WORKINGS OF THE CONTRIBUTORY PENSION SCHEME By National Pension Commission

1. WORKINGS OF THE CONTRIBUTORY PENSION SCHEME By National Pension Commission Presentation to Pension Desk Officers and Payroll Accountants

2. Outline • Rationale for the Current Pension Reforms • How the Scheme Works • Registration Procedures • Collection & Accounting for Pension Contribution • Payroll Adjustment • Challenges in Collection & Remittance of Pension Contributions • Rights of Employees • Reform Implementation Efforts • Matters Arising • Next Steps • Conclusions Presentation to Pension Desk Officers and Payroll Accountants

3. Rationale for the Current Pension Reforms • Most public sector schemes were unfunded • Unsustainable pension liabilities • Weak and inefficient administration of schemes in both public and private sectors • Demographic shifts and ageing make defined benefits schemes unsustainable • Many workers in the private sector were not covered by any form of retirement benefits arrangement • Existence of diversified arrangements which were largely unregulated in the private sector Presentation to Pension Desk Officers and Payroll Accountants

4. How the Scheme Works • Contributory • Contributions by both employer and employee • Fully Funded • Individual Accounts • Nature of the account, portability and withdrawals (Lump sum, Annuity & Programmed withdrawal) • Privately Managed • Life Insurance Cover • Coverage and Exemptions • Strictly regulated and supervised - PenCom Presentation to Pension Desk Officers and Payroll Accountants

5. Registration Procedures • RSA Opening • Every employee is required by law to open an RSA • It is ILLEGAL for employers to coerce employees to open RSAs with specified PFA(s) • Registration procedure with selected PFA • Completion of registration form • Personal Data • Thump Print issues • Employment Records • PenCom to issue PIN to employees through PFA Presentation to Pension Desk Officers and Payroll Accountants

6. Collection and Accounting for Pension Contributions • Employer and Employees’ contributions have been centralised and deducted at source by the Budget Office of the Federation • Personnel Costs are released to Ministries, Departments & Agencies net of the deductions • Contributions are being lodged into a Pension Contribution Account at the Central Bank of Nigeria • Contributions are being remitted to the Retirement Savings Accounts of employees who registered with the Pension Fund Administrators of their choice after due verification by PenCom Presentation to Pension Desk Officers and Payroll Accountants

7. Payroll Adjustment • Employee’s salary to be grossed up to include only the employee’s contribution which was deducted at source • No further deduction from employee’s pay is required by MDA • Employee’s contributions should be shown as deduction in payroll and pay slips • Employee’s contributions should be treated as memorandum entry in payroll as no further remittance is required Presentation to Pension Desk Officers and Payroll Accountants

8. Challenges in Collection & Remittance of Pension Contributions • Absence of reliable Nominal roll of many MDAs • Reluctance to update records through the on-line registration window • Differences in Bio-data between the Nominal Roll and Registration Data Base • Some employees are yet to register with PFAs • Those that registered have not provided proof of pay – e.g. employment letter, pay slip, etc • Some MDAs appeared to have been deducting pension contribution in addition to the deduction made at source Presentation to Pension Desk Officers and Payroll Accountants

9. Rights of Employees • Power of the Employee/Contributor • PFA Selection • Right to RSA Statement on quarterly basis and on demand • Right to move RSA once a year • Right to appoint next of kin • Right to customer support from PFA • Right to lodge complaints with PenCom • Accumulated contributions from July 2004 to date will be credited into RSA Presentation to Pension Desk Officers and Payroll Accountants

10. Public Sector Accrued Pension Rights Government owes you pension rights for period you served prior to Pension Reform Act 2004 Calculation of the accrued pension rights for FGN employees has been conducted Government to issue you an IOU to the tune of your accrued rights Government has been keeping aside 5% of its total wage bill in Retirement Benefit Bond Redemption Fund Account at CBN towards payment of the IOU issued to you Reform Implementation Efforts Presentation to Pension Desk Officers and Payroll Accountants

11. Matters Arising • Multiple registrations • Delays in remitting contributions to RSAs due to the need to reconcile personnel profiles submitted to PenCom • Employer to provide regular updates on personnel profile to PenCom • Insured schemes • Federal Government to continue funding the scheme for existing pensioners and those exempted from the scheme • Modalities are being worked out to pay all accrued pension rights of current employees • Monthly pension contributions to continue to be funded by Federal Government Presentation to Pension Desk Officers and Payroll Accountants

12. Matters Arising • Benefit claims • Lump sum withdrawal • Periodic withdrawals – annuity & programmed withdrawal • Retired employees • End of service retirement • Voluntary retirement • Sacked/dismissed employees Presentation to Pension Desk Officers and Payroll Accountants

13. Matters Arising • Death benefit claims • Group life insurance benefits • Full premium to be paid by employer • No deductions from employee salary • Death benefit claim form available on our website: www.pencom.gov.ng • Employer to download and complete the form for each case of death • Completed form to be returned to the Commission with required supporting documents • PenCom to process and send to Budget Office for payment • Budget Office to pay beneficiaries • RSA balances • Accumulated Contributions • Accrued Pension Benefits – Bonds • Group Life Insurance benefits Presentation to Pension Desk Officers and Payroll Accountants

14. Next Steps • Employees not yet registered should get registered with their chosen PFAs to enable their benefits be transferred to their accounts • Employees to update their profiles on-line (e-mails can be sent with the required details) • Employers to submit updated nominal rolls with PINs of employees indicating GL & Steps Presentation to Pension Desk Officers and Payroll Accountants

15. Conclusion • The Contributory Pension Scheme was introduced to address the in-adequacies of the Defined Benefit pension scheme that operated in the public sector and to provide a uniform pension system for both the public and private sectors • The National Pension Commission has recorded tremendous achievements in laying solid foundation for the implementation of the scheme • Steps are being taken by PenCom to ensure that concerns of all stakeholders are allayed and full implementation of the scheme is achieved Presentation to Pension Desk Officers and Payroll Accountants

16. Thank You! National Pension Commission Plot 174, Adetokunbo Ademola Crescent Wuse II, Abuja 09 – 4138736 – 40 info@pencom.gov.ng www.pencom.gov.ng Presentation to Pension Desk Officers and Payroll Accountants