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Wednesday, February 25, 2015

Pension Amendment Act will Accommodate previous loopholes – PenCom



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.
 Protest-pension
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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