This is a continuation of the National Pension Commission, PenCom, presentation to the Senate and House of Representatives joint committee on pension.
xii.Funding of the Minimum Pension Guarantee and the Establishment of the Pension Protection Fund (Ss. 82 – 84 of the Bill)
The PRA 2004 provides for the payment of a Minimum Pension Guarantee (MPG) to RSA holders who have contributed for a number of years under the CPS. However, the Act did not make provision for the funding of the MPG. Accordingly, the PRA 20013 Bill provides for the establishment of a Pension Protection Fund (PPF) which would be used as part-funding for the MPG as well as compensation to pensioners in the unlikely event of financial losses sustained from investment of pension funds. The PPF will be funded through grants and contributions by the Commission and pension operators.
xiii. Provision on Payment of Death Benefits (S. 8 of the Bill)
In the course of implementation of the PRA 2004, PFAs became inundated with challenges of applying the provision of Section 5 of the PRA 2004 on Death Benefits. First, the provision yields itself to different interpretations and also appeared not to be in conformity with Succession Laws, which is a Residual legislative matter, an exclusive preserve of the States under the Constitution.
Review of pension
Accordingly, the Bill seeks to amend the provision such that PFAs would only be required to hold RSA balances in trust for the estate of the deceased for onward transmission to the executor of a will or Administrator of the estate of the deceased, in conformity of Administration of Estate Laws of various States.
xiv. Periodic Review of Pensions (S. 15 of the Bill)
The right of retirees under the CPS to review of pension with respect to their accrued rights has not been captured under the PRA 2004. The 2013 Bill therefore seeks to align with the provisions of Section 173 of the 1999 Constitution dealing with the right of public servants to pension review every 5 years especially as it relates to their accrued pension rights. The amendment also seeks to avoid needless litigations seeking to enforce the constitutional provision.
xv. Exemption of Income on Investment of Pension Fund from Tax (S. 10 of the Bill)
Although Sections 7 and 10 of the PRA 2004 provide for tax exemption at the point of accumulation and payment of retirement benefits, the Act is silent on taxation of income from investment of pension funds. In order to ensure real returns on investment of pension funds and ultimately enhance the retiree’s retirement benefits, the income earned on investment of pension funds should also be exempted from taxation. Thus, Section 7 of the PRA 2004 is being amended to include tax exemption on income from investment of pension funds. That was the position prior to the enactment of the PRA 2004 when the approval of pension schemes was under the purview of the Joint Tax Board.
xvi.Upward Review of Minimum Rate of Pension Contribution (S. 4(1) of the Bill)
Stakeholders have observed that the minimum pension contribution of 15% of employee’s monthly emolument is not adequate enough to generate the required retirement benefits for the worker. It has also been argued that the equality of the 7.5% rate of contribution payable by both the employer and the employee is not equitable especially because the employer has a stronger financial muscle.
Consequently, the PRA 2013 Bill proposes an upward review of the rate of contribution and the proportion of the rate payable by the employer and the employee. The proposed minimum rate is 20% of the monthly emolument: 12% by the employer and 8% by the employee.