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.