PENSION REFORM ACT, 2014- The Contributory Pension Scheme (CPS)

 THE CONTRIBUTORY PENSION SCHEME (CPS)

 The Pension Reform Act, 2014 (PRA) establishes a mandatory scheme called “the Contributory Pension Scheme”. This Scheme is an arrangement whereby both the employer and the employee collectively pay/save/contribute every month a specified  minimum percentage of the employee’s monthly salary  into the employee’s Retirement Savings Account (RSA). 

WHAT IS THE MINIMUM CONTRIBUTION UNDER THE CPS

The minimum contribution mandated under the PRA is an aggregate of 18% of the employee’s monthly salary/emolument (with a minimum contribution of 10% by the employer and 8% by the employee). What this means is that the employer is bound to contribute a minimum of 10% of the employee’s monthly salary into the employee’s RSA while the employee, on the other hand,  is bound to contribute a minimum of 8% of his/her monthly salary into the his/her RSA. However, either or both may choose to contribute more than the required minimum percentage.

 The PRA also makes provisions for a situation where the employee chooses to pay or bear the payment of all the contributions into its employee’s RSA, in which case the employee is absolved from the mandate of making monthly contribution into his/her RSA except he feels like so doing. If that is the case, the Act provides that the minimum contribution to be made by the employer is 20% of the monthly emolument/salary of the employer.

ILLUSTRATIVE EXPLANATION/SCENARIO OF THE CPS CONTRIBUTION

John is an employee of Jungal Ltd. If he earns as monthly salary the sum of N200,000 (Two Hundred Thousand Naira), his employee, Jungal Ltd, is expected to remit into John’s RSA a sum not less than N20, 000 (10% of 200,000) every month while John is expected to contribute nothing less than N16,000 (8% of 200,000) every month to his RSA. These sums are remitted monthly by both until John retires.