1-1 The National Pension Commission (“the Commission” or “PenCom”) expresses its profound appreciation to the House Committee on Pensions for the opportunity to provide insights, clarifications and information regarding the level of compliance with the Contributory Pension Scheme (CPS) established following the pension reform of 2004. Indeed the Commission acknowledges the tremendous support of the National Assembly in the drive for enforcement of compliance with the Pension Reform Act since the commencement of the implementation of the pension reform.
1-2 This memorandum focuses on the strategies, measures taken and achievements of the Commission in driving compliance with the CPS from inception of the implementation of the pension reform to date. The memorandum also looks at the challenges being experienced in the enforcement of compliance with the Pension Reform Act 2014 (PRA 2014).
2-0 Coverage of the Contributory Pension Scheme
2-1 The PRA 2014 provides under Section 2 and 3 that the CPS shall cover the following employees in Nigeria:
(i) Employees in the public services of the Federation.
(ii) Employees of the Federal Capital Territory.
(iii) Private Sector Organizations with 3 or more employees.
(iv) The State and Local Government employees.
2-2 The categories of persons exempted from the CPS include:
(i) Persons who had retired and receiving pension as at 2004.
(ii) Persons who had 3 or less years to retire as at June, 2004.
(iii) Judicial Officers by virtue of Section 291 of the 1999 Constitution (excluding Judiciary workers who are covered by the CPS).
(iv) Personnel of the Military, Intelligence and Security Services.
2-3 Notwithstanding the provision of the Act concerning the category of persons exempted from the CPS, the administration of the retirement benefits of the exempted employees are subject to the supervision and regulation of the National Pension Commission.
3.0 Obligations for Remittance of Contributions
3.1 The obligation for the remittance of pension contributions under the CPS is provided under Section 11 of the PRA, 2014. The Act mandates the employer to deduct at source, the monthly contribution of the employee not after than 7 days from the day of payment of his salary and remit same to the Pension Fund Custodian (PFC) specified by the employee’s Pension Fund Administrator (PFA).
3.2 Non-remittance of the contribution as and when due attracts penalty to be stipulated by the Commission as enshrined under 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.
4.0 The Powers of the National Pension Commission for Ensuring Compliance with the PRA 2014
4.1 Section 18(a) of the PRA, 2014 gives the Commission the power to enforce and administer the provisions of the Act. This statutory provision also empowers the Commission to co-ordinate and enforce all other laws on pension and retirement benefits while ensuring the effective administration of pension matters. The functions of the Commission under Section 23 of the PRA 2014 include the maintenance of data bank on pension matters and investigation and mitigation of complaints. Section 24(g) thereof further gives the Commission the powers to impose administrative or civil sanctions or fines on erring employers or operators. The PRA also confer the right to request information from any employer on the pension matters.
4.2 The combined effect of these sections grants the Commission powers to ensure compliance with the PRA under which the CPS was established.
5-0 Framework for Enforcement of Compliance with PRA 2014
5-1 The task of implementation of the PRA 2004 and later PRA 2014 especially within a developing economy was a daunting one. However, the Commission employed various strategies to surmount the challenges experienced in the process. this culminated in the development of a Framework that guided the Commission in the discharge of its functions.
5-2 The Framework contain 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.
5-3 The Framework is also premised on identification, listing and categorization of employers into different sectors, groups, professional affiliations and regulated entities. The Commission defined the process that would be followed to ensure compliance for each of the groups.
6-0 Compliance and Enforcement Strategies
6-1 Public Enlightenment:
i. The Commission has been organising annual interactive sessions since 2007 with its key stakeholders, the Nigeria Employers Consultative Association (NECA) and the labour unions i.e. Nigeria Labour Congress (NLC) and Trade Union Congress (TUC). The sessions improved on the implementation of the PRA 2014 through dialogue with the social partners. Occasionally interactive sessions are also held with in-house industrial unions and such professional groups as the Chartered Institute of Personnel Management (CIPM).
ii. The sessions with the industrial unions are used to discuss the specific concerns of the relevant groups with respect to the implementation of the PRA 2014. The Commission also conducts annual interactive sessions with Finance, Insurance and Labour Correspondents/Business Editors of media houses. The interactive sessions have proved very effective in promoting public awareness and securing the support of the social partners and key stakeholders in the implementation of the PRA 2014.
6.2 Collaboration with Regulatory/Professional Bodies:
i. 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).
ii. 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 Ministry Department and Agency (MDAs) complied with the provisions of the PRA 2014 as required by Section 16(6) (b) of the Public Procurement Act 2007.
iii. The Commission and NBS had constituted a Technical Committee for developing a data base of eligible employers which would assist the Commission 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. However, the exercise could not commence due to budgetary constraint. 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 our coverage.
6.3 Issuance of Compliance Certificate:
i. 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.
ii. All MDAs are required to demand for the Compliance Certificate as a requirement for transacting any business with a private sector organization. Appropriate circulars have been issued to all MDAs in that regard. Also, the Commission monitors advertisements for contract by MDA to ensure that the pre-qualification criteria included evidence of compliance with the PRA 2014. In 2015, 3,620 employers were issued Compliance Certificates. The main reason for the low number of requests being the reluctance of MDAs to ensure that companies bidding for works have fulfilled their obligations relating to pensions as enunciated in the Public Procurement Act 2007.
iii. 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 lapses, 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.
iv. The Commission undertakes regular advertisement of the requirements for issuance of the certificate and ensure prompt issuance. In addition, the Commission now hosts the compliance status of companies on its website for easy scrutiny and verifications.
6.4 Disclosure Requirement:
i. The Commission has 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 organizations that employ a minimum of three staff.
ii. While the Committee is yet to conclude its work, it is expected that the new International Financial Reporting Standards (IFRS) would include this requirement.
6.5 Engagement of Consultants:
i. The responsibility of ensuring continuous remittance of monthly pension contribution by employers is enormous considering that over 73,403 employers had been registered by the Commission. To address the challenge, the Commission, engaged the services of consultants as an effective strategy for monitoring the compliance. Accordingly, the Commission developed a Framework for Recovery of Outstanding Pension Contributions with Interest Penalty from defaulting employers.
ii. 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.
6.6 On-Site Inspection:
i. 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.
ii. The inspection had provided the Commission with opportunities for further clarifications on issues relating to the scheme and to discuss challenges that employers faced in its implementation. The employers are selected randomly among their peer groups based on location and estimated number of employees.
iii. To date, on-site inspections have been conducted on organizations in the banking, insurance, construction, education, health and tourism (hotels) sectors. Also, on-site inspection was conducted on some self-funded Federal Government Agencies.
6.7 Legal Enforcement Action:
i. Litigation is the last option in the framework for enforcement of compliance. The complication of different administrative steps are collated and forwarded to solicitors for further actions.
ii. The further action include the issuance of pre-action notices prior to filing of cases before the court with the competent jurisdiction.
7.0 Status of Compliance with PRA 2014
7.1 Following the implementation of strategies enumerated above, significant success has been recorded in ensuring compliance with the PRA 2014 by eligible organisations. The status of compliance with the PRA 2014 as at date is as follows:
7.2 Compliance by the Federal Government
i. 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.
ii. However, from in 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 House Committee may wish to recall that the Commission had drawn its attention to this situation during the 2016 Budget Briefing Sessions. 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.
iii. The Committee may wish to also note that N50.20 Billion was provided for the 2016 FGN 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
iv. The Federal Government is also yet to commence the implementation of the revised 18% minimum pension contributions for its employees as stipulated under Section 4 of the PRA 2014.
7.3 Transfer of Legacy Assets:
i. The powers to manage and hold pension fund assets is exclusively vested by the PRA 2014 in PFAs and PFCs, respectively. Consequently, pension fund assets set aside by employers (including those held or managed on their behalf by other organisations/third parties) are to be transferred to the Custodians of the PFA chosen by the employer.
ii. To that effect, a General Notice for the Transfer of Pension Fund assets was duly issued in the national dailies. The organizations that were required to transfer the legacy assets included those that were granted approvals by the Commission to continue with their existing pension schemes, shareholders of PFAs and PFCs, and other organizations that were still in possession of such assets.
iii. So far, pension assets totalling N274.41 billion pension assets being the accrued pension rights of employees had been transferred to licenced PFAs and PFCs by both private and public sector employers.
7.4 Status of Registration of Private/Public Sector Employers:
i. About 7million employees working with public/private sector employers have registered with PFAs for the management of their pension contributions. The number of companies whose employees have so far registered is 73,403. Of this number, 43,918 employers with more than three employees have largely complied with the provisions of the PRA.
ii. The remaining 29,485 with less than three employees are mostly the non-compliant organizations. This category of employers are usually more of portfolio companies and in some cases are companies that had either been liquidated or ceased to exist.
7.5 Remittance of Monthly Contributions:
i. Regular remittance of contributions is an important aspect of compliance with the law. The monthly remittance by private sector has gradually improved and the returns for the month of December 2015 indicated that N45 billion (or 70% of the total expected remittance) was remitted to 1,607,361 RSAs.
ii. The engagement of recovery agents in 2012 contributed in the improvement of the amount of average monthly remittance of pension contributions from N35 billion in 2011 to over N55 billion in 2015.
iii. Through the efforts enumerated above, the pension assets of the industry have grown steadily from N110.69 billion in 2006 to N5.302 trillion in December, 2015. Similarly, the membership of the various pension schemes has grown from 1.6 million in 2006 to 6.89 million in December, 2015.
7.6 Introduction of the CPS to the informal sector:
i. The coverage of the formal sector had been successfully accomplished and the focus now is on the informal sector. Already a draft framework for the participation of persons engaged in the informal sector had been developed.
ii. The framework set out the modalities for enrolment, contributions management and withdrawals taking into consideration the peculiarities and needs of the sector. Comments of the PFAs/PFCs and recommendations from the study of the informal sector pension in Kenya had been incorporated in the draft. In addition, the views of some key informal sector stakeholders had also been obtained through research.
iii. Further efforts would focus on engaging major players in the informal sector for eventual enrolment into the Contributory Pension Scheme.
7.7 Implementation of the CPS by States and Local Governments:
Twenty six States (26) have enacted their laws on the CPS, while ten (10) States are currently at the bill stage. The Commission continued to closely monitor activities of the states and had consistently provided technical assistance to the State Governments in their efforts to implement the Scheme.
8.0 Challenges in the Implementation of Compliance Strategies
8.1 The major challenges of implementation of strategies for ensuring compliance with the PRA 2014 may be summarised as follows
i. Ensuring that eligible employers join the CPS;
ii. The RSAs are not funded as and when due;
iii. Lack of data on eligible private sector organisations;
iv. Poor wages to accommodate reasonable pension deductions;
v. General poor compliance culture;
vi. Weak economy which saw the pension contributions as a huge additional cost of doing business in Nigeria; and
vii. Difficulty in securing compliance by the small sized companies in the private sector largely made up of portfolio companies.
8.2 The efforts of the Commission at recovery are not without its unpleasant experiences. There abound situations where officers of the Commission and the Recovery Agents are accosted with hostility in the conduct of their assignments. Oftentimes, some were not assisted with relevant information. Attempts by the Commission to directly intervene often elicit no responses until litigation is commenced. Some organizations often insinuate grand collusion to defraud them of the determined sums meant for their employees. Some of the organizations lay claim to alleged witch-hunt when prosecuted for non-compliance.
8.3 A significant number often indicate intention to resolve the cases outside the court only after the court process has begun. Engagement of legal services comes with its attendant costs been borne by the Commission. The proof of the cases also entail stretching the basis of the contractual relationships with the Recovery Agents as they are often requested to appear and testify in court, oftentimes after the lapse of their recovery and audit tasks.
8.4 The PRA 2014 made an upward review of the rate of contribution and the proportion of the rate payable by the employer and the employee. The minimum rate is now 18% of the monthly emolument: 10% by the employer and 8% by the employee. This revised statutory minimum has been obeyed more in breach by the public sector employers who are yet to revert to the current applicable ratio. This poses another challenge on enforcement as the affected public service employer is the various tiers of government which is a critical stakeholder in the implementation process of the established Contributory Pension Scheme.
8.5 The Commission has recently been informed about a worrisome development where companies deducting pension contributions from the emoluments of their employees and not remitting same. The employees often initiate investigations into the pension liabilities of companies by way of complaints. However, instances abound were complaints of this nature gravely expose the employee to loss of job and an ultimate price for whistle blowing on ground of the perpetuated illegalities of their employers. The Commission views this as a financial crime and has accordingly approached the Economic and Financial Crimes Commission (EFCC) to collaborate with it to address this situation.
8.6 The Recovery Agents engaged by the Commission examine the pension records of employers, determine the pension liability and compute penalty accrued as a result of the non-compliance. The Recovery Agents subsequently issue demand notices, subject to the approval of the Commission upon verification and/or validation of the records of the employers. Some companies challenge the basis of the liabilities determined. However, the disputes are resolved by reconciliation sessions between the employers and the Recovery Agents. The reconciliation exercise ultimately strengthen credibility of the processes.
8.7 Employers that fail to remit outstanding pension contributions and established penalties are further approached for civil compliance through administrative mechanisms as set out in the Regime of Sanctions of the Commission. This sanction regime include and are not limited to the issuance of demand letters, letters of warnings, letters of caution and outright sanctions. Resort to litigation is the last option exercised by the Commission. As at 2014, Two Hundred and Forty Three (243) employers that failed to remit outstanding pension contributions and established penalties have been subjected to legal action and are at different stages of prosecution at the National Industrial Court.
9.1 There is no gain saying the fact that all stakeholders in the pension industry contributed towards ensuring compliance and enforcement of the provisions of the PRA 2014. The success recorded in the implementation of the pension reform from 2004 are the direct result of these efforts. There is therefore a need to consolidate these gains.
9.2 Accordingly, the Commission would like to request the Honourable Chairman and Members of the House Committee to note the dire need for all stakeholders to continue to cooperate and support the Commission in ensuring compliance with the PRA 2014. Indeed the National Assembly as a critical stakeholder in the pension reform process, is earnestly requested to assist to lend its support for compliance drive in both the public and private sectors in Nigeria, in order to bring to the contributors the direct and remote benefits of the Contributory Pension Scheme.
National Pension Commission