Signed into law on July 1, Nigeria’s Pension Reform Act 2014 requires private sector employees, under certain conditions, to participate in a new compulsory contributory pension scheme. With higher rates and a broader scope for participation under the Scheme, international assignees to/from Nigeria and their employers will see increased pension-related costs and administrative burdens.
Private sector employees, under certain conditions, will be required to participate in a new Nigerian compulsory contributory pension scheme, under the terms of a new law.
On 1 July 2014, Nigeria’s President signed the Pension Reform Act 2014 (“PRA 2014” or the “Act”) into law.1 PRA 2014, which repeals the Pension Reform Act No 2 of 2004, governs and regulates the administration of the new contributory pension scheme (“the Scheme”) in Nigeria.
This Flash International Executive Alert provides a brief summary of some of the key provisions contained in the version of the Act signed by the President.
Now Nigerian employees, whether in the private or public sector, will have the framework and means to save in preparation for their retirement and receive adequate retirement benefits as and when due. The Act takes a stronger stance (as compared with the rules under the Pension Reform Act No. 2 of 2004) to protect the participants under the scheme and ensure enough funds are available for them at retirement.
This new statute means, however, that there will be new fiscal and administrative responsibilities on the part of employers in terms of proper documentation, payroll deductions, remittances, etc., as well as new costs tied to employment. Employees participating in the scheme will also see their disposable incomes affected once their contributions, effected through payroll deductions, kick in.
International assignees to/from Nigeria and their employers who are subject to these rules will see their pension-related costs go up. The minimum rate of pension contribution under the previous rules was 15 percent (with employee and employer contributing 7.5 percent each); now, under the new rules the rate is set at a minimum of 18 percent (with contributions from employee and employer rising to 8 percent and 10 percent respectively).
The version of the Act signed by the President does not provide a commencement date. In such a situation, and pending the possible proposal of a commencement date by the Pension Commission, the date of presidential assent (i.e.,1 July 2014) should be assumed to be the commencement date.
The newly enacted Pension Reform Act, 2014, repeals a 2004 law, and provides for the following (in summary):
1 For more information on the new pension reform law, see the website for the National Pension Commission: http://www.pencom.gov.ng/.
For a more complete examination of the Act, see “The Pension Reform Act 2014” (July 2014), published by KPMG Advisory Services in Nigeria, a member firm of KPMG International.
The information contained in this newsletter was submitted by the KPMG International member firm in Nigeria.
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