By Chris Agabi
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Consequences of non-remittance of pension deductions by employers
Some pensioners waiting to be screened, recently
There are growing number of cases where employers deduct pension contributions of employees but fail to remit them to the Pension Funds Administrations (PFA).
This situation is worrying the National Pension Commission (PenCom) and the Pension Funds Administrators (PFAs). The default in pension remittances by some employers is impacting negatively on the growth of the employee’s (RSA) account and contradicts the provisions of the PRA 2014 which state in Section 11 subsection 3(b) that “the employer shall not later than 7 working days from the day the employee is paid his salary remit an amount comprising the employee’s contribution under paragraph (a) of this subsection and the employer’s contribution to the Pension Fund Custodian specified by the Pension Fund Administrator of the employee”.
To underscore the challenge, the DG PenCom, Mrs ChineloAnohu-Amazu, recently noted it is partnering with the Economic and Financial Crimes Commission (EFCC) to compile list of employers that have not been remitting deducted pension contributions for possible prosecution, adding that the non-remittance of deducted pension contributions of workers was an economic crime. The commission is also encouraging employees to report employers who fail to remit pension deductions.
However, in April 2016 in a memorandum submitted by PenCom to the House Committee on Pensions during the Public Hearing on the Level of Compliance on the Contributory Pension Scheme, the commission submitted that the responsibility of ensuring continuous remittance of monthly pension contributions by employers is enormous considering that over 73,403 employers had been registered by the commission.
In the memorandum, obtained by our correspondent and excerpts presented here, PenCom noted that to address the challenge, it has engaged the services of consultants. Accordingly, the commission has developed a Framework for Recovery of Outstanding Pension Contributions with Interest Penalty from defaulting employers.
The framework included engaging eligible recovery agents under agreed terms and conditions. In line with the framework, the commission appointed 173 accounting and law firms on a “no recovery, no pay basis”.
“The defaulting employers were identified through the returns submitted by the PFAs and were assigned to the agents. The recovery of outstanding contributions was effective from January 2005. The sum of N9.289 billion has been recovered comprising principal contribution N5.655 billion and penalty N3.633 billion as at 31 December, 2015,” the document showed.
Non-remittance of the contributions as and when due attracts penalty to be stipulated by the commission as enshrined in Section 11(6) &(7) and Section 24(d) of the PRA 2014. The penalty shall not be less than 2% of the unpaid contribution and is recoverable as a debt. Specifically, the Act made the remittance of contributions of employees of the Federal Government as a charge on the Consolidated Revenue Fund of the Federation with a mandate on the Accountant General of the Federation to make the appropriate deductions.
To further achieve its mandate, PenCom developed a framework of performance which contains implementation strategies such as public enlightenment, collaboration with regulators/professional bodies, issuance of compliance certificate, engagement of consultants and disclosure requirements. Other strategies included on-site inspection/investigation of employers and application of a regime of sanctions. The framework is also premised on identification, listing and categorisation of employers into different sectors, groups, professional affiliations and regulated entities.
The commission has collaborated with other agencies and professional bodies to ensure compliance with the PRA 2014 especially among private sector organisations. The agencies included the Central Bank of Nigeria (CBN), Bureau for Public Procurement (BPP), Securities and Exchange Commission (SEC) and National Bureau for Statistics (NBS).
The collaboration with CBN assisted in ensuring that all deposit money banks, primary mortgage institutions, micro-finance banks, discount houses and other institutions under the purview of the CBN complied with the PRA 2014. The BPP has assisted the commission to ensure that all organisations soliciting for business with the Federal Government’s Ministries, Departments and Agency (MDAs) complied with the provisions of the PRA 2014 as required by Section 16(6) (b) of the Public Procurement Act 2007.
The commission and NBS had constituted a Technical Committee for developing a data base of eligible employers which would assist it in its compliance efforts. The NBS is to assist the commission to enumerate all private sector employers in the country with a view to identifying all organisations that must comply with the PRA 2014. There are ongoing efforts to collaborate with the Federal Inland Revenue Service (FIRS) and the Internal Revenue Service Departments at the state level to access their database on employers. These agencies have reliable data on employers that would help in expanding coverage.
With effect from January 2012, private sector employers that comply with the provisions of the PRA 2014 are issued annual Certificates of Compliance. To be issued with the certificate, employers are required to submit evidence of remitting contributions to the Retirement Savings Accounts (RSA) of their employees as well as show evidence of valid group life insurance policy.
All MDAs are required to demand for the compliance certificate as a requirement for transacting any business with a private sector organisations. Appropriate circulars have been issued to all MDAs in that regard. Also, the commission monitors advertisements for contract by MDAs to ensure that the pre-qualification criteria included evidence of compliance with the PRA 2014. In 2015, 3,620 employers were issued compliance certificates.
Methods deployed by MDAs to avoid complying included the exclusion of the pension requirement in the advertisement for contractors and/or acceptance of spurious evidence of compliance from the contractors. To address the lapse, the commission and the BPP have agreed that henceforth only certificates issued by the commission would be the valid evidence of compliance with the Public Procurement Act 2007.
The commission has also been working with the Financial Reporting Council (formerly Nigeria Accounting Standard Board), through a joint committee, to include report on compliance with the provisions of the PRA 2014 as part of the disclosure requirements in Audited Financial Statement of all organisations that employ a minimum of three staff.
Also, Section 92(2) of the PRA 2014 empowers the commission to inspect, investigate or examine an employer or anybody relating to pension funds and assets. The commission has conducted several routine on-site inspection of employers to assess their level of compliance with the PRA 2014.
Following the implementation of the strategies enumerated above, significant success has been recorded in ensuring compliance with the PRA 2014 by eligible organisations.
From the inception of the Pension Reform in 2004, the federal government had been religiously implementing the Contributory Pension Scheme by payment of monthly contributions of its employees in a dedicated account in the Central Bank of Nigeria, the Contributory Pension Account.
The federal government was equally making payment of 5% of its monthly wage bill into the Retirement Benefits Bond Redemption Fund Account for the payment of the accrued pension rights of its employees who had worked under the old Defined Benefits Scheme and transited to the CPS.
However, from 2014 to date, there was a decline in budgetary provision in funding the Retirement Benefit Bonds Redemption Fund (RBBF) Account and the remittance of monthly contribution.
The commission had explained that the sum of N20.07 billion is required to pay all outstanding accrued benefits for deceased and mandatory retirees of the federal government for the periods October to December 2015. Furthermore, the sum of N79.16 billion has been computed as the arrears of 15% pension increase owed to 79,961 federal government retirees under the Contributory Pension Scheme (CPS) as at December, 2014.
The committee was called to also note that N50.20 billion was provided for the 2016 Federal Government’s Budgetary Appropriation for the Retirement Benefits Bond Redemption Fund (RBBRF) Account presented to the National Assembly, compared to the commission’s projection of N91.91 billion, resulting in a shortfall of N41.71 billion.