The introduction of the NSSF Act 2013 restructured contributions to the National Social Security Fund into two tiers: Tier I and Tier II. Tier I contributions are mandatory and remitted directly to the National Social Security Fund (NSSF). However, the law allows employers to contract out of Tier II and remit those contributions to a registered private pension scheme instead. This option provides employers and employees with an opportunity to access enhanced retirement benefits through professionally managed schemes.
One of the key advantages of opting out of Tier II is greater investment diversification and potentially higher returns. Private pension schemes are managed by professional fund managers who invest contributions across a variety of asset classes such as equities, government securities, corporate bonds, and alternative investments. This diversified investment approach can generate competitive long-term returns compared to maintaining all contributions within a single public fund.
Another benefit is improved governance and transparency. Private pension schemes are regulated by the Retirement Benefits Authority (RBA), which sets strict requirements on governance, reporting, and investment practices. Members also receive regular statements detailing their contributions, investment performance, and accrued benefits. This transparency helps employees track their retirement savings and better understand how their funds are growing over time.
Contracting out of Tier II also allows employers to offer more tailored retirement benefits to their employees. Private schemes may include additional features such as voluntary contributions, flexible benefit options, and access to financial education programs. These features can improve employee satisfaction and strengthen an employer’s overall benefits package, making it easier to attract and retain talent.
Furthermore, private pension schemes often provide more efficient benefit administration, including quicker processing of retirement, withdrawal, or death benefits. This ensures that members and their beneficiaries can access their funds in a timely manner when needed.
For employers seeking a reliable and well-structured retirement benefits solution, the Cytonn Umbrella Retirement Benefits Scheme (CURBS) offers an attractive option. As an umbrella pension scheme, CURBS enables employers to provide their staff with a professionally managed retirement plan without the administrative burden of running a standalone scheme. By opting out of NSSF Tier II and joining CURBS, employers can enhance the retirement security of their employees while benefiting from efficient administration, diversified investments, and strong regulatory oversight.
