The new pension contribution and collection system, paper presented by PenOp CEO, Mr. Oguche Agudah

Current situation of pension remittance

Electronic remittances without schedules:

Some employees send schedules for their staff, leading to unmatched pension remittances. This situation raises concerns about the potential loss of value for Retirement Savings Account (RSA) holders.

Pin up-load exceptions:

Issues related to PIN upload exceptions further complicate the reconciliation process. Remittances may be made for employees without valid RSA PINs, which prevents proper allocation of funds.

No standardization:

There is a pressing need to standardize the format of remittance schedules to facilitate easier processing and reconciliation by Pension Fund Custodians. A standardized format would help ensure that all necessary information is included with each remittance.

Low level of employer’s awareness:

Enhanced training for employers on the importance of accurate remittance processes and the use of electronic payment platforms is crucial. Educating employers about their responsibilities can help reduce errors and improve compliance.

Disadvantages of current situation

Administrative bottlenecks:

The process of reconciling unmatched contributions often involves bureaucratic hurdles that delay resolution, further exacerbating the problem

Unmatched contributions:

The lack of accompanying schedules for electronic remittances leads to a high volume of unmatched contributions in the Contribution Reconciliation Accounts (CRA). This results in funds remaining uncredited to Retirement Savings Accounts (RSAs), causing inefficiencies in the system

Increased regulatory scrutiny:

Persistent issues with remittances may attract increased scrutiny from regulatory bodies like the National Pension Commission (PenCom), leading to stricter regulations that could impose additional burdens on PFAs and employers.

Undetermined employers:

Many electronic payment channels do not reflect the name of the remitting employer or the sending bank, making it difficult for PFAs to identify and allocate contributions accurately. This lack of transparency complicates the reconciliation process.

The new solution? What has change? (Engagement of PSSPs)

Four PSSPs have been selected and engaged to facilitate pension remittances, ensuring that all platforms meet industry specifications. This includes PayPen by Netline Ltd., Paythru by Pethahiah by Rehoboth International Ltd., Pension Central by Chams, and Cyberpay by Cyberspace Ltd.

Regulatory framework enhancement:

Recent changes in regulations have increased the Minimum Regulatory Capital Requirement for PFAs, prompting mergers and consolidations aimed at enhancing operational efficiency.

Standardized template for remittance schedules:

Develop and enforce standardized templates for remittance schedules to ensure uniformity in the information provided

Use of technology

Leverage technology solutions such as automated systems for pension fund management that can reduce human errors in data entry and improve overall efficiency in processing contributions

Validation checks on electronic platforms:

Introduce validation checks on electronic payment platforms to verify the accuracy of information before submission. This includes validating PINs to reduce the number of invalid entries that lead to upload exceptions

Increased awareness:

There is a growing recognition among stakeholders about the importance of timely remittances and accurate documentation, leading to better compliance practices among some employers?

What is the advantage of the new solution?

Enhanced accuracy efficiency:

By requiring remittance schedules to accompany payments, the accuracy of contributions credited to Retirement Savings Accounts (RSAs) is significantly improved. This reduces the likelihood of unmatched contributions, streamlining the reconciliation process

Standardized scheduled collection:

Elimination of PDF schedules for pension remittances received via the collecting Banks’ branches and other electronic mediums (via e-mails). This will not be immediately.

Timely credits to RSAs:

Elimination of PDF schedules for pension remittances received via the collecting Banks’ branches and other electronic mediums (via e-mails). This will not be immediately.

Support for economic development:

A well-functioning pension system contributes to economic stability by mobilizing long-term savings for investment in various sectors. Timely pension remittances enhance this effect by ensuring that funds are available for investment purposes.

Increased transparency:

A more transparent remittance process allows for better tracking and reporting, which can enhance trust among stakeholders, including employees, employers, and regulatory bodies effectiveness.

What should RSA holders know?

Rights to choose a pension fund administrator:

RSA holders have the right to select a PFA of their choice without any interference from employers or third parties.

Right to time remittance of contributions:

Employers are mandated to remit both employee and employer contributions to the RSA within seven working days of salary payment

Right of retirement benefits:

Upon retirement or reaching the age of 50, RSA holders can access their retirement benefits through programmed withdrawals or annuities, depending on their preference.

Right to earn penalties on late remittances:

If employers fail to remit contributions on time, RSA holders are entitled to a penalty charge of 2% on late remittances for each month the default continues

Right to use balance for specific purposes:

Recent guidelines allow RSA holders to access part of their savings for equity contributions towards residential mortgages, provided they meet certain eligibility criteria

Understand retirement options:

DRSA holders should familiarize themselves with the different options available for accessing retirement benefits, including lump sum withdrawals and annuities, to make informed decisions upon retirement

What should employers know?

Mandatory contributions:

Employers are legally required to contribute a minimum of 10% of an employee’s monthly emoluments to their Retirement Savings Account (RSA). Employees must contribute at least 8%, making a total minimum contribution of 18%. If an employer decides to cover all contributions, the minimum is 20%

Timely remittance:

Contributions must be remitted to the Pension Fund Custodian within seven working days from the date employees are paid their salaries. Failure to do so is illegal and attracts penalties, including a minimum fine of 2% on unpaid contributions for each month of default.

Life insurance coverage:

Employers are also required to provide life insurance coverage for their employees, ensuring additional financial security in case of unforeseen events

Support for retiree employee planning:

Employers can assist employees by providing resources for retirement planning, such as financial planning workshops, access to retirement calculators, and personalized advice on managing their pensions effectively

Clearance certificates:

Employers who comply with pension remittance requirements can receive Clearance Certificates from PenCom, which are essential for eligibility in government contracts and other business opportunities