CPS: PenCom Empowers Employees to Report Non-compliance

The Pension Reform Act 2014 (PRA 2014) provides that every eligible employee shall maintain a Retirement Savings Account (RSA) with any PFA of choice. Once an RSA is opened, it is the responsibility of the employee to inform the employer by submitting the RSA Personal Identification Number (PIN) issued by the PFA. Subsequently, the employer is required to remit an amount comprising at least eight percent employee and 10 percent employer contribution to the Pension Fund Custodian (PFC) specified by the PFA of the employee. Additionally, the PRA 2014 mandates employers to remit pension contributions not later than seven working days from the day salaries are paid to employees.

Employers failing to or delaying in remitting their employees’ pension contributions are flouting the PRA 2014. The National Pension Commission (PenCom) has put in place a mechanism to recover pension liabilities, including penalties, from defaulting employers.

PenCom encourages employees to report their employers, who are not remitting pension contributions into their Retirement Savings Accounts (RSAs) as required by the PRA 2014. PenCom allows employees to anonymously report their defaulting employers. When such complaints are received, the employers are compelled to remit the principal contributions with penalties.

Meanwhile, in 2023, PenCom recovered N1.47 billion from defaulting employers. The sum of N864.69 million was recovered as principal contributions, while N608.90 million was the penalty paid by employers for the non-timely remittance of the contributions. PenCom is taking legal steps to recover pension contributions from recalcitrant employers. Cumulatively, from June 2012 when the recovery exercise commenced to 31 December 2023, PenCom has recovered N25.45 billion from defaulting employers, being N12.93 billion principal contributions and N12.52 billion penalties.

What the PRA 2014 says

Section 11(6) of the PRA 2014 states that an employer who fails to deduct or remit the contributions within the stipulated time frame of seven working days from the day salaries are paid shall, in addition to making the remittances already due, be liable to a penalty. This penalty 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 amount of the penalty shall be recovered as a debt owed and paid into the employee’s RSA. Employers should be mindful that promptly remitting pension contributions is more cost-effective than risking penalties due to non-compliance or delayed remittance, as such penalties can be substantial.

In addition, the PRA 2014 empowers PenCom to authorise the examination, inspection, or investigation of an employer relating to pension funds or assets. This provision ensures compliance by employers and mitigates complaints from employees and PFAs on non-remittance of pension contributions by some employers.

Reporting Non-Remittance of Pension

Employees have a role to play to ensure that they get their pension in line with the PRA 2014. PenCom strongly encourages employees to report instances of pension contribution default. The affected employee is required to provide details of the employer and history of the default, including attaching an RSA statement showing gaps in remittances. This comprehensive information will facilitate a detailed investigation.

Recovery Agents

PenCom has appointed Recovery Agents to carry out the examination of private sector employers to determine their level of compliance. The recovery of outstanding pension contributions carried out by appointed Recovery Agents (RAs) commenced in July 2012, and there are 28 RAs engaged currently by the Commission as of January 2024. The exercise sets out to achieve, amongst others, the recovery of all unremitted pension contributions of employees with penalties 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). PenCom and PFAs bear the recovery cost due to RAs, as it comes at no cost to RSA holders.

The recovery process requires the RA to diligently follow the outlined steps, which commences with obtaining a list of assigned defaulting employers and letters of introduction from PenCom to the employer. The RA is granted access by the employer to conduct a thorough review of pension records to determine the pension liabilities. Thereafter, the RA serves demand notices to the employer to remit the outstanding pension liabilities and penalties.

Consequently, the RA follows up with the defaulting employers to ensure remittances of outstanding pension contributions. Evidence of payments is obtained and forwarded to PenCom for onward confirmation by the PFCs.

The recovery process is still ongoing, and substantial outstanding contributions and penalties are being recovered from employers. This is an indication of PenCom’s increased enforcement of compliance with the CPS by employers.

Finally, PenCom prosecutes recalcitrant employers who persistently default in the remittance of pension contributions. From 2013 to 31 January 2024, PenCom recorded 1,073 recalcitrant employers for legal action due to non-compliance. Legal proceedings had been commenced against 138 of the employers out of which 68 of the cases in court have been concluded. The cases of 642 defaulting organisations are currently being resolved since litigation is carried out only when resolution efforts fail to achieve compliance. The Commission encourages employees to report employers who are not remitting their pension contributions or are not remitting the full 10 percent employer and 8 percent employee components of the contributions as specified in the PRA 2014.