‘Increase employer’s 10% contribution, pay additional benefits’ — PenCom lists ways to boost retirement earnings

The National Pension Commission (PenCom) has listed ways that retirement benefits can be increased for employees in private and public organisations.

In a statement on Thursday, PenCom said in providing a stable, timely, predictable, and adequate source of retirement income for employees in the public and private sectors, the commission had introduced the contributory pension scheme (CPS).

The CPS was an initiative culminating in the enactment of the Pension Reform Act of 2004 (PRA 2004). But 10 years later, it was repealed and replaced with the Pension Reform Act 2014 (PRA 2014).

The commission, however, said despite appraisals of the success of the initiative, there have been complaints about low pensions, especially from retirees in the public sector.

This is because of the relatively low pay compared to the private sector, PenCom explained.

In addressing the complaints, the commission said “the CPS provides a comprehensive framework that allows employers and employees to plan and save towards pensions”.

PenCom, therefore, highlighted solutions that both parties could adopt to improve the adequacy of pensions for retirees, especially those in public service who are disproportionately affected by low pay.

The agency urged employers to use the PRA 2014 to increase the pensions of their retired employees.

Here are the recognised ways under the PRA 2014 that pensions can be increased.

UPWARD REVIEW OF EMPLOYER’S 10 PERCENT CONTRIBUTION 

A major way for employees to enjoy a possible increase in pensions is for employers to upwardly review the stipulated 10 percent contributions.

According to PenCom, the PRA 2014 provides a minimum of 18 percent of the employee’s monthly emolument to be deducted and paid by the employer to the retirement savings account (RSA) opened by the employee.

“The 18 percent contribution rate stipulated under section 4 (1) of the PRA 2014 is only a legal minimum and is shared between the employer and the employee in the ratio of 10 percent and 8 percent, respectively,” the commission explained.

“The two parties can increase the rate of pension contributions through a collective agreement between them, which will improve employees’ pensions when they retire.”

PenCom furthermore said an employer may elect to bear the entire burden of pension contributions for its employees, and in doing so, the employer is not limited to the statutory minimum of 10 percent.”

IMPLEMENTATION OF PENSION INCREASES FOR CPS PARTICIPANTS 

For retirees in the public sector, the agency said a seasonal increase in the funds released by the federal government for pensioners equates an increase in pension earnings.

In the statement, PenCom explained that the federal government had released funds for the settlement of pension increases to retirees under the defined benefits scheme (DBS) at specific times.

According to the bureau, 15 percent of the DBS fund was released in 2007. In 2010, 33 percent was disbursed; while a ‘consequential adjustment’ was made in and 2019.

“Meanwhile, the FGN did not provide funds to pay pension increases for eligible retirees under the CPS. federal government of Nigeria (FGN) employees who were employed before June 2004 are entitled to accrued pension rights,” PenCom explained.

“Accrued pension rights refer to the retirement benefits earned by FGN employees under the defined benefits pension scheme before the introduction of the CPS in 2004.

“It follows, therefore, that every time pensions are increased for FGN retirees under the DBS, the pensions of retirees under the CPS that have accrued rights should also be increased.”

The commission added that implementing pension increases would substantially address the issue of low pensions for federal government retirees under the CPS who have accrued rights.

INSTITUTION OF OTHER SOCIAL SECURITY BENEFITS

Additionally, Pencom said the absence of other social security benefits in Nigeria is partly responsible for the clamour by retirees for exemption from the CPS.

The agency said Nigeria needs to institute zero pillar pensions in the form of a social security benefit, which is recognised and provided for under section 16 (2) (d) of the Constitution of the Federal Republic of Nigeria 1999 (as amended).

“A social security benefits system would go a long way to alleviate the sufferings of all Nigerians, irrespective of whether or not they had formal employment. It will also augment earnings from occupational pensions,” PenCom said.

“Exempting a group or an organisation from the CPS will not address the issue of inadequate pensions. On the contrary, it will put the whole system in jeopardy.

“Accordingly, the pension sector reform must be kept on track and expanded through the diligent implementation of the CPS.”

The commission said providing additional retirement benefits can have several gains for both employers and employees.

“It can attract and retain talent, enhance employee morale and loyalty, and improve an organisation’s reputation,” it said.