National pension commission (PENCOM): History, role, and function

Pension schemes in Nigeria have evolved over the years. But it’s so surprising that many employees and business owners are not aware of the current trend that will ultimately shape their future in old age.

As an employee, whether for the government or the private sector, the need to have a firm understanding of the role PENCOM plays in ensuring your gratuity and pension are well guaranteed and secured becomes very important. This understanding will guard you against unscrupulous elements who may want to make merchandise for you. But if you take out time to read and digest this article, then you will have armed yourself beforehand.

In this article, you will understand what the PENCOM stands for, its history, role, and function in ensuring the effective implementation of the 2004 Pension reform act.

PENCOM and its History

The authority responsible for regulating, overseeing, and guaranteeing the responsible governance of pension affairs in Nigeria is the National Pension Commission, the 2004 Pension Reform Act established it. 

Before this time, there were ongoing problems with the Nigerian pension system since the budgetary allocation for pensions was frequently impacted. And if by chance it was allocated, the delay in disbursement of these funds, along with many others, has resulted in pensioners’ payments falling behind, which has put them through unimaginable agony.

 Another significant issue with Nigeria’s pension fund administration was the Federal and State Governments’ failure to pay or delays in paying pensions and gratuities. Because millions of former Nigerian employees lived in regret and frequently went uncared for after retirement, pension fund administration became a challenging problem.

Regrettably, pensioners had to go through difficult times and demanding procedures before receiving their pensions, gratuities, and other retirement benefits. The money needed to pay their benefits was not always available, and the Pension Fund Administrators sometimes failed to respond to the needs of the retirees.

These numerous anomalies and malpractices were connected to the government-run defined benefit scheme, where pensioners are paid from the annual budgeting for their retirement benefits. 

It was clear that this defined benefit plan was unworkable and unsustainable.

Further, the majority of private sector employees were not covered by this pension system and were typically not supported by their employers. High levels of misconduct occurred between the pension fund trustee and pension managers even in circumstances where they were financed.

It made it necessary for the government under President Olusegun Obasanjo to rethink and came up with a pension reform to address these problems bedeviling the pension scheme in the country. The result of this reform was what brought into being the pension reform act of 2004 which established the PENCOM. 

Under the PENCOM, several pension schemes have been created including the contributory pension scheme, voluntary contribution schemes, etc. However, both federal and state governments have opted to stay with the contributory pension scheme for their employees. This has removed the burden of pension-related financing from the government.

Role and functions of PENCOM

1. Licensing and registration

The commission licenses custodians, life insurance firms, pension fund administrators, and other organizations that want to work in the pension sector. Before approving an application to offer pension services, the licensing procedure entails analyzing the applicant’s financial soundness, skill, and integrity.

2. Enforcement of pension laws 

The Pension Reform Act (PRA) requirements are upheld by employers and employees alike thanks to PENCOM. As part of this, companies must make sure that pension payments are made on time and that employees are aware of their rights and benefits.

3. Regulation and supervision

PENCOM is in charge of establishing and implementing rules that control the actions of custodians, life insurance providers, pension funds administrators (PFAs), and other stakeholders.

Maintaining compliance with pension legislation entails defining standards for investment strategies, contribution payments, and other operational elements.

4. Educational and awareness programs

To inform contributors and beneficiaries of the value of pension planning, their legal rights, and the benefits to which they are entitled upon retirement, PENCOM runs educational programs and campaigns.

This is done to mobilize popular support and create the necessary awareness and acceptability from the public. 

5. Dispute and conflict resolution

PENCOM offers a mechanism for resolving conflicts between pension contributions, beneficiaries, and pension service providers. Ensuring that complaints are handled fairly and effectively, helps to avoid protracted disputes.

6. Risk management

PRNCOM monitors and handles risks that may affect the stability and viability of the pension sector. This involves keeping an eye on potential hazards that can impact pension funds and beneficiaries, such as market risks, legal risks, and other potential dangers.

7. Promotion of pension coverage

 The commission aims to broaden the pension system’s coverage, particularly to include employees in the unorganized sector and those who are self-employed. With this expanded coverage, more people will have access to retirement benefits and savings.

8. Monitoring and reporting

To determine if pension funds, custodians, and administrators are adhering to rules and investing standards, PENCOM continually assesses their performance. To encourage transparency and provide stakeholders with a chance to assess the state of the industry, reports are frequently produced.

9. Policy development

The commission is essential to the creation and revision of pension laws and regulations. Maintaining the pension system’s effectiveness, flexibility, and sustainability over time, entails examining market movements, economic situations, and demographic variables.

10. Safeguarding pension assets

Protecting the contributors’ pension assets is one of PENCOM’s main duties. This entails establishing investment policies and keeping an eye on pension fund performance to make sure they are managed responsibly and produce fair returns.

Conclusion 

Now you know the role and function of the National pension commission. You are free to approach any branch closest to you, for necessary information regarding pension. But that alone is not sufficient enough as an employee.

It is also important that you know that the government has also relinquished the old pension scheme, and has adopted the contributory pension scheme, where your pension or gratuity is based solely on the amount you have contributed over your working years.  Also,  must take an interest in knowing the different PFAs, and the life assurance companies that you may want to consider for your pension benefits.

Above all, you must know that it’s your right as an employee to demand any information relating to pension contributions from the PENCOM office nearest to you.