Workers Are Encouraged To Join New Pension Scheme
December 10, 2008
Pension reform, which is now the in-thing throughout the world, became necessary due to the problems that bedevilled pension administration in the past. It follows, therefore, that efforts must be made to ensure that pension debacle becomes a thing of the past.
Thus, the importance of safety of the pension fund assets cannot be over-emphasised as the success of the pension reform is hinged on the availability of funds to contributors when they retire. Since the pensioner will utilise the fund at the end of his working life, it becomes imperative that adequate measures be taken for its protection.
Consequently, there are a number of stringent provisions contained in the Pension Reform Act 2004 with the singular objective of protecting the pension fund assets. The Act embodies a number of checks in order to preserve the pension fund assets. Some of these checks are highlighted hereunder.
Separation of Pension Fund Administrator (PFA) and Pension Fund Custodian (PFC): Although both the PFA and PFC deal with pension fund assets, the functions of the PFA and PFC are so clearly delineated that it is difficult for either to misuse the pension funds assets to the detriment of the contributor. At no time will the PFA have the custody of contributions of the employee. The contributions go directly from the employer to the custodian. On the other hand, the custodian will not invest the pension assets except to the order of the PFA.
Pension Fund Custodian Guarantee: Companies proposing to as custodian are required to issue a guarantee to the full sum and value of the pension fund and assets held by it or to be held by it.
Government Pension Contribution: the Pension Act states that Government contribution shall be a first charge on the Consolidated Revenue Fund of the Federation.
Risk Rating Institutions: These are institutions that will be responsible for rating the instruments that pension funds will be invested in. PenCom requires that these risk-rating institutions possess the professional capacity and are licensed to rate the risk of investment instruments.
Compliance Officers: Every PFA is mandated to employ a Compliance Officer who is saddled with the responsibility of ensuring compliance with the provisions of the law regarding pension matters as well as the internal rules and regulations of the particular PFA. They are also required to liaise with PenCom and the Board of Directors of the PFA with regard to the activities of the PFA.
Reporting requirement for PFAs and PFCs: In order to keep track of their activities, the licensed operators are required to make a regular report of their activities to PenCom. Though this is considered an onerous requirement by PenCom but in view of the volume and nature of the funds the PFAs will handle, it becomes necessary to be able to spot any wrongdoing early. Besides this information is expected to be passed on to PenCom electronically and would not constitute a hardship for any fully automated operators.
Statutory Reserve Fund: every PFA is required to maintain a Statutory Reserve Fund, which shall be credited annually with 12.5 per cent of the net profit after tax, or such percentage of the net profit as may be stipulated by PenCom to meet claims.
Sanctions: Clear legal and administrative sanctions have been provided for non-compliance with rules and regulations. Any operator found wanting shall be penalised as provided for in the Pension Act.
Public Disclosure of Information: PFAs and Custodians are required to disclose their rates on return and publish their audited accounts. This will assist in determining how well the operators are doing to prevent collapse of the scheme.
These checks are included in the Act to give the contributors rest of mind. Employees are therefore encouraged to desist from being skeptical about the new contributory pension scheme. One can safely concluded that the pension reform has addressed majority of the problems associated with past pension schemes to a large extent.
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