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According to Investopedia, a pension fund can be defined as a "fund established by an employer to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement."
However, the common sight of Nigerian pensioners protesting the non-payment of their pensions in the last couple of years makes one wonder if the average Nigerian employee can look forward to retiring into a semblance of financial security. This piece seeks to explore the recent changes that have taken place in the management of pension fund for Nigerian workers.
The Nigerian pension industry is regulated by the National Pension Commission (PenCom), which is saddled with the responsibility of ensuring compliance with contributory regulations, regulating the investment of pension funds and prompt and consistent payment of pensions to retirees.
Improvements in the Nigerian Pension Fund Landscape
The criminalization of Pension Theft
The landmark achievement that has led to massive improvements in the Nigerian Pension industry was the signing into law of the Pension Reform Act 2014 (PRA 2014), which repealed the Pension Reform Act 2004 (PRA 2004) No. 2. The Pension Reform Act among other things criminalizes any form of pension theft or diversion of pension funds by prescribing a 10-year jail term.
In essence, the Nigerian pension administration industry has been fortified with added features that will ensure the protection of pensioners' funds. Hence, pensioners need not worry that their pension funds might be diverted into private accounts.
Increased Inclusiveness of the Pension Scheme
Prior to the signing into law of the PRA 2014, public employees had only a scant idea of their pension scheme, the contributions being deducted from their annual emoluments and the company functioning as their pension fund manager. The situation is even worse for employees in the private sector who do not usually have a working pension scheme and dare not ask questions or risk losing their jobs.
The PRA 2014 encourages the participation of private firms with at least three or more employees in the Contributory Pension Scheme. More so, the percentage of income that would be contributed by employees and employers was raised to a minimum of 8% and 10% respectively.
Hence, workers in the Nigerian private sector can also be rest assured that their golden years are been secured and they can expect consistent payment of pensions when they retire.
Offering Tax Exemption to Pension Funds
Another key achievement of the PRA 2014 is that all interests, dividends, profits, investments and other income attributable to pension funds and assets are tax exempt. Hence, pension fund managers can eliminate the payment of taxes from their costs when they prepare their statements of accounts.
The tax exemption offered to pension funds is designed to increase the profit margins of pension fund investments. An increase in the profit margins of pension funds will in turn lead to an increase in the amount earmarked for reinvestment in order to guarantee the prompt and consistent payment of pensions to retirees.
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