Thursday, September 11, 2014 12:49 PM / The ARM Pension's Digest
As part of our continued efforts to share information on the Contributory Pension Scheme (CPS), we present key highlights of the Pension Reform Act 2014 recently signed into law by the President.
PENSION REFORM ACT 2014
The President of the Federal Republic signed the Pension Reform Act 2014 (the Act) into Law on 1st July 2014. The Act repeals the Pension Reform Act No.2, 2004 and would continue to govern and regulate the administration of the uniform Contributory Pension Scheme (CPS) for both the public and private sectors in Nigeria. The following are the major highlights of the new law.
An employer is under obligation to remit pension contributions to pension fund custodians within seven (7) days after payment of salaries; otherwise, in addition to making the remittance, the employer shall be liable to a penalty which shall not be less than 2% of the total contributions that remain unpaid for each month or part of each month that the default continues.
Revised Contribution Rates:
The PRA 2014 has revised the rate of pension contribution (from 7.5% contributed equally by the employer and employee under the old law) to 8% for the employee and 10% for the employer; bringing the minimum total contributions for both parties to 18% compared to 15% previously. As contained in the 2004 legislation, an employer may choose to make the total mandatory contributions without making deductions from the salary of the employee; however, total remittance for any employer who chooses to remit without recourse to the employee must not be less than 20% of the monthly emolument of the employee.
Monthly emolument is defined to mean total emolument as contained in the employee’s contract of employment, but shall not be less than the total sum of basic salary, housing and transport allowance.
Note that contributions under the CPS shall form part of tax deductible expenses in the computation of tax payable by an employer or an employee under the relevant income tax law.
Accessing Retirement Savings Account:
Any employee who disengages or is disengaged from employment and is unable to secure another job within four months (previously six months) of such disengagement may make withdrawals from his/her RSA in accordance with the Act.
Retirement Savings Account (RSA) For Life:
Where an employee transfers his/her employment from one employer to another, the same RSA shall continue to be maintained by the employee.
Every employer must maintain a group life policy in favor of each employee for a minimum of three times the annual total emolument of the employee and, where the employer fails, refuses or omits to make payment for premiums as and when due, the employer shall make arrangement to effect payment of claims arising from the death of any staff in its employment during such period.
Importantly, unlike the old law which mandated proceeds of group life policy be paid into the RSA of a deceased employee, the 2014 law mandates the insurance company to pay the life insurance proceeds to the named beneficiary in the policy. What this means is that employees must ensure that their HR records are accurately and consistently updated to reflect the appropriate beneficiaries at all times.
Therefore, we enjoin our esteemed clients to always update their nominated group life policy beneficiaries in the event of changes in personal circumstances, such as, marriage, divorce or death of a named beneficiary. This should be treated urgently and with a great sense of responsibility to those they are likely to leave behind in the event of death.
The full version of the PRA 2014 can be downloaded from HERE
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