Is Gratuity compulsory Or Recognised By The Pension Commission (PENCOM)? Daily Law Tips (Tip 566) by Onyekachi Umah, Esq., LLM. ACIArb(UK)
It was common some decades ago, to find private companies and businesses pay huge retirement lump sums (gratuities) to their workers upon retirement. Today, it appears only governments (local, state and federal) pay gratuity (although not huge anymore), since most privately-owned businesses are grudgingly remitting their statutorily compulsory retirement savings contributions for their workers. For a balanced history, Pension Act 1990 notwithstanding, there was little or zero regulation for pension and retirement benefits, hence, some private workers and even government workers lost their gratuities and monthly pensions to some unscrupulous companies, directors, pension boards and committees, wonder banks, insurers, liquidations mergers and takeovers.
“Gratuity” in this work refers to lump sum paid by employer to a worker upon retirement aside any periodic pension payable to such retired worker. “It is in the nature of fringe benefit given to an employee for a deserving meritorious service,” according to OREDOLA ,J.C.A in case of INTELS (NIG) LTD & ORS v. BASSEY (2011) LPELR-4326(CA). This work applies to all workers in Nigeria, both workers in private sector and public sector.
Nigeria now has a better regulated pension administration for public (government) and private (non-government) workers in Nigeria. The Regulator of the sector is the National Pension Commission (PENCOM) with its headquarters at 174 Adetokunbo Ademola Crescent, Wuse, Abuja and website at https://www.pencom.gov.ng. Unlike most regulators in Nigeria, the PENCOM had its establishing and operational law (Pension Reform Act) amended in 2014 (after 10 years from the previous Act of 2004). Now there is a uniform set of rules and regulation for pension administration and payment of retirement benefits to all workers in Nigeria.
In Nigeria, there is a compulsory Contributory Pension Scheme, where each employer and his worker contribute separate minimum percentages of the worker’s monthly salary to the retirement savings account of the worker. An employer must contribute a minimum of ten percent of his worker’s monthly salary and the worker must contribute a minimum of eight percent of his monthly salary. The retirement savings account of a worker is managed by a third party (Pension Fund Administrator) chosen by the worker. The contributed fund deducted at source must be sent by employer within seven working days after payment of salary to worker. The fund is sent by employer to a Pension Fund Administrator through a third party (Pension Fund Custodian) chosen by the Pension Fund Administrator of his worker. An employer can never have access to his worker’s Retirement Savings Account. A worker cannot access his Retirement Savings Account unless he is fifty years old and retired or has been jobless for about four months or in some other specialized circumstances. Members of Armed Forces, Intelligence and Secret Services of Nigeria are exempted from the Contributory Pension Scheme.
Upon retirement, a worker goes to his Pension Fund Administrator (PFA), his PFA pays a lump sum out of the worker’s Retirement Saving Account, leaving the balance in the account for payment of monthly/quarterly pension to the worker, until the worker dies and his next-of-kin inherits the balance. The above state of affairs, often make employers and workers worry and ask if workers are still entitled to gratuity (lump sum) payment from the company upon retirement? Also, does PENCOM permit, or at least recognize payment of gratuity by employers even after contributing to the Retirement Savings Accounts of their workers?
The Pension Reform Act, the PENCOM as well as the Contributory Pension Scheme, provide only but a compulsory minimum pension and retirement benefits, that an employer must offer to a worker and that a worker must obtain in Nigeria. Hence, employers are free to offer higher monthly contributions towards workers Retirement Savings Accounts and can also pay any additional gratuities, farewell packages, thank-you allowances and any other retirement benefits to workers. Pension Reform Act and PENCOM recognize, permit, approve and allow such additional/extra retirement benefits but does not mandate employers to do such.
However, where an employer has gratuity and other higher retirement benefits contained in the terms and conditions of service (employment agreement) of a worker, such employer is legally bound by the employment agreement as well as by the Contributory Pension Scheme. So, in whatever retirement benefit an employer offers, he must also adhere strictly to the Contributory Pension Scheme. Workers and employers cannot waive their rights and duties under the Contributory Pension Scheme, it is a creation of an Act of Parliament and cannot be waived by any person.
I will end this work with the golden words of Justice Walter Onnoghen (former Chief Justice of Nigeria), as quoted by Abimbola Osarugue Obaseki-Adejumo, J.C.A in the case of UGBECHE v. NNPC (2016) LPELR-42033(CA).
“Pension is serious matter. It is designed to cushion the retiree from the hardship of life in retirement and to also serve as a reward for the retiree’s past meritorious service to the employer. Therefore, pension benefit should have a human and humane face. The accomplished Jurist Onnoghen JSC said notably for pension in the case of the Central Bank of Nigeria v. Amao and Ors (2010) 15 NWLR (PT. 1219) 271 @ 307 thus: “It is important for every organization in this country, including the appellant, to wear a human face in its treatment of the people, particularly the senior citizens, because it will be anybody’s turn tomorrow to be a senior citizen. We must reexamine our attitude towards the senior citizens of this country so as not to make them regret their sacrifice for the nation in whatever capacity. The respondents need not be put to the expenses of litigating this matter in the first place let alone all the way to the Supreme Court.”
1. Sections 1, 2, 5, 7(1)(a) and (e), 8, 11, 17, 18, 120 and 121 of Pension Reform Act, 2014.
2. The Supreme Court’s judgement (on pension) in the case of CENTRAL BANK OF NIGERIA V. AMAO AND ORS (2010) 15 NWLR (PT. 1219) 271 @ 307
3. The Court of Appeal’s judgement (on meaning of salary, gross salary, net salary and gratuity) in the case of INTELS (NIG) LTD & ORS v. BASSEY (2011) LPELR-4326(CA)
4. The Court of Appeal’s judgement (on pension) in the case of UGBECHE v. NNPC (2016) LPELR-42033(CA)
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