The Pension Reform Act, 2004 was
amended to become Pension Reform Act, 2014 so as to accommodate lessons learnt,
identified loopholes and areas for improvement over the last ten years since
the Contributory Pension Scheme, CPS, was instituted.
According to the National Pension
Commission, PenCom, there was need to criminalise fraudulent diversion and
conversion of retirement savings of workers and retirees and bring the pension
reform law in tune with current developments, which necessitated a change in
the strategy with a view to exploring new investment windows for pension funds
among other things.
PenCom noted that the amendments
were to take care of shortfalls in coverage, address supervisory and
enforcement challenges, correct anomalies in the taxation of pension assets and
to enable deployment of the pension fund to develop infrastructure.
PenCom noted that the CPS had
generated a pool of long term investible funds that is attractive to fund
managers, investment advisers and capital market operators who want to access
part of the fund for different purposes.
According to PenCom, the Pension
Reform Act, 2004 ushered in a uniformed Contributory Pension Scheme for workers
in both the private and public sectors in Nigeria. The law, whose
implementation started June, 2004 reformed the crisis-ridden unfunded and
under-funded defined benefit pension schemes in the country. Before then, the
huge and increasing pension liabilities in the public sector needed to be
addressed while most workers in the private sector were not covered by any form
of retirement benefit scheme. The inefficient administration of pension schemes
and demographic shifts made defined benefit scheme unsustainable.
Under the new Contributory Pension
Scheme, both employers and employees were mandated to contribute certain
percentage of an employee’s total emoluments into a Retirement Savings Account
(RSA) opened by the worker with a Pension Fund Administrator (PFA). The scheme,
which is complemented by group life insurance to the tune of 300 per cent of
the individual worker’s emolument, also allows withdrawals under strict
conditions.
The accumulated pension assets in
custody of Pension Fund Custodians (PFCs) are being privately managed by PFAs
while PenCom regulates and supervises pension operators.
“Putting the challenges, gains,
implementation drive and sustainability of the Contributory Pension Scheme into
perspective; it is evident that breakthroughs have been recorded in the last
ten years. The number of contributors has increased, more workers in the
private and informal sectors are covered and the scheme has continued to impact
positively on the Nigerian economy,” PenCom noted.
Recall that the over N4 trillion
accumulated pension fund has never been domiciled in PenCom. The legal and
institutional frameworks of the Contributory Pension Scheme designates PenCom
only as a regulatory and supervisor of the pension industry in Nigeria. Pension
assets are therefore under the management and custody of PFAs and PFCs
respectively.
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