How Additional Retirement Benefits can Boost Pension for Employees
The Contributory Pension Scheme (CPS) is a sustainable pension system that provides a stable, timely, predictable and adequate source of retirement income for employees in the public and private sectors. The CPS was the outcome of reforms in the pension sector initiated by the Federal Government of Nigeria (FGN) in 2004. The reform initiative culminated in the enactment of the Pension Reform Act of 2004 (PRA 2004). Ten years later, the PRA 2004 was repealed and replaced with the Pension Reform Act 2014 (PRA 2014).
Stakeholders have adjudged the implementation of the CPS in Nigeria a success. However, there are complaints about low pensions, especially from retirees in the public sector, because of the relatively low pay relative to the private sector. It is vital to state that the CPS provides a comprehensive framework that allows employers and employees to plan and save towards pensions. Accordingly, employers of labour can use any of the following ways recognised by the PRA 2014 to increase the pensions of their retired employees:
Upward review of Employer’s 10% contribution
The PRA 2014 provides a minimum of 18% of the employee’s monthly emolument to be deducted and paid by the employer to the Retirement Savings Account (RSA) opened by the employee. The 18% Contribution Rate stipulated under Section 4(1) of the PRA 2014 is only a legal minimum and is shared between the employer and the employee in the ratio of 10% and 8% ratio, respectively. The two parties can increase the rate of pension contributions through a Collective Agreement between them, which will improve employees’ pensions when they retire.
Furthermore, an employer may elect to bear the entire burden of pension contributions for its employees, and in doing so, the employer is not limited to the statutory minimum of 10%.
Payment of additional Benefits to Employees
The PRA 2014 provides that notwithstanding the pension contributions made by the employer and employee into the employee’s RSA, “an employer may agree on the payment of additional benefits to the employee upon retirement”. Accordingly, any employer may wish to provide additional benefits in the form of gratuity to its employees upon retirement.
Employers, especially those in the public sector, can take advantage of the above provision in the law to enhance their employees’ retirement benefits.
Implementation of Pension increases for CPS Participants
The FGN had released funds for the settlement of pension increases to retirees under the Defined Benefits Scheme (DBS) for 2007 (15%), 2010 (33%) and 2019 (consequential adjustment). Meanwhile, the FGN did not provide funds to pay pension increases for eligible retirees under the CPS. FGN employees who were employed before June 2004 are entitled to Accrued Pension Rights. Accrued Pension Rights refer to the retirement benefits earned by FGN employees under the Defined Benefits Pension Scheme before the introduction of the CPS in 2004.
It follows, therefore, that every time pensions are increased for FGN retirees under the DBS, the pensions of retirees under the CPS that have accrued rights should also be increased. Implementing pension increases would substantially address the issue of low pensions for FGN retirees under the CPS who have accrued rights.
Institution of other Social Security Benefits
The absence of other social security benefits in Nigeria is partly responsible for the clamour by the retirees for exemption from the CPS. Nigeria needs to institute Zero Pillar Pensions in the form of a social security benefit, which is recognised and provided for under Section 16(2)(d) of the Constitution of the Federal Republic of Nigeria 1999 (as amended). A social security benefits system would go a long way to alleviate the sufferings of all Nigerians, irrespective of whether or not they had formal employment. It will also augment earnings from occupational pensions.
Exempting a group or an organisation from the CPS will not address the issue of inadequate pensions. On the contrary, it will put the whole system in jeopardy. The finances of the FGN are stretched against competing needs, and one has to only look at the budget deficit for 2023 of N10.78 trillion to appreciate the fact. Accordingly, the pension sector reform must be kept on track and expanded through the diligent implementation of the CPS.
As highlighted above, various options are available to employers and employees to improve the adequacy of pensions for retirees, especially those in public service who are disproportionately affected by low pay. Providing additional retirement benefits can have several benefits for both employers and employees. It can attract and retain talent, enhance employee morale and loyalty and improve an organisation’s reputation.
PenCom remains committed to the effective regulation and supervision of the pension industry.
PensionNigeria adds that employees can also use Voluntary Pension Contributions to increase their pension benefits at retirement. Voluntary Pension Contributions is an additional contribution that employees can instruct the employer to deduct from their salary and remit to their Pension Fund Administrator (PFA).
Check out other Publications by National Pension Commission (PenCom) HERE
Support PensionNigeria financially with N1,000 per Month HERE, or with any amount HERE
Empower us to do more independent analysis of the Pension Industry in Nigeria
Subscribe to PensionNigeria Daily News Broadcast on WhatsApp, just send “Subscribe” to 08160052802, PLEASE ensure you also save 08160052802 to your contacts as “PensionNigeria” to enable you receive the PensionNigeria News Broadcast.
Subscribe to PensionNigeria Daily Newsletter and get Today’s Top Pension News delivered straight into your email box every Evening.
If you have subscribed before and you still do not receive our Newsletter, please check your “Spam Folder”, if you find our Newsletter there, mark it as “NOT SPAM” or move it to your Inbox
Pension is Your Right,
An Insurance for Old Age
Follow PensionNigeria on Social Media LinkedIn Twitter Instagram Facebook YouTube
