How PenCom Recovers Outstanding Pension Contributions from Employers, a Publication by PenCom
The National Pension Commission (PenCom) ensures the recovery of unremitted pension contributions with penalties from employers that fail to remit pension contributions of their employees as and when due.
The Pension Reform Act 2014 (PRA 2014) provides that every eligible employee shall maintain a Retirement Savings Account (RSA) with any Pension Fund Administrator (PFA) of their choice. Once an RSA is opened, the employee must inform their employer by submitting the RSA Personal Identification Number (PIN) issued by the PFA. Subsequently, the employer is required to deduct at source the monthly contributions of the employee, not later than 7 working days from the day salary is paid, and remit an amount comprising of 8 per cent employee and 10 per cent employer contribution to the Pension Fund Custodian (PFC) specified by the PFA of the employee.
It should be noted, however, that the 18% pension total monthly pension contribution is a prescribed minimum as the employer may elect to increase the rate or bear the whole burden on behalf of the employee. Furthermore, the PRA 2014 states that an employer who fails to deduct or remit the contributions within the stipulated time frame of 7 working days from the day salaries are paid shall, in addition to making the remittances already due, be liable to a penalty, which shall not be less than 2 per cent of the total contributions that remain unpaid for each month or part of each month the default continues. The penalty amount shall be recovered as a debt owed and paid into the employee’s RSA.
The recovery of outstanding pension contributions carried out by appointed Recovery Agents (RAs) commenced in June 2012 with the appointment of 173 firms. The exercise set out to achieve, amongst others, the recovery of all unremitted pension contributions of employees with a penalty, 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).
The recovery process requires the Recovery Agent to diligently follow the outlined steps, which commences with obtaining a list of assigned defaulting employers from PenCom, getting letters of introduction from the Commission to the employer introducing the RA and requesting the employer to co-operate with the RA for a thorough review of pension records with the organisation’s Human Resources Department to determine liabilities, serving demand notices to employers to remit outstanding pension liabilities plus penalties. Recovery Agents are mandated by the Commission to follow up with the defaulting employers to ensure remittances of outstanding pension contributions. Evidence of payments is obtained by the RAs and forwarded to the Commission for onward confirmation by the PFCs.
It is pertinent to note that the principal contributions are remitted along with the penalties recovered and paid into employees’ RSAs to make up for the accruable income from investment of pension funds which may have been lost due to non or late remittances by employers. PenCom and PFAs bear the recovery cost due to RAs as it comes at no cost to RSA holders.
The recovery process is still ongoing, and substantial outstanding contributions and penalties are being recovered from employers. For instance, during the second quarter of 2022, about ₦721.12 million was recovered from 20 defaulting employers. A breakdown of the recovery within the period shows that about ₦517.65 million was recovered as principal contributions while ₦211.47million was the penalty paid. In addition, from the commencement of the exercise in June 2012 to 30 June 2022, the RAs have made recoveries totalling ₦22.13 billion, comprising principal contributions of ₦11.44 billion and penalties of ₦10.69 billion, from employers who defaulted in remittance of mandatory pension contributions.
The National Pension Commission also prosecutes recalcitrant employers who persistently default on the remittance of pension contributions. The Commission encourages employees to report employers who are not remitting their pension contributions or are not remitting the total 10 per cent employer and 8 per cent employee components of the contributions as specified in the PRA 2014.
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