Pension Insight: CPS — private sector compliance surges in first half of 2024

The National Pension Commission (PenCom) issued pension clearance certificates (PCCs) to 30,728 organisations that applied and were confirmed to have complied with the contributory pension scheme (CPS) requirements in the first half of 2024.

This represents a 43.62 percent increase or 9,333 more PCCs, compared to the 21,395 PCCs issued in the first half of 2023.

This surge indicates a significant rise in private sector compliance with the CPS. The 30,728 PCCs issued from January to June 2024 not only exceeded the total of 30,293 PCCs issued throughout 2023 but also surpassed the 26,556 PCCs issued in 2022.

It is important to note that each PCC is valid until December 31 of the year it is obtained, regardless of the issuance date. Therefore, all PCCs issued in 2024 will expire on 31 December 2024.

PenCom commenced the issuance of PCC to organisations in 2012 in line with the Pension Reform Act, 2014 (PRA, 2014), which mandates all organisations with at least three employees to participate in the CPS.

The PCC is evidence of compliance with the PRA 2014 and serves as a prerequisite for all suppliers, contractors, or consultants soliciting any contract or business from the federal government’s ministries, departments, and agencies (MDAs). Accordingly, PenCom issues PCCs to organisations that apply and have fully complied with the requirements.

To qualify for a PCC, the employer must ensure that its employees open retirement savings accounts (RSAs) with any pension fund administrator (PFA) of their choice. Employers must also remit the employer and employee monthly pension contributions to the pension fund custodians (PFCs) no later than seven working days from the payment date of salaries.

Furthermore, employers with pension schemes which existed before the CPS must transfer pension funds and assets in their custody to licensed pension operators. Finally, employers must provide their staff with a group life insurance policy (GLI) covering at least three times the annual total emoluments of the employees.

REQUIREMENTS FOR THE PCC

Employers wishing to obtain PCCs are required to submit their application with the following documents:

1.  Certified list of employees of the organisation as at the end of the last fiscal year. The certification should be done with an authorised official stamp of the applicant organisation.
2. Certified rate of monthly pension contributions (specifying employer and employee rates). The rates relating to the monthly emoluments are:
3. a) Minimum of 10 percent by the employer; and
4. b) Minimum of 8 percent by the employee.

iii.     Evidence of remittance of monthly pension contributions for all employees as follows:

1. For the last three fiscal years for organisations that were in existence for that period and have three or more staff.
2. For organisations that have not been in existence for the last three fiscal years, from the date of incorporation/registration/licensing to the last fiscal year.
3. Evidence of remittance of all outstanding pension contributions and penalties (for late remittance).
4. Evidence of transfer of pension fund and assets held prior to the commencement of the CPS to a licensed pension fund operator. This is only applicable to organisations that had pension arrangements or were in custody of pension assets before June 2004.
5. Evidence of current group life insurance policy procured for the staff of the organisation specifying the number of employees covered and the sum assured.

ISSUES TO NOTE IN THE APPLICATION FOR PCCs

The processing of PCC applications as designed by PenCom is straightforward and transparent. Applications are processed within seven working days, provided that all requirements are met and requested documents are provided.

Some of the noted deficiencies in the submissions by organisations include the following: under-remittance of contributions, non-provision of group life insurance for at least three times the total annual emolument of employees, understating the number of employees and remittance of outstanding pension contributions.

In the event of any deficiency, a notification is forwarded to the applicant for remedial action before the issuance of the PCC. PenCom, in a general notice to all employers published in September 2023, warned employers against using third parties to get the PCC, as employers are encouraged to apply directly to avoid any hitches. It is important to emphasise that the PCC is issued to the applicant organisation at no cost. PenCom is not paid any amount whatsoever. The employer is only required to remit employee pension contributions into their RSAs.

A list of organisations that were issued the PCC is uploaded on the PenCom website to facilitate verification by interested parties. Consequently, any certificate not found on the website is invalid, as the list is updated daily. There is also an interface through which the Bureau of Public Procurement (BPP) verifies the PCCs of organisations as PenCom feeds BPP the information daily.

PenCom has observed a notable increase in private sector compliance with the CPS, reflecting the commission’s effective and efficient regulation and supervision of the pension industry. This trend underscores the success of PenCom’s efforts in fostering a compliant and robust pension system.