The Pension Reform Bill 2013, which seeks to repeal the Pension Reform Act 2004 (as amended) and enact the Pension Reform Act 2013, is currently undergoing legislative process at the National Assembly.
If the Bill is enacted into law in its current form, it will bring about fundamental changes in many ways. The scheme will be applicable to employers with 3 or more employees (currently 5 or more is required); the total rate of contribution will increase from the current 15% of monthly emolument (being 7.5% each by the employer and the employee) to 20% with a minimum of 12% by the employer and a minimum of 8% by the employee.
Perhaps of greatest impact is the base upon which the monthly contribution is calculated. This is known as total emoluments in the proposed law as may be defined in the employee’s contract of employment but shall not be less than a total sum of basic salary, housing allowance and transport allowance. Currently, monthly emolument simply means a total sum of basic salary, housing allowance and transport allowance. The implication of the new definition is that all employers and employees will have to pay more. For instance, a company with a salary structure in which basic, housing and transport allowances account for about 50% of the total compensation, the employees may have to make additional contributions of over 100% of their current contributions while for the employer it could be over 200% increase notwithstanding that the headline rates have only been increased by 0.5% and 4.5% respectively for the employee and the employer.