Pension Requirements and PAYE

By Roselyn Onalaja | 2 min read
15th June 2017
Pension Requirements and PAYE

The pension scheme is governed by the Pension Reform Act 2014, which was passed into law on July 1, 2014. The Act fixed the contributory rate of Employees to 8% while the Employer contributes 10%. 

Benefits of Pension Scheme to Staff

  • Assist staff by ensuring that they save to cater for their livelihood during old age or when indisposed to work for certain reasons.
  • Staff receives terminal benefit as at when due.
  • Investment income generated by the pension fund in which contributions accumulate are tax exempt.

Withdrawal from Retirement Savings Accounts- The staff will be allowed to withdraw from his/her pension contributory account when he/she is disengaged from employment before the age of 50 and is unable to secure employment within 4 months of disengagement. 25% of the total amount credited to the retirement savings account will be paid to the employee.

Choice of Pension Fund Administrator- Employees continue to have the right to choose their PFA. Where an employee fails to open a Retirement Savings Account (RSA) within 6 months after assumption of duty, his employer can now request a PFA to open a nominal RSA for such employee for the remittance of his pension contribution.

Exemption from tax- Clause 10 of the Act states that any interests, profits, dividends, investments and other income accruable to pension funds or asset are not taxable. In addition, any income earned on any voluntary contribution shall not be subject to tax at the point of withdrawal where the withdrawal is made before the end of 5 years from the date of voluntary contribution.

PAYE

PAYE is an acronym for  'Pay as You Earn'. It is a method of collecting personal income tax from employees' salaries and wages through deduction at source by an employer as provided by the relevant sections of the Personal Income Tax Act (PITA). (S.81 of Personal Income Tax Act Cap P8 LFN 2011).

Employment income includes salaries, wages, fees, allowances or other gain or profit from employment including compensations, bonuses, premiums, benefit or other perquisites allowed. Employment income is subject to monthly Pay- As- You- Earn (PAYE) tax is deducted by the employer and remitted to the relevant tax authorities on a monthly basis.

Income Tax Rate

The Income Tax is derived using progressive tax rates, with an initial base of N300,000 at the rate of 7%, and the last income band of N3,200,000 at a tax rate of 24%. Effectively, tax on the emoluments of some low and medium income earners would reduce while those in the high income bracket would pay more taxes.

The minimum tax rate is 1% of gross income. This is applicable if the taxable income is below N300,000.

The Personal Income Tax (Amendment) Act, 2011 listed the following deductions as tax exempt:

  • NHF
  • National Health Insurance Scheme
  • Life Assurance Premium
  • National Pension Scheme
  • Gratuities

Compliance Obligations

Employee compliance obligations

Every employee is required to complete/submit an income tax form for return of income and claims for allowances and relief (Form A), within 90 days of commencement of every year; i.e. 31st March (90 days) of each year to the State Inland Revenue Service through his/her employer.

Employer reporting requirements

Every employer must process/file an employer's annual declaration and certificate (Form H1) and employers remittance card (Form G) for the company, per location where the employees are resident. These forms are expected to be submitted annually on or before 31st January of each year. Monthly remittance of PAYE tax should be made not later than the 10th day of the following month of deduction.

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