The National pension scheme is a compulsory arrangement where both employees and employers put some funds aside to ensure the employee has a source of income at retirement or when he or she is out of work for either a temporary or permanent out of work. The Pension Reforms Act (PRA) 2014 is the principal law that regulates and mandates the contributory pension scheme in Nigeria.
The PRA 2014 requires every employer with three (3) or more employees to contribute a minimum of 10% of employee's total emoluments to the employee's retirement savings account (RSA), not later than 7 working days from the day the employee receives his emolument.. The employer is also required to deduct 8% of total emoluments from the employees and pay the amount deducted into the employees RSA. The PRA 2014 also provides for individuals to make "voluntary" contributions to their pension fund.
A tax relief, equal to the amount of pension deducted from the employee, is granted to against taxes payable by employees to the relevant tax authority. The tax relief also extends to voluntary contributions made.
Self-employed persons and businesses with less than three (3) employees may choose to participate in scheme and make voluntary contributions. A draft framework and guideline for micro pension plan is currently being finalized. This serves to provide guidance on how self-employed persons and businesses with less than three (3) employees can participate in the scheme.
- An individual may have access to his or her pension contribution where he or she:
- is disengaged from employment on medical grounds;
- stops employment before the age of 50 and in accordance with his or her terms of employment;
- disengages or is disengaged from employment before the age of 50 and is unable to secure employment within 4 months of disengagement (under this scenario, the individual can access only 25% of the funds in his or her retirement savings account);
- retires or attains the age of 50 years, whichever is later or
- is disengaged as a result of permanent disability to the mind or body
To be continued in the subsequent article...