Recoverability or Otherwise of Dismissed Employee’s Pension Contributions From The Employer: An Insight

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The contributory pension scheme was first introduced in 2004 pursuant to the PENSION REFORM ACT 2004 (“the 2004 Act”). In 2014, the 2004 Act was repealed by the PENSION REFORM ACT 2014 (“the 2014 Act”). Section 3 of the 2014 Act establishes the contributory Pension Scheme which applies to employment in both Public and Private Sectors.

This is a scheme that mandates both the employer and the employee to be responsible for contributing into a long term fund/account whose proceeds will serve as retirement benefits or gratuities to the employee. Contributions into the employee’s pension account under the scheme is mandatory for both the employer and the employee under section 3(2) of the 2014 Act, and the employer is the one conferred with the duty to make deductions from the employer’s salary and pay same together with the employer’s contribution to the employee’s pension fund. This is instructive under section 11 of the 2014 Act.

For the avoidance on doubt on the extent of liability to contribution, section 4(1) of the 2014 Act highlights the rates to be contributed to the employee’s pension account. Section 4(1) is, for ease of reference, below reproduced:
“The contribution for any employee to which this Act applies shall be made in the following rates relating to his monthly emoluments—
(a) A minimum of ten per cent by the employer; and
(b) A minimum of eight per cent by the employee.”

Two major implications can flow the combined reading of sections 4(1) and 11 of the 2014 Act. The first is that there is a duty in law imposed on both the employer and the employee to contribute monthly in favour of an employee to a pension account to be opened by the employee with any pension administrator of his/her choice. The second is that once the employee has discharged his/her official duty and earned his/her monthly emoluments, the employee has, for that month, earned an enforceable pension right to have the employer contribute 10% of the employee’s monthly emoluments into a pension account being operated by the employee, in additional to the 8% deduction made from the employee’s emoluments and contributed into the account for the same purpose. The right is termed accrued pension rights.

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The employer’s legal duty to contribute 10% of the employee’s emoluments is a right that is earned monthly by the employee, subject to diligent discharge of his/her duty. Once the pension right has accrued monthly, the employer’s duty to contribute to the employee’s pension account must be exercised within seven (7) days. It does appear that this right, once earned by the employee, cannot be taken back by the employer even upon dismissal of the employee by the employer for gross misconduct or any other serious allegation.

There are two reasons for this—

1.) The right is a monthly accrued pension right that confers exclusive property on the employee within seven (7) days after the payment of the employee’s salary; and

2.) The employee is the exclusive owner of and sole signatory to the pension account. Once the right has accrued monthly and the employer has made his contribution to the employee’s pension account, he does not have any claim or right to the proceeds in the account.

Owing to the periodic nature of the accrual of the pension contribution right and the fact that employer is under obligation to pay his contribution and the employee’s contribution into the employee’s pension account within seven (7) day after paying the employee’s salary, where the employer fails to make the contribution on the ground of the dismissal of the employee, the employee can bring an action in court or file a petition before the National Pension Commission against the employer to recover the pension right that accrued before the date of the dismissal.

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Even where the dismissal is justifiable on ground of gross misconduct, the quantum of benefits that can be taken away from the employee by the employer is the employee’s accrued entitlements for the month the dismissal took place on the one hand and the employer’s 10% pension contribution to the employee’s pension account on the other hand. While the reason for the forfeiture of the former is the dismissal, the reason for the forfeiture of the latter is because it rests on the former.

It will appear certain that with the coming into effect of the 2014 Act, the regime of forfeiture of employee’s life entitlements or gratuities upon dismissal either in Public or Private Sector has been reviewed. Unlike the old regime under the 2004 Act where pension rights accrued at termination of or retirement from service, under the 2014 Act the right accrues monthly and what has been earned and contributed or ought to have been contributed by the employer to the employee’s pension account within seven (7) day after the payment of the employee’s salary cannot be forfeited again upon dismissal of the employee. It is a right that has been earned and it accrues monthly.

In conclusion, in the light of the 2014 Act, the only benefits or entitlements that can be taken away from an employee under a contract of employment are employee’s accrued entitlements for the month the dismissal took place. This includes the employee’s emoluments for the month of the dismissal and the 10% pension contribution ought to be made by the employer for the month of the dismissal. Any contributions that accrued before the time of dismissal can be recovered by the dismissed employee from the employer as ea pension rights already earned. What was obtainable during this time was the payment of a lump sum known as gratuities/pensions under the Pension Act 1974 with respect to public service and similar provisions in contracts of employment in the private sector.

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Bolaji Ramos, LL.B, B.L, LL.M

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