PenCom Insight: Recovering unremitted pension contributions and the task ahead

The National Pension Commission (PenCom) ensures the recovery of unremitted pension contributions with penalties from employers that fail to remit pension contributions of their employees as and when due.

The Pension Reform Act, 2014 (PRA 2014) provides that every eligible employee shall maintain a retirement savings account (RSA) with any pension fund administrator (PFA) of their choice. Once an RSA is opened, the employee must inform their employer by submitting the RSA personal identification number (PIN) issued by the PFA.

Subsequently, the employer is required to deduct the monthly contributions of the employee, not later than seven working days from the day salary is paid, and remit an amount comprising 8 percent in respect of the employee and 10 percent employer contribution to the pension fund custodian (PFC) specified by the PFA of the employee.

It should be noted, however, that the 18 percent pension total monthly pension contribution is a prescribed minimum, as the employer may elect to increase the rate or bear the whole burden on behalf of the employee.

Furthermore, the PRA 2014 states that an employer who fails to deduct or remit the contributions within the stipulated time frame of 7 working days from the day salaries are paid 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. The penalty amount shall be recovered as a debt owed and paid into the employee’s RSA.

The recovery of outstanding pension contributions by appointed recovery agents (RAs) commenced in June 2012. There are 28 RAs engaged currently by the commission as of May 2023.

The exercise set out to achieve, amongst others, the recovery of all unremitted pension contributions of employees with a penalty, to ensure that affected employees do not lose any income that they would have earned from the investment of the funds, secure full compliance of organisations with the PRA 2014, and also, reduce complaints of non-remittance of pension contributions by employees, thereby boosting confidence and acceptability of the contributory pension scheme (CPS).

The commission mandates recovery agents to follow up with the defaulting employers to ensure remittances of outstanding pension contributions.

The recovery process requires the recovery agent to diligently follow the outlined steps, which commences with obtaining a list of assigned defaulting employers from PenCom, getting letters of introduction from the commission to the employer introducing the RA, and requesting the employer to cooperate with the RA for a review of pension records with the organisation’s human resources department to determine liabilities and finally serving demand notices to employers to remit outstanding pension liabilities plus penalties.

Evidence of payments is obtained by the RAs and forwarded to the commission for onward confirmation by the PFCs.

It is pertinent to note that the principal contributions are remitted along with the penalties recovered and paid into employees’ RSAs to compensate for the accruable income from investment of pension funds lost due to non or late employer remittances. PenCom and PFAs bear the recovery cost due to RAs. Therefore, the recovery of pension contributions is at no cost to RSA holders.

The recovery of pension contributions is an ongoing process, and the commission has substantially recovered both principal contributions and applicable penalties from employers. For instance, during the first quarter of 2023, N384.28 million, comprising contributions of N193.06 million and penalties of N191.22 million, was recovered from 34 defaulting employers.

Meanwhile, from the commencement of the recovery exercise in June 2012 to March 31, 2023, the commission has recovered N24.53 billion (contributions of N12.44 billion and penalties of N12.09 billion) from defaulting employers.

PenCom also prosecutes recalcitrant employers who persistently default on the remittance of pension contributions.

In conclusion, PenCom encourages employees to report employers who are not remitting pension contributions or are not paying the correct rates (10 percent employer and 8 percent employee) as specified in the PRA 2014.