Employers that failed to remit their employees’ pension contributions have paid triple the amount in penalties, a report by the National Pension Commission (PenCom) has shown.
This has become possible through appointed recovery agents (RAs) of PenCom, whose activities have made the defaulting employers to pay unremitted contributions alongside accrued interest and penalties.
According to the report on recovery of outstanding pension and penalties from defaulting employers for the fourth quarter of 2022, penalties rose as much as 355 percent of total recoveries.
PenCom said following the issuance of demand notices to defaulting employers whose pension liabilities were established by the recovery agents, the sum of N853.403 million was recovered from 25 defaulting employers during the fourth quarter.
Out of the figure, the principal contribution was N187.374 million and penalties were N666. 029 million, meaning penalties were over 355 percent of total recoveries.
Meanwhile, 34 defaulting employers have been recommended for appropriate legal action, after all administrative steps taken to make them comply failed.
The trend was also similar in the fourth quarter of 2021, when appointed recovery agents realised from 36 defaulting employers N984.23 million, representing N406.42 million as principal contribution and N577.87 million as penalty, with 18 defaulting employers recommended for appropriate legal action.
PenCom revealed that from the commencement of the recovery exercise in June 2012 to December 31, 2022, a total of N24.149 billion, comprising of principal contributions N12.248 billion and penalties N11.901 billion, was recovered from defaulting employers.
Section 11 (6) of the Pension Act 2014 states that any employer who fails to remit the contributions within the time prescribed shall, in addition to making the remittance already due, be liable to a penalty to be stipulated by the commission.
The penalty, according to the pension law, shall not be less than 2 percent of the total contribution that remains unpaid for each month, or part of each month that the default continues, and the amount of the penalty shall be recoverable as a debt owing to the employee’s retirement savings account as the case may be.
“If after seven days of the payment of salaries, any employer refuses for whatever reason to remit the pension contributions of his employee to the Pension Fund Administrator (PFA) where such employee has opened a Retirement Saving Account, the PFA is obligated to report the employer to PenCom if the funds are not received by the 14th day from the payment of salaries. Such an employer will be liable to a penalty in addition to the funds due,” said a senior official of PenCom who did not want to be identified.
Ivor Takor, director general of Centre for Pension Right Advocacy, said pension remittance should be taken seriously by employers because it has been deducted from their salaries and the law says the deduction should be paid into the RSAs of the employees, not later than seven days after salaries are paid.
Oguche Agudah, CEO of the Pension Funds Operators Association of Nigeria, said the concept of using recovery agents to tackle the issue of unremitted pensions is a good development and they have been doing quite well.
“However, in addition to the recovery agents, we need to do more on the enlightenment of the public (both employers and employees) on the benefits of taking an active part in the contributory pension scheme,” he said. “Taking part in the scheme reduced a company’s effective tax rate, because their contributions are tax exempt. In addition, it is a tool for employee engagement, retention and attraction.”
The Pension Reform Act 2004, as amended in 2014, establishes a Contributory Pension Scheme for all employees in the country to ensure that every person who work in either the public service of the federation, Federal Capital Territory or private sector receives his retirement benefits as and when due.
The scheme empowers employers to deduct pension contributions at source and remit such deductions to the employees’ PFAs, which then ensures that each contributor’s PIN is credited with the amount due.
Under the scheme, an employee contributes 8 percent of his monthly emolument, that is, the sum total of basic salary, transportation and housing allowance, while the employer also contributes 10 percent of the employee’s monthly emolument towards the retirement benefits of the employee.
The employer is empowered to deduct at source the monthly contribution of the employee in his employment and, not later than seven working days from the day the employee is paid his salary, and remit this amount to the custodian specified by the PFA.