INTRODUCTION
In the wake of the exposure of a monumental pension fraud amounting to billions of Naira in 2012 which indicted the then pension boss Abdulrasheed Maina, the National Assembly took a rather drastic step to reform the pension system in the federation which led to the enactment of the now Pension Reform Act, 2014 with the sole objective to govern and regulate the administration of the uniform contributory pension scheme for both the public and private sectors in Nigeria.
The Act under Sections 3, 4, 5, 6 of Part II establishes the Contributory Pension Scheme which ensures that every qualified employer of labour maintains an RSA (Retirement Savings Account)for each of its employee wherein both the employer and the beneficiary employee are to contribute specified minimum percentage of the employee’s salary into the RSA. Click here for more on the CPS.
As stated above, the reform of the pension sector is a laudable step packed with so many benefits. Here are some of the benefits:
BENEFITS OF THE CPS
✓ The CPS allows RSA holders to select any Pension Fund Administrator (PFA) of their choice to open an RSA.
✓ Where an RSA holder is not satisfied with his PFA, the Pension Reform Act, 2014 entitles him to transfer his Retirement Savings Account from one PFA to another. But he can only do so not more than once a year.
✓ RSA holders retiring under the CPS can decide on the mode of their retirement benefit payment, either by making a lump sum periodic pragrammed withdrawal or by subscribing for single-life annuity/joint and survivor annuity.
✓ Another benefit of the CPS is that RSA holders are allowed to open individual Retirement Savings Accounts (RSA), where their contributions and that of their employees are accumulated till retirement.
✓ The RSA under the CPS addressed the problem of pension liabilities, mismanagement and misappropriation.
✓ Contributions and retirement benefits accummulated in the RSA are tax exempt.
✓ The pension scheme, CPS, is contributory in nature, in that both the employer and the beneficiary employee grow the RSA into its maturity age when the employee will retire.
✓ The RSA is fully funded and privately managed by third party custodians of the pool of fund. These third parties are established under the Pension Reform Act as the Pension Fund Administrator (PFA).
✓ By the CPS, RSA holders receive their retirement benefits promptly and as and when due. The Act empowersw the holders to report any PFA that is invoved in fraud to the National Pension Commission (PenCom) for disciplinary action.
✓ Having grown significantly over the years, the Contributory Pension Scheme (CPS) has been providing painless access to retirement income/allowance to its retiree members.
✓ The pension scheme is maginally secure and guarantees safety of the pension funds as the PFAs are mandated to invest the funds in government bonds and treasury bills, bank deposits and securities, real estate development investments, specialist investment funds and other financial instruments as approved by the Commission from time to time.
✓ As a result of the mandate to invest the pensioin fund, this has therefore provided a domestic source of borrowing for business corporations, which majorly does not attract excessively high interest rate. Thus, the transfer of resources in favour of long term assets by the fund has significantly impacted on the nation’s GDP growth rate.
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