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FAQs ON EMPLOYEE’S PENSION UNDER NIGERIAN LAW 

WHAT IS PENSION?

According to the Nigerian Pension Reform Act, pension is a minimum percentage of an employee’s salary required by law to be paid into a contributory pension scheme by both employer and employee for the benefit of the employee during the employment relationship. The law requires employers to pay 10% of employee’s salary into the pension scheme every month while 8% of the employee’s salary is required to be deducted and remitted to the scheme in a similar manner. 

The court in Momodu v. N.U.L.G.E. (1994) 8 NWLR (P. 350. Para. A) described pension as:

‘’A pension is an accrued right of an employee, be the right in money or other consideration, on retiring from the services of his employer and satisfying the conditions for payment of the said pension.’’

IS IT COMPULSORY FOR ALL EMPLOYERS TO MAKE CONTRIBUTORY PENSION PLAN FOR THEIR EMPLOYEES?

No, the Pension Reform Act does not mandate every employer to make a contributory pension scheme for their employees. The Pension Reform Act makes contributory pension schemes compulsory for public service and private employers having not less than 15 employees working in their organisation. 

Section 2 of Pension Reform Act (CAP A2, LFN 2014) provides thus;

“2. (1) The provision of this act shall apply to any employment in the public service of the federation, public services of the federal capital territory, public services of the state, public service of the local government and private sector;

    (2) In case of a private sector, the scheme shall apply to employees who are in employment of an organisation in which there are 15 or more employees;

    (3) Notwithstanding the provision of section (2) of this section, employees of an organisation with less than three employees as well as self-employed shall be entitled to participate under the scheme in accordance with guidelines issued by the commission.”

The above provision neither makes it compulsory for employers having less than 15 employees to apply for the scheme nor exempts them from the scheme. The law only builds shields that preclude anyone from prohibiting any employees of an employer who does not meet the requirement stated in sub-section (2) of the above section from subscribing to the scheme. 

WHEN DOES RIGHT TO ACCESS PENSION CONTRIBUTION ACCRUE?

The Pension Reform Act permits the employee to withdraw from his retirement savings upon meeting the required conditions. According to the Act, every holder of a contributory pension scheme may withdraw from his retirement savings account (RSA) upon retirement or attaining the 50 years of age whichever comes first. Section 7 of Pension Reform Acts (CAP A2, LFN 2014) provides thus; 

‘’A holder of a retirement saving account shall, upon retirement or attaining the age of 50 years, whichever is later, utilise the amount credited to his retirement saving account’’

Section 16 of Pension Reform Acts (CAP A2, LFN 2014) provides thus;

’An employee shall not be entitled to make any withdrawal from retirement saving account opened under section 11 of the act, before attaining the age of 50 years.’’

In R.S.C.E. v. Omubo [1992] 8 NWLR (P. 468, Para, B-F) the court while interpreting the provision of the above section provides thus;

‘’’In a pensionable employment the employee’s right to pension ripens in the year of his retirement. Until then that right is only contingent upon his attaining his age of retirement? In the instant case the Respondent’s right to pension matures upon his attaining the age of 60 in the year 2002.’’

In KASIM V. NNPC (2013) 10 NWLR (P. 1361) 46 at 69, paras. D-F “A party is eligible or entitled to Pension Fund upon reaching the age of 50 years and has paid her entitlement in her account. In the instant case, the trial court was wrong to hold that the appellant was not eligible to access or draw on the fund upon the attainment of the age of 50 years.”

In light of the above authority, it is imperative to state that the R.S.C.E. v. Omubo refers to the retirement age under the act, which is 60 years of age while the KASIM V. NNPC was decided on the age at which an employee shall be entitled to access and withdraw from his retirement saving accounts. The Pension Reform Act provides that an employee shall not withdraw from the retirement savings account until he or she attains 50 years of age. As confirmed by the decision of the court in KASIM V. NNPC, an employee has the right to withdraw from a retirement savings account upon retirement or attaining 50 years of age. The employee’s power to withdraw from his or her retirement savings account arises upon retirement or attaining 50 years, whichever happens first. 

CAN EMPLOYER WITHHOLD OR REFUSE TO PAY AN EMPLOYEE’S PENSION?

No, an employer lacks the power to either withhold or refuse to pay an employee’s pension. This is because pension is a vested right, in the sense that, it is a right conferred on the employee by law (not the contract of employment) and no employer, under any guise, can take it away or deny an employee such right. Failure or refusal of an employer to pay pension would amount to violation of employee’s rights.  

In Momodu v. N.U.L.G.E. [1994] 8 NWLR (P. 350, paras. A-B) the court upheld the foregoing position when it held as follows:

“Pension is a right, which cannot be unilaterally taken away by the employer. In the instant case, the 1st respondent had no right to stop the payment of the pension of the appellant which the 1st respondent had paid to the appellant for a period of about 18 months before stoppage for the reason that the appellant had not surrendered the typewriter in dispute in this appeal as well as the telephone line No. (052) 223449 installed in the appellant’s office of the 1st respondent.”

The court of Appeal further held as follows;

Having held that the appellant was entitled to his monthly pension, the learned trial Judge was wrong in dismissing the appellant’s claim in paragraphs 11(a) & 11(i) of his statement of claim which related to payment of arrears of pension for the period 1/1/87 – 31/12/88 and an order compelling the defendants to pay monthly pension to the plaintiff until his death respectively. 

Employee’s pension is a vested right which is not subject to the whims and caprice of the employer. Employers lack the power to determine when to pay and when not to pay pension. Employers are bound to follow the guidelines provided by the Pension Reform Act, they are not permitted to deviate from it. Any act of the employer in disregard of the Pension Reform Act would be void and of no effects. 

It also follows that the retirement, resignation, and cessation of the employment does not disentitle the employee to accrued pension.  

CAN EMPLOYEE SUE FOR THE BALANCE OF HIS UNPAID PENSION? 

Yes. Pension is a right conferred on an employee by law, so failure or refusal to pay the precise and accurate pension entitles the affected employee  to sue the party withholding the fund. This is because the unpaid pension has become owed to the employee. The court echoes the foregoing position in New Nig. Dev. Co. Ltd. v. Ugbabe (2022) 16 NWLR (P. 142, paras. B-D):

“Where there is failure to conduct correct and precise computation of an employee’s entitlement, he will be entitled to bring an action to ensure adequate and proper computation. In this case, the Court of Appeal rightly held that since the respondent received his pension from the appellant, he is not estopped from seeking payment of his other entitlements if the computation is shown to be wrong in the first place under the applicable circular.”

The court upheld the right of an employee to recover the outstanding balance of his pension that has become due but remains unpaid. The court also held that a debt owed by an employee is not a sufficient excuse to withhold an employee’s pension.

WHEN DOES RIGHT TO SUE ARISES?

The right to sue accrue when pension becomes due but remain unpaid. Also, as soon as the right to access and withdraw pension funds becomes due and the employee is denied or prevented from accessing his pension fund, such employee becomes entitled to institute an action in court to recover his pension. 

It is important to note that this right does not inure in perpetuity, thus the aggrieved party must act timeously otherwise the right may be lost. Where an action is statute-barred, the person who might have had a cause of action loses the right to enforce the cause of action by judicial process, because the period of limitation laid down by the limitation law for instituting such an action has elapsed. 

By law, pension claims must be brought within 6 years of the occurrence of an event which entitles the employee to sue. An action commenced after the expiration of the period within which an action must be brought as stipulated in the statute of limitation is not maintainable. When a statute of limitation prescribes a period within which an action must be brought, legal proceedings cannot be properly or validly instituted after the expiration of the prescribed period.

The court KASIM V. NNPC (2013) 10 NWLR (P. 69, paras. D-F) upheld this position and further explained the fact that an aggrieved employee must sue timeously.

“The statute of limitation for pension claim refers to the amount of time that an individual or his descendants have to file a legal claim relating to a pension plan. Time begins to run when a legal claim accrues or the recipient obtains the right to pursue a legal remedy. A claim to recover benefits accrues upon a clear and unequivocal repudiation of right under the pension plan that has been made known to the beneficiary. The statutes of limitation will begin to run once the beneficiary of the pension has the right to recover the pay out. In determining when the applicable statute of the limitation commences to run, a cause of action accrues and the statute of limitation begins to run on the date on which an employee misses its first instalment, rather than from failure to pay upon withdrawal liability demand or from the date of complete withdrawal.”

CAN PENSION INSURANCE SCHEME BE TERMINATED BY THE EMPLOYER?

Yes where the conditions of service provide that insurance policy would be taken out to insure the pension of the employee, the employer may, upon termination of the employment contract, terminate the insurance scheme of such employee since such insurance policy was taken by reason of their employment relationship. The employer reserves the right to terminate the insurance policy once the relationship no longer exists. The court in R.S.C.E. V. OMUBO [1992] 8 NWLR (PAGE 468/469 PARAS. D-E/G-H) opined as follows:

“Where there is a Pension Insurance Scheme and the employer terminates an employee’s appointment before his retirement age, the employer has the right, subject to being mulcted in damages, to terminate the Pension Insurance Scheme all other employees before the due date for maturity of the scheme. Whereas, where the pension of an employee is insured but his employment is terminated before his retirement age his cash benefit would normally be calculated on how much on the joint contribution on payment of premium on the Pension Insurance Scheme he and the employer had paid.”

The court states that where the appointment of the employee is terminated before retirement, the employer may terminate the insurance policy taken in respect of the employee’s pension scheme and his cash benefit would be calculated based on the amount premium paid in respect of the joint contributory pension scheme. The payment of the employee entitlement under the insurance policy is subject to deductions of the amount debt owed to the employer.

IS THERE ANY PENALTY FOR FAILURE TO REMIT PENSION?

Yes. By virtue of the provision of section 11 (7) Pension Reform ACTS 2014, employers shall on a monthly basis deduct and remit employee’s pension to a chosen Pension Fund Administrator (PFA). Where an employer remitting the pension contribution fails to remit the pension, such employer shall be liable to a penalty that shall be determined by the commission, usually not less than 2% of the total unremitted pension. 

In ATERE V. STEAM BROADCASTING COMMUNICATION LIMITED (2015) 59 NLLR (P.556-557, Para. B-C), the court while citing and relying on the provision Pension Reform Act 2004, held as follows:

“Any employer who fails to remit the contribution within the time prescribed in the paragraph (b) of subsection (5) of this section shall, in addition to making the remittance already due, be liable to a penalty to be stipulated by the commission provided that the penalty shall not be less than 2% of the total contribution that remain unpaid for each month or part of each month the default continues and the amount of the penalty shall be recoverable as debt owing to the employee’s retirement saving account as the case may be.”

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