1. Date: 5 September, 2016 Slide Number:1
THE NIGERIAN PENSION
REFORM ACT 2014

2. Date: 5 September, 2016 Slide Number:2
Table of Contents
 Definition of key terms
 Prior to 2004
 Salient features of the Pension Reform Act
of 2004
 The Pension Reform Act 2014
 Major differences and novel provisions
 Implications of the Act
 Navigating the Grey

3. Date: 5 September, 2016 Slide Number:3
Definition of Key Terms
 Pension:- A pension is a fixed sum to be paid regularly to a
person, typically following retirement from service.
 Pension Fund:- A fund established by an employer to facilitate
and organize the investment of employees' retirement funds
contributed by the employer and employees
 Pension Fund Administrator:- An individual/body responsible
for managing the day-to-day affairs and the strategic decisions
involved with a group's pension fund/plan.

4. Date: 5 September, 2016 Slide Number:4
Prior to 2004
 The scheme was modelled after the British structure.
 Kicked off in 1951 through an instrument called Pension Ordinance.
 It had a retroactive effective from 1946 and applied only to United
Kingdom officials posted to Nigeria.
 A Defined Benefit (DB) pension scheme was operated which was largely
unfunded and non-contributory.
 In the private sector, many employees were not covered by the pension
schemes put in place by their employers and many of these schemes were
not funded with a lot of malpractices in place.
 In a bid to resolve these issues, the President Obasanjo led administration
in June 2004 enacted the Pension Reform Act of 2004

5. Date: 5 September, 2016 Slide Number:5
Salient features of the Pension Act Reform of 2004
 Contributions to the Scheme are expected to come from the employee’s
monthly emoluments.
 The rates of contributions to be made under the new Scheme by both
the employer and employee are a minimum of 7.5% and 7.5%
respectively (Private & Public sector employees).
 Where an employer elects to take full responsibility, the contribution
shall not be less than 15% of the employee’s monthly emolument.
 The provisions of the Act apply to all organizations with at least 5
employees
 Employees are only granted access to their funds at retirement or at the
attainment of 50 years of age . The only exception will occur when
there is job loss
 For misappropriation of funds, a fine equal to three times the amount
and/or a 10 year jail term is applicable.

6. Date: 5 September, 2016 Slide Number:6
The Pension Reform Act 2014
 Employers and employees are required to make a minimum contribution of 10% and
8% respectively (Private and Public sector employees)
 Where an employer elects to take full responsibility, the contribution shall not be less
than 20% of the employee’s monthly emolument.
 Mandatory contribution is applicable to private organizations in which there are 15 or
more employees
 Contribution is applicable to informal private entities in which there are 3 or more
employees
 Interests, profits, dividends, investment and other income accruable to pension funds on
asset are not taxable. Tax is limited only to the returns on such contributions if
withdrawn within 5 years.
 An employee who disengages from employment or is disengaged before the age of 50
and is unable to secure employment within 4 months of disengagement is allowed to
make withdrawals from the account not exceeding 25% of the total amount credited to
the retirement savings
 For misappropriation of funds, a fine equal to three times the amount and/or a 10 year
jail term is applicable coupled with the forfeiture to the Federal Government, any asset
or property acquired with such fund

7. Date: 5 September, 2016 Slide Number:7
Major Differences and New Provisions
 Increase in minimum contribution rates.
 Reduction in the number of employers and employees that are
likely to benefit from the scheme.
 Employees now have access to a fraction of their fund before
the attainment of 50 years as opposed to the 2004 Act.
 Voluntary withdrawals within 5 years are non- taxable
 There is a drive towards informal sector participation.
 Stringent penalty and punishment for misappropriation of
funds
 The Act expands the scope of investments in which pension
funds can be invested and this includes specialist investment
funds and other financial instruments PenCom may approve.
i.e. Telecom, Infrastructure development, Agriculture etc.

8. Date: 5 September, 2016 Slide Number:8
Implications of the 2014 Pension Reform Act
 Increase in staff cost for employers (especially small and micro
entities) that predominantly operate in the informal sector.
 Unavoidable non-compliance by most employers in the above
sector.
 Potential employee retrenchment in order to reduce cost.
 Reduction in disposable income due to likely restructuring of
employee salaries which will lead to decrease in consumption in
the economy.
 Increase in savings for the future due to increased rates.
 Due to the marginal increase (2%) for sole contributors,
employees might be discouraged from taking full responsibility.
 Likely reduction in fraudulent practices by Pension Fund
Administrators.

9. Date: 5 September, 2016 Slide Number:9
Navigating the Grey
 The Pension Reform Act 2014 (Act) signed into law on July 1, 2014 has no
specific commencement date.

10. Date: 5 September, 2016 Slide Number:10
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