Employer Compliance under the Contributory Pension Scheme (CPS), a Publication by PenCom

The Contributory Pension Scheme (CPS) is an arrangement where both the employer and the employee contribute a portion of an employee’s monthly emolument towards the payment of the employee’s pension at retirement.

Under the CPS, both the employer and employee contribute certain percentages of the employee’s monthly emoluments to build a retirement fund from which benefits are paid at retirement.

The minimum rate of contribution is 18% of the employee’s monthly emoluments where 10% is contributed by the employer and 8% is contributed by the employee. However, the employer may decide to bear the full responsibility of the contribution provided it is not less than 18% of the monthly emolument of the employee.

The employer deducts and remits both the employee and employer portions of pension contributions to the Pension Fund Custodian (PFC). The PFC notifies the Pension Fund Administrator (PFA) immediately upon receipt of the contributions. The choice of a PFA for opening a Retirement Savings Account (RSA) is the exclusive right of an employee.

With regards to deduction and remittance of pension contributions, the employer is mandated by law to deduct and remit pension contributions into the employee’s RSA not later than 7 working days from the date salaries are paid.

However, when an employer fails to remit its employees’ pension contributions, the affected employee is advised notify the National Pension Commission (PenCom). The complainant may choose to remain anonymous.

PenCom ensures the recovery of unremitted pension contributions with penalties from employers that fail to remit pension contributions to the RSAs of their employees as and when due. This is in line with Section 11(3) & (5) of the PRA 2014. The recovery exercise is necessary due to following:

• Incessant complaints of non-remittance of pension contributions by employers;
• Employers deducting employees’ portion of pension contributions and not remitting to their Retirement Savings Accounts (RSAS);
• Employers remitting less than the prescribed rate of contributions to the RSAs of their employees;

Accordingly, PenCom maintains the services of Recovery Agents (RAS) for the recovery of unremitted pension contributions and penalty from defaulting employers.

The purpose of the penalty imposed on the employer for failing to deduct and remit pension contributions as and when due is meant compensate employees for the income that would have been earned if their pension contributions were remitted as and when due.

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