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Exploring the role of employers in facilitating retirement savings

(A wealthier worker means a wealthier state)

The role of employers in facilitating retirement savings in Nigeria is crucial for ensuring the financial security of employees. In Nigeria, employers are mandated by law (Pension Reform Act, 2014) to contribute to the retirement savings of their employees. Employees are also mandated by the same law to contribute a portion of their basic salary towards their retirement savings. Section 4(1) of the PRA 2014 states that, the contribution of any employee to which the Act applies shall be made in the following rates relating to his monthly emoluments;

(a) A minimum of ten percent (10%) by the employer

(b) A minimum of eight percent (8%) by the employee.

When an individual gains employment, the employee is expected to open a Retirement Savings Account (RSA) with a Pension Fund Administrator (PFA) of their choice within six months of gaining employment. Selecting a PFA is not to be taken lightly and employees should approach this with every sense of responsibility. An RSA is a long-term investment, sometimes spanning over three decades. An individual must carefully consider who he or she takes on their pension journey and ensure that their retirement savings are managed by the most capable hands.

Employers have a vital role in educating and communicating with their employees regarding the significance of retirement savings, the various options available, and the advantages of long-term planning. Employers can conduct workshops, seminars, or training sessions to provide employees with the necessary knowledge and understanding of retirement savings. PenOp (the Industry aAssociation) and PENCOM (the regulator) also play a role in sensitising the population about the role pensions play in financial planning and security. All these educational initiatives cover topics such as the power of compounding interest, retirement planning strategies, investment options, and the potential risks and rewards associated with different retirement saving vehicles.

In Nigeria, some employers offer matching voluntary contributions as part of their retirement savings programs.This means that for every voluntary contribution made by an employee towards their retirement savings, the employer will also contribute a matching amount. Examining the prevalence and impact of employer matching contributions provides insights into the level of support provided by employers to enhance retirement savings in Nigeria. The availability of employer matching contributions varies among different organizations in Nigeria. Some employers choose to offer matching contributions as an additional incentive to encourage employees to save for retirement. These matching contributions can significantly boost employees' retirement savings as they effectively double the amount voluntarily contributed.

Employers may offer flexibility and portability options for employees to transfer their retirement savings when changing jobs or transitioning to different employment arrangements. Understanding the extent to which employers facilitate these options can influence employees' ability to maintain and grow their retirement savings throughout their careers.

Ensuring a bright future for employees starts with employers who play by the rules. It's crucial for them to follow regulations when it comes to retirement savings. That means promptly remitting contributions and staying on top of reporting requirements. By taking a closer look at employer compliance, we can gauge their dedication and sense of responsibility when it comes to helping employees save for retirement. Remember, when employers step up, everyone's future shines a little brighter.

Employers can provide additional support and assistance to employees regarding retirement planning, such as offering financial planning resources, organizing seminars or workshops, or providing access to retirement calculators. Exploring these employer-led initiatives can highlight efforts to empower employees in making informed decisions about their retirement savings.

By exploring the role of employers in facilitating retirement savings in Nigeria, individuals can identify areas for improvement, promote best practices, and ensure that employers fulfill their responsibilities in securing the financial well-being of employees in their retirement years.

Unfortunately, a number of Nigerian employers default in remitting employee pensions. This is illegal under the law. Section 11(3b) states that the employer shall not later than 7 working days from the day the employee is paid his salary remit an amount comprising the employee’s contribution under paragraph (a) of this subsection and the employer’s contribution to the Pension Fund Custodian (PFC) specified by the Pension Fund Administrator of the employee. And non-remittance of the contributions as and when due attracts penalty to be stipulated by the commission as enshrined in Section 11(6) & (7) and Section 24(d) of the PRA2014. The penalty shall not be less than 2% of the unpaid contribution and is recoverable as a debt.

As of March 31st 2023, the National Pensions Commission(PENCOM) had fined defaulting firms N24.5bn in principal payments of contributions and penalties for lost interest accrued to employees and these amounts are credited to the RSA of the affected employees. To encourage compliance, PENCOM regularly issues Clearance Certificates to firms who remit employee pensions. These compliance certificate enable companies to be eligible for government contracts and also serve as a prerequisite for listing on the exchange or raising funds from the formal financial market. In the first quarter (Q1) of 2023, PENCOM issued 4,487 certificates to organisations who remitted the sum of N103.5bn.

The welfare of workers should be the priority of every employer. When employees realize that employers prioritize their welfare, this increases employee engagement and loyalty, it attracts high quality talents and makes the employer an employer of choice. Ensuring workers have a good standard of living post retirement should be at the forefront of an employer’s thinking. This means ensuring workers have pensions that take care of their obligations when they are of age. Everyone, including workers, employers and the government have a responsibility to ensure pension regulations are being complied with.