributors seeking to own their primary homes, to apply part of their Retirement Savings Account balances as equity contributors for residential mortgage, subject to the Guidelines issued by the Commission.