Are you wondering what additional cost you may have to incur to comply with the 2014 Pension Reform Act? If yes, here is a simple model to help you simulate the impact and give you an idea of the likely financial implications.
Here is the concluding part of my article in today's BusinessDay and other newspapers.
Commencement date - The Pension Reform Act 2014 (Act) was signed into law by the President on 1 July 2014. The Act does not specify a commencement date. The Interpretation Act provides that where no date of commencement is contained in an Act, the commencement day shall be the day the Act is passed or signed into law. Unless a commencement date is inserted before the Act is gazetted, the commencement date will be 1 July 2014. This does not give room for transition arrangement and proper planning by affected employers.
Gaps in coverage – Only employers with a minimum of 15 employees are required to contribute to the new Scheme. The Act provides that in the case of private organisations with less than 3 employees participation in the Scheme would be governed by guidelines issued by the National Pension Commission (PenCom). However, the Act is silent on the applicability of the Scheme to private organisations with more than 3 but less than 15 employees. Also what happens to employers with 5 to 14 employees regarding their past contributions under the old Act?
Sole contribution by employers – The new Act provides that an employer can take full responsibility of the contribution but in that case, the contribution shall not be less than 20% of the employee’s monthly emolument. This does not make sense given that the combined contribution by both parties is 18%. Employers will therefore be discouraged from taking full responsibility.
We have obtained a copy of the new Pension Reform Act as signed by President Goodluck Jonathan. Subject to any modification before gazetting, the commencement date is 1 July 2014. Attached below are our tax alert on the subject highlighting the key issues and a copy of the new law.
Some of the key changes include increase in the minimum number of employees required to make mandatory contributions under the Act, increase in the minimum contribution into the Scheme and the imposition of fines and penalties on Pension Fund Administrators (PFA) for failure to meet their obligations to contributors and violation of the provisions of the Act.
President Goodluck Jonathan today signed the 2014 Pension Reform Bill into law replacing the old pension law which has been in operation since 2004. The new pension law introduced several key changes including:
increase in the minimum contribution into the Scheme. Employers are required to contribute a minimum of 10% of their employees’ monthly emoluments while the employees are to contribute not less than 8%. Under the old law, the minimum contribution by both parties was 15% of basic pay, housing and transport allowances with a minimum of 7.5% by the employer;
inclusion of less private sector employers. A private sector entity is now subject to the scheme where it has 15 or more employees (previously the minimum threshold was 5 employees);
the imposition of fines and penalties on Pension Fund Administrators (PFA) for failing to meet their obligations to the pension contributors and for failing to comply with the provisions of the Act; and
the imposition of a 10-year jail term for persons found guilty of misappropriating pension funds.
Employers affected by these changes need to take immediate steps to ensure full compliance. Where necessary, it may be useful to restructure staff compensation to minimise the impact of the increase in staff cost while maintaining staff take home pay at the current levels.
The Foreign Account Tax Compliance Act (FATCA) is a new law introduced by the United States government to ensure the disclosure of assets and income of US persons held with foreign financial institutions. Intuitively, FATCA presents an opportunity for tax authorities in Nigeria to collect useful information from taxable persons in Nigeria to improve tax compliance.
Read my article on the subject published by the Guardian Newspaper yesterday.
The Federal Inland Revenue Service (FIRS) held a workshop on 6 June 2014 to discuss specific tax issues affecting parties to a Production Sharing Contract (PSC) in the upstream petroleum industry. Specifically, the FIRS requested that parties to a PSC start filing Companies Income Tax (CIT) returns.
The National Information Technology Development Agency (NITDA) recently released guidelines on Nigerian content development in the ICT sector.
In our alert attached below, we analyse how NITDA intends to achieve a target of 50% local content in the industry, the tax incentives introduced and the possible impacts of the guidelines on different stakeholders in the industry.