Is “Gratuity” Compulsory Or Recognised By The Pension Commission (PENCOM)

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Daily Law Tips (Tip 566) by Onyekachi Umah, Esq., LLM.
ACIArb(UK)

IS “GRATUITY” COMPULSORY OR RECOGNISED BY THE PENSION
COMMISSION (PENCOM).

image

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.”

My authorities, are:

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)

#SabiLaw
#DailyLawTips
#SabiBusinessLaw
#SabiElectionLaws
#SabiHumanRights
#SabiLawOnBeatFm
#SabiLawLectureSeries
#CriminalJusticeMonday
#SabiLawVideoChallenge

Speak with the writer, ask questions or make inquiries on this
topic or any other via info@LearnNigerianLaws.com or
onyekachi.umah@gmail.com or +2348037665878. To receive our free
Daily Law Tips, follow our Facebook Page:@LearnNigerianLaws,
Instagram: 
@LearnNigerianLaws and Twitter: @LearnNigeriaLaw

Please share this publication for free till it gets to those
that need it most. Save a Nigerian today! NOTE: Sharing, modifying
or publishing this publication without giving credit to Onyekachi
Umah, Esq. and “LearnNigerianLaws.com” is a criminal breach of
copyright and will be prosecuted.

This publication is the writer’s view not a legal advice and
does not create any form of relationship. You may reach the writer
for more information.

Powered by www.LearnNigerianLaws.com {A Free Law Awareness
Program of Sabi Law Foundation, supported by the law firm of
Bezaleel Chambers International (BCI).}

Daily Law Tips (Tip 566) by Onyekachi Umah, Esq., LLM.
ACIArb(UK)

IS “GRATUITY” COMPULSORY OR RECOGNISED BY THE PENSION
COMMISSION (PENCOM).

image

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.”

My authorities, are:

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)

#SabiLaw
#DailyLawTips
#SabiBusinessLaw
#SabiElectionLaws
#SabiHumanRights
#SabiLawOnBeatFm
#SabiLawLectureSeries
#CriminalJusticeMonday
#SabiLawVideoChallenge

Speak with the writer, ask questions or make inquiries on this
topic or any other via info@LearnNigerianLaws.com or
onyekachi.umah@gmail.com or +2348037665878. To receive our free
Daily Law Tips, follow our Facebook Page:@LearnNigerianLaws,
Instagram: 
@LearnNigerianLaws and Twitter: @LearnNigeriaLaw

Please share this publication for free till it gets to those
that need it most. Save a Nigerian today! NOTE: Sharing, modifying
or publishing this publication without giving credit to Onyekachi
Umah, Esq. and “LearnNigerianLaws.com” is a criminal breach of
copyright and will be prosecuted.

This publication is the writer’s view not a legal advice and
does not create any form of relationship. You may reach the writer
for more information.

Powered by www.LearnNigerianLaws.com {A Free Law Awareness
Program of Sabi Law Foundation, supported by the law firm of
Bezaleel Chambers International (BCI).}

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