What you should know about contributory pension

In Nigeria today, there is hardly a salary earner who doesn’t get a deduction for monthly pension contribution though to many, it has no significant meaning. This is however not the right attitude for anyone planning for life after service.

Pension is a regular payment made during a person’s retirement from an investment fund or account to which that person and their employer contributed funds during their time as an active member of the workforce.

It is a Contributory Pension Scheme in which the employers and employees contribute minimum percentages of the employees’ salary to the scheme every month and it is governed by the Pension Reform Act 2014 (PRA) through a Pension Fund Administrator (PFA) which is a company licensed by the National Pension Commission for the sole purpose of managing and administering pension funds contributed into the RSAs.

There is also a Pension Fund Custodian (PFC) – a company licensed by the National Pension Commission for the sole purpose of keeping safe custody of pension assets on trust on behalf of contributors and there must be a Retirement Savings Account (RSA), an account opened by an employee with a Pension Fund Administrator (PFA) of his/her choice into which all pension contributions and returns on investment are remitted. It is also from the RSA that retirement and death benefits are paid.

There is a difference between a PFA and a PFC. The PFA manages and invests the pension funds on behalf of contributors while the PFC keeps the pension funds and assets in safe custody and carries out transactions on behalf of the PFA.

The PRA 2004 makes provisions to protect employees even when they change jobs. The move will not affect their contributions; the only requirement is for the employee to give the new employer the existing RSA details into which payment of subsequent monthly pension contributions would continue.

And when employers fail in the remittance of pension, the law stipulates that such an employer will in addition to making the remittance already due, be liable to a penalty to be stipulated by the commission, which will be paid to the employees, provided that the penalty shall not be less than two percent of the total contribution that remains unpaid for each month while the default continues.

In the case of job loss, employees will have access to a maximum of 25 percent of the monies in the RSA if the individual is unable to obtain a new job within four months and it the pension can only be assessed after you retire or attain the age of 50 years.

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