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CPS: Employers may review workers’ welfare package

By on February 1, 2016

There are indications that many employers under the Contributory Pension Scheme are considering a downward review of the welfare packages of their workers following the increase in the obligations to their employees’ retirement.

Employers who were contributing 7.5 per cent of the workers monthly emolument into their Retirement Savings Account to augment the employees’ contributions are now required to increase their contribution under the Pension Reform Act 2014.

Under the new dispensation, employers are required to pay 10 per cent while the employees are to contribute eight per cent of their monthly emoluments to the RSA.

The Deputy Managing Director, Linkage Assurance Plc, Dr. Pius Apere, said the increase in the employer’s contribution into the RSA could cause companies to slash the worker’s benefit package.

He said, “The increase in employer’s compulsory contribution rates from 7.5 per cent to 10 per cent in the Contributory Pension Scheme has significantly increased the employment costs and due to affordability, companies may need to review the levels and design of their total employee benefit packages.”

While speaking on the implication of the PRA 2014 on the management of private sector gratuity and pension scheme, he said this review would pose a greater challenge to employers without an actuarial input.

Apere, who is an actuarial scientist, said that the statutory regulation of the PRA 2014 did not give any guidelines on pension scheme valuation method.

He said the choice of valuation method was at the discretion of the actuary, leading to non-standardisation of valuation results.

According to him, employers operating unfunded (PAYG) gratuity scheme use the book reserving methodology (which requires making provisions in the company’s accounts for unfunded benefit liabilities payable in the future for which no funds have been set aside) being the most appropriate valuation method for unfunded schemes.

The balance sheet of the company, he added, would show the full value of the unfunded benefits as liabilities of the company and there would be no specific assets earmarked for the benefits.

He listed the challenges of book reserving as insecurity of reserves, liquidity problems, overstatement of profits for taxation and insecurity of benefits.

The deputy managing director said the engagement of actuaries (as required by law and/or scheme trust deed/rules) in the management of private sector gratuity/pension schemes would result in adequate assessment of funding needs, thereby reducing the risk of insolvency.

He said that actuary’s expertise could be used in managing the risks arising from the administration of the scheme.

Apere said the main objective of the PRA 2014, as far as private sector schemes were concerned, was to establish uniform rules, regulations and standards for the administration and payments of retirement benefits as and when due.

“This objective is aimed at improving the management of private sectors. In addition, there are other reasons why scheme sponsors would seek to improve the management of their schemes,” he added.

The National Pension Commission had also said it scaled up its compliance and enforcement strategies in order to enhance compliance with the provisions of the PRA 2014.

PenCom said sanctions were applied in line with the compliance framework, adding that it organised public enlightenment programmes as well as collaborated with various stakeholders to enhance compliance.