Employer Action Code: Act
Employers have until Dec. 31, 2012, to establish a second-pillar pension plan for their employees that complies with the 2008 National Pensions Act (NPA). The National Pensions Regulatory Authority (NPRA) is also giving employers until the end of December to begin remitting mandatory monthly contributions into a licensed, approved second-pillar plan. Noncompliant employers will be penalized starting on Jan. 1, 2013.
The NPA created a three-pillar pension system that took effect on Jan. 1, 2010. The three pillars are a mandatory national social security plan, a mandatory defined contribution (DC) plan and a voluntary DC plan. Employers and employees are required to contribute into the pension system at respective rates of 13% and 5.5% of pensionable salaries.
Of this total 18.5% rate, contributions of 5% of pensionable salaries are apportioned for the mandatory DC second pillar, although the legislation is silent on where the contributions are drawn.
Employers can either set up their own second-pillar DC plan or sign up to a master trust. In the absence of an approved second-pillar pension plan, employers have been required to remit contributions since Jan. 1, 2010, to the Social Security and National Insurance Trust (SSNIT). The NPRA intends to carry out a reconciliation exercise of all past second-pillar contributions. Once the reconciliation is complete, SSNIT will transfer accumulated past contributions to the relevant second-pillar plan for all employees.
There have been various delays, most notably in the licensing of pension plans, and the NPRA has extended deadlines a number of times. Now that the registration of a number of pension plans has been approved, the NPRA has set a new deadline of Dec. 31, 2012, for all employers to comply with the NPA.
Additional voluntary contributions can also be made to the third-pillar DC pension arrangement. The NPRA stated it will issue further third-pillar guidance.
Implications for Employers
Employers need to:
- Have an NPRA-approved second-pillar pension plan for their employees by Dec. 31, 2012
- Begin to remit monthly contributions into the approved second-pillar pension plan by year-end 2012
- Retroactively remit any outstanding second-pillar DC contributions to the SSNIT for the period starting January 2010
Employers need to act quickly to comply with the directive to avoid incurring penalties.