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Thu, Aug 10, 2023 2:15 PM

Contributory Pension Scheme: Roles and Responsibilities of Employers and Employees

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Contributory Pension Scheme: Roles and Responsibilities of Employers and Employees
Under the Contributory Pension Scheme (CPS), both employers and employees have important roles to play in ensuring a seamless retirement for employees. This article discusses the responsibilities of employers and employees in relation to the CPS, including the need for an employer code, timely remittance of pension contributions, and the procurement of group life insurance. The article highlights the benefits of fulfilling these obligations and emphasizes the importance of fostering a culture of personal financial planning.

It is essential for both employers and employees to understand their roles and responsibilities under the Contributory Pension Scheme (CPS). The CPS, established by the Pension Reform Act 2014, aims to provide a seamless retirement experience for employees by ensuring adequate retirement savings and financial protection.

The Employer's Role

Employers have several key responsibilities under the CPS. One of the first steps for employers is to obtain an employer code from the National Pension Commission (PenCom). The employer code serves as a unique identifier, enabling effective tracking and monitoring of the employer's pension obligations.

To obtain an employer code, employers must provide a company registration certificate issued by the Corporate Affairs Commission (CAC), a Tax Identification Number (TIN), and an application letter on the company's official letterhead.

One of the fundamental obligations of employers under the CPS is the regular payment of pension contributions on behalf of their employees. Employers must deduct the monthly contributions from employees' salaries, not later than seven working days from the day salaries are paid. The deducted amounts, comprising 8% in respect of the employee and 10% employer contribution, must be remitted to the Pension Fund Custodian (PFC) specified by the employee's Pension Fund Administrator (PFA).

Timely remittance of pension contributions helps build employees' retirement accounts over time, ensuring adequate liquidity for future retirement plans, such as programmed withdrawal or life annuity. Employers who fail to remit contributions within the stipulated time frame are liable to pay a penalty, which is recovered as a debt owed and deposited into the employee's Retirement Savings Account (RSA).

Furthermore, employers must ensure the procurement of a Group Life Insurance Policy (GLP) for their employees. The GLP provides financial protection to employees' families in the event of their death while in active service. The insurance policy pays the sum assured benefits to the next of kin or dependent of an employee who passes away during their employment.

The Employee's Role

Employees also have important responsibilities under the CPS. They are responsible for initiating the process of opening a Retirement Savings Account (RSA) to accumulate their pension contributions. An RSA is a personalized account that enables individuals to save for their retirement.

Employees should have their RSAs duly registered to commence contributions promptly. However, if an employee has not opened an RSA within six months of employment, the employer must open a Nominal RSA for the employee. This ensures that the employee's pension contributions are not neglected and facilitates a smoother transition once the employee establishes their RSA.

Benefits of Fulfilling Obligations

By fulfilling their obligations under the CPS, employers and employees contribute to the stability and growth of the pension fund. Timely remittance of contributions and the procurement of group life insurance enhance the overall integrity of the pension system, ensuring financial security for employees and their families.

For employers, obtaining an employer code demonstrates their commitment to transparency and accountability within the pension system. It also enables effective monitoring and tracking of their pension obligations. Employers who prioritize the CPS and fulfill their responsibilities contribute to a retirement landscape built on trust and transparency.

Employees who actively participate in the CPS and open their RSAs demonstrate a culture of personal financial planning. Regular pension contributions strengthen their retirement prospects and instill financial discipline when made consistently. Additionally, having a group life insurance policy provides employees with the assurance of financial protection for their families in the event of an unfortunate incident.

In conclusion, the successful implementation of the Contributory Pension Scheme requires the active participation of both employers and employees. By understanding and fulfilling their roles and responsibilities, employers and employees contribute to a retirement system built on trust, transparency, and a shared vision for a dignified future for all employees.

Source of content: OOO News 2023-08-10 News

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