The objective of pension is to provide post-retirement monetary benefits for employees. In an ideal organization, an employer offers a pension plan to each employee by setting aside a certain amount from their gross income, and that money grows over the years.Often, the employee has the choice of taking either a lump sum on retirement or access only 25% of the funds when leaving the company before retirement (usually four months of being unemployed) or may be inheritable by a surviving spouse or children.
Prior to the enactment of the Pension Reform Act2004, Nigeria operated a system known as the Defined Benefit Pension Scheme. The scheme was referred to as Pay As You Go (PAYG) and it was poorly funded, non-contributory and mainly dependent on budgetary allocations. Under this Scheme, the amount an employee is paid as pension is majorly dependent on the number of years of service and grade level at retirement. It was primarily operational in the public sector with minimal compliance from the private sector due to poor structural frameworks and regulatory institutions. Given this circumstance, the government was faced with the predicament of massive pension debts that had accumulated over time, and only fewindividuals were able to access the pension funds afteryears of waiting and spending hours on a long queue.
Under the PRA 2004, only judicial officers were exempted from the Pension Contribution Scheme. However, this was amended by the Pension Reform (Amendment) Act 2011 that included members of the Armed Forces, the intelligence and secret services of the Federation under Section 217 of the Constitution. In accordance with the PRA 2004, both the employer and the employee must contribute a minimum of 7.5 percent of their combined monthly emoluments, and in cases where the employer assumes entire responsibility for the contributions, it shall be liable to contribute not less than 15 percent.
On July 1,2014, President Jonathan signed the Pension Reform Act 2014. The Act was enacted to replace the 2004 Act in a bid to regulate the administration of the uniform contributory pension scheme for both the public and private sectors in Nigeria thereby ensuring easy access to retirement benefits as and when due. Under Section 4(1) of the PRA 2014, an employer is under obligation to contribute a minimum of 10 percent, while the employee is entitled to contribute at least 8 percent of his monthly emolument. Where, however, the employer wishes to bear full responsibility of the Scheme, it shall contribute not less than 20 percent of the employee’s monthly emoluments.
An employer is under a duty and subject to guidelines issued by Pension Commission to request a Pension Fund Administrator to open a nominal Retirement Savings Account where an employee fails to open one within a period of six months after assumption of duty under Section 11(5) of the PRA 2014. In addition, every employer is expected to maintain a Group Life Insurance in favor of each employee for a minimum of three times the employee’s annual total emoluments.
Under Section 5(1) of the PRA 2014, the categories of persons mentioned in section 291 of the Constitution of the Federal Republic of Nigeria 1999 as well as members of the Armed forces, the intelligence and secret services of the Federation are exempt from the contributory pension scheme.
Conclusively, pensions revolve around the retirement benefits of an employee. The PRA 2014 undoubtedly offers numerous benefits to employees as they are the bedrock of pensions. However, the purpose of this Act may be defeated if not properly enforced, especially in the private sector. After retirement, aged individuals may resort to being entirely dependent on their offspring’s and as a result be a burden to them while others may be subject to abject poverty.