Nigeria: Pension Contributions – Is It For Everyone?

Last Updated: 1 April 2019
Article by Perchstone & Graeys

It was a Friday like any other for Mr. Paul, a 65 year old Accountant working with a medium sized organisation. Mr. Paul stepped into the office complex at his usual punctual time holding his black brief case and with a smile on his face. To his greatest surprise however, he was welcomed with a standing ovation by his colleagues who cheered him as he made his way to his desk. It wasn't just another day, it was his last day of work. As an employee who had faithfully served his employer for 30 years and being at the brink of retirement, the post-employment realities became glaring to Mr. Paul. He was excited about what the future held for him and at that moment, his perceived reward (end of service benefits and pension pay outs).

Fast-forwarding to a few weeks after retirement, Mr. Paul pays a visit to his Pension Fund Administrator, only to find out that his account was empty. Nothing was remitted!. He was shocked and greatly dismayed. Where lies the cushion to a retiree like Mr. Paul in the absence of a pension? Aren't all employers, like those of Mr. Paul, required to ensure pension remittances? Where the employer has failed and the employee is no longer with the organisation (or retired like in the present case), can the employer simply pay all unremitted sums/deductions directly to the employee?

Whilst an employee is presumably entitled to his pension, there may be circumstances where an employer may not be required to make pension deductions and/or contributions. This was considered in the recent case of National Pension Commission V. Omatek Computers Limited, where the National Industrial Court ("NIC"/ "Court") analyzed certain factors that must be established before an employer can be held liable to make pension contributions.

Facts

An employee of Omatek Computers Limited (OCL), Mr. Ayinde Oladimeji filed a complaint with the National Pension Commission ("Commission"), alleging that during his three years of employment, his employer remitted his pension contributions into his Retirement Savings Account only once, despite making deductions from his monthly salary. Considering its powers under the Pension Reform Act 2014, the Commission wrote several letters to OCL and demanded that OCL remit all outstanding contributions due to its employees and  former employees who had, at different times, filed complaints to the Commission on the same issue.

Following OCL's failure to comply with the directives of the Commission, the Commission instituted an action against OCL at the National Industrial Court seeking, amongst other reliefs:

  1. A declaration that the defendant had by its failure, neglect and refusal to remit its employees' and its own counterpart portion of the monthly pension contributions to the respective employees' Retirement Savings Accounts with their Pension Fund Administrators is in a flagrant breach and in violation of both the Pension Reform Act, 2014 and the 1999 Constitution of the Federal Republic of Nigeria (as amended).
  2. An order directing the defendant to furnish to the claimant complete evidence of remittance and to always remit the employer and employee portion of the contributory pension in line with the provisions of the Pension Reform Act, 2014 with the attendant schedules.
  3. An order directing the defendant to pay all outstanding monthly employer & employee pension contributions of its former and current employees at the rate of 75% (sic) respectively up till June 2014, and from then hence, at the rate of 10% and 8% respectively, plus 2% interest penalty on the sums due to each employee in line with the Pension Reform Act, 2014.

Finding/Decision

The court, in dismissing the suit, approached the issues under the following subheads thus:

  1. Who is an 'employer' under the Pension Reform Act (PRA) 2014: Section 120 of the PRA 2014 defines an employer as any organization or business that employs three persons or more. In essence, the minimum threshold needed by law before an employer can be bound by the provisions of the PRA 2014 is the employment of at least three employees.
  2. Obligation to open a Retirement Savings Account: It is the primary obligation of an employee to open a Retirement Savings Account with a Pension Fund Administrator within six months of assumption of office. Where the employee fails to do so, the employer is duty bound to open a nominal retirement savings account on behalf of the employee.
  3. Duty of an employer to make deductions: Under Section 11(3) of the PRA, an employer is obligated to deduct at source the monthly contribution of the employee and within 7 (seven) days of such deduction remit the amount to the Pension Fund Custodian mentioned by the Pension Fund Administrator (PFA).
  4. Proof of an employer's obligation to make pension contributions: It is not enough to simply allege that an employer is liable to make pension contributions or generally state that an employer has more than the minimum statutory number of employees. The claimant must specifically plead the exact number of employees of the employer to enable the Court to determine whether the employer falls within the purview of the PRA. In this case, the Commission's pleadings did not state the exact number of the employees of OLC, neither did it lead any evidence in that regard. Consequently, the Court held that it cannot make a finding on the basis of speculation or conjecture. As such, once it is not known if a company comes within the purview of the PRA, a claim for pension cannot be considered or granted.

Comments

From the wording of PRA 2014, which was reaffirmed by the NIC in this case, for any organization to be bound by the provisions of PRA, it must have up to three employees and this must be established in any action to enforce the provisions of the PRA. This is not to say however, that an employer who is not bound by the PRA, but who deliberately or inadvertently makes deductions from an employee's salary and fails to remit same will be permitted to withhold same on grounds that it is not bound by the PRA. In such cases, the law permits employees to make a claim for a refund of the sums deducted by the employers in the form of 'monies had and received by the employer'. The Supreme Court has held that "a claim for "money had and received" is in the nature of an equitable remedy to discourage unjust enrichment. It is to prevent a defendant from holding on to money which has come into his possession, which it is against conscience that he should keep."1

On the other hand, where an employer bound by the PRA makes deductions from an employee's salaries and fails to make proper contributions and remittances as required by law, an employee is entitled to institute an action to compel the employer to do so. A point to note however, is that an employee cannot seek to compel an employer to pay pension directly to him/her. Section 11(3) of the PRA is clear on the fact that an employer shall remit an amount comprising the employer and employee's respective contributions to the Pension Fund Administrator of the employee. This position was re-emphasized by the NIC where it held that "......the Pension Reform Act, whether 2004 or 2014 does not envisage the payment of pension directly to an employee by the employer". This means that the claim by the claimant that the pension contribution not remitted by the defendant should be paid directly to him cannot to that extent be granted since payment can only be made to an employee's PFA...".2

In all, a careful review of the provisions of the PRA viz-a-viz the structure and composition of an employer is paramount in pension related matters.

Corporate Corner:

Did you know that, every director of a company is required to exercise the powers and discharge the duties of his/her office honestly, in good faith and in the best interests of the company, and shall exercise that degree of care, diligence and skill which a reasonably prudent director would exercise in comparable circumstances. Any failure by a director in this regard shall ground an action for negligence and breach of duty; Section 282 of the Companies and Allied Matters Act (CAMA). In the same vein, the matters to which the director of a company is to have regard in the performance of his functions include the interests of the company's employees in general (including pension contributions) Section 279(4), CAMA.

Footnotes

1. First Bank of Nigeria Plc v Alexander N. Ozokwere (2013) LPELR-21897(SC)

2. Mr. Agbonyi Agbo Geoffrey v. Dangote Agrosacks Limited (Suit No. NICN/LA/315/2013)

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