Contributory Pension Scheme in Nigeria


The difficulties surrounding the payment of pensions to retirees in Nigeria are not new. With a view to mitigating those hardships, the Pension Reform Act, 2004 (amended in 2014) was enacted by the National Assembly. Although the Act governs both the private and public sectors, this paper pays more attention to the latter. An examination of the relevant provisions of the Pension Reform Act, 2014 is done with a view to providing a detailed explanation of the components of the Contributory Pension Scheme. Additionally, challenges and social implications of the Scheme are discussed especially in relation to the practice of the Scheme in Nigeria. Some of the pains and gains of the Scheme are also highlighted. In concluding the paper, some recommendations are made.


“Pension” can be used as a verb or a noun; as the latter, it can be described as a “derived benefit plan” where a fixed amount is paid at regular intervals to a person for life from retirement age. The common use of the term “pension” is usually in describing the payments a person receives upon retirement, usually under pre-determined legal or contractual terms. Such a recipient is known as a “pensioner” or a “retiree.” There are various types of pension plans worldwide such as: employment-based pensions; social and state pensions; disability pensions and; personal pensions. However, this paper has as its primary concern, workplace pension in Nigeria which can be described as a series of periodic money payments made to a person who retires from employment because of age, disability or the completion of an agreed span of service.


The introduction of a Contributory Pension Scheme was a major contribution of the Pension Reforms Act No. 2 of 2004, which was later repealed by the Pension Reforms Act (PRA) of 2014. The establishment of the Scheme is provided for in Section 3. Prior to the promulgation of PRA, 2004, civil servants bore no direct responsibility for the provision of pension. Instead, pension benefits were paid through budgetary allocations to be kept in the Consolidated Revenue Fund. It so happened (for instance, in fiscal year 2001) that the funds released for this purpose fell short of the estimated expenditure contained in the budgets. In fact, many States in Nigeria still struggle with prompt payment (or even payments at all) of pensions. In some of these States, the Scheme is not in practice and the monetary implication of pension commitments on the pockets of such governments may be described as alarming. On the other hand, in the private sector, many employees were not covered by the pension schemes put in place by their employers, and many of those schemes were not funded. Where they were funded, the pension funds were often mismanaged and misappropriated by those in charge (such as the custodians, administrators and even employers). In a nutshell, the PRA, 2004 was passed to address, eliminate and mitigate (the effects) of the problems linked with pension schemes in the country.

The PRA, 2014 was enacted by the National Assembly, and while the legislative competence of the National Assembly is not the main focus of this paper, this author partially adopts the view of Oluwaseyi Bamigboye in “2014 Pension Reform Act: Legislative Competence of the National Assembly.” There, he submitted, after an examination and analysis of item 44 of the Exclusive Legislative List contained in Part I of the Second Schedule to the 1999 Constitution of the Federal Republic of Nigeria (“The Constitution”), Sections: 4; 80; and 120 of The Constitution that the National Assembly lacks the legislative competence to enact “a statute which seeks to regulate the payment of pension where such pension is not payable from the Consolidated Revenue Fund.” It may however be argued that the PRA, 2014 was enacted by the National Assembly to ensure uniformity across all States in Nigeria; a stance which has been repeatedly used in similar areas.


Section 1 of the PRA, 2014 sets out the objectives of the Act and (a) provides:

            …establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the Public Service of the Federation, the Public Service of the Federal Capital Territory, the Public Service of the State Governments, the Public Service of the Local Government Councils and the Private Sector.

Furthermore, Section 3 (2) states that the Scheme applies to employees in the public and private sectors subject to Section 5 which addresses exemption from the Scheme. The rates of the contributions by the employer and employee as contained in Section 4 (1) shall be a minimum of 10% and 8% respectively. Such rates may however, be revised upwards upon agreement between the employer and employee, and the Commission shall be notified to that effect.  According to Section 11, every employee to whom the Act applies shall maintain a Retirement Savings Account in her or his name with any Pension Fund Administrator (“the Administrator”) of her or his choice; a choice which shall be communicated with the employer. The employer has the duty to deduct the monthly contribution of the employee and not later than seven working days, remit such contribution to the Pension Fund Custodian (“the Custodian”) specified by the PFA of the employee. The employee does not have access to the Account or have any dealing with the Custodian in relation to the Account except through the PFA.


Pension funds, as directed by the PRA, 2014 in Section 54 shall only be managed by the Administrator(s) licensed by the National Pension Commission (“the Commission”) under the Act. Section 55 goes ahead to list eight functions of the Administrator, some of which are:

  1. Opening Retirement Savings Accounts for all employees;
  2. Investing and managing pension funds in accordance with the Act;
  3. Maintaining books of account on all transactions relating to pension funds it manages;
  4. Providing access to employees account balances and statements on demand;
  5. Causing retirement benefits to be paid to holders of the Retirement Savings Account in line with the provisions of the Act; and
  6. Carrying out other functions as may be directed, from time to time, by the Commission.

The conditions required for the successful application for a licence as a PFA are set out in Section 60. In summary, such an applicant must be a limited liability company incorporated under the Companies and Allied Matters Act (CAMA) and its object has to be management of pension funds. Also, the applicant must satisfy the Commission as regards its professional and moral standards and other additional requirements as may be prescribed by the Commission.


By virtue of Section 56, the Custodian(s) licensed by the Commission under the Act hold pension funds and assets. Contained in Section 57 are eight functions of a PFC. Some of the most relevant of those functions to this study are highlighted below:

  1. Receiving the total contributions remitted by the employer and crediting the account of the Administrator immediately;
  2. Notifying the Administrator within 24 hours of the receipt of such contributions;
  3. Holding in safe custody, pension funds and assets on trust, for the employees and beneficiaries of the Retirement Savings Account; and
  4. Carrying out other functions as may be directed by the regulations and guidelines issued by the Commission from time to time.

The application for a licence as a Custodian will not be granted unless such an applicant fulfills all requirements listed in Section 62. Briefly some of them are that the applicant must: be a limited liability company incorporated under CAMA with its sole object being keeping custody of pension funds and retirement benefits assets; have a minimum paid capital of such sum that may be prescribed by the Commission and a net worth of N25,000,000 or as may be prescribed from time to time; undertake to hold the pension funds and assets to the exclusive order of the Administrator on trust for the respective employees as may be instructed by the Administrator appointed by each employee; have never been a custodian to any mismanaged fund; and satisfy such additional requirements as may be directed from time to time, by the Commission.


It has been mentioned earlier that the Scheme was introduced by the PRA, 2004. This means that the Scheme has been alive in the legal world for about 14 years. However, it would not be wrong to state that general misconceptions and lack of sufficient knowledge on this subject matter persist in Nigeria today. This may be attributed to the reluctance to change by Nigerians. Additionally, a large proportion of the working population, especially the informal market of the private sector remains inadequately covered by the Scheme.

Also, there seems to be lack of confidence in the CPS by potential contributors due to failure on the part of some States in Nigeria, coupled with the fear of continuity by consecutive governments since sometimes in Nigeria, change in government sometimes leads to halt in the execution of previous policies.

Another major challenge the Scheme faces is mismanagement and misappropriation of funds. There have been revelations of multi-billion Naira pension fund scandals at the Pension Unit of the Office of the Head of Civil Service of the Federation and the Nigeria Police Force. This leads to the underlying and fundamental problem of corruption in Nigeria. It is possible that there could be a conspiracy between the major players to defraud the beneficiaries of the pension funds and assets. Where this happens, what is the fate of those retirees? It is in light of this that it is recommended that strict insurance policies be put in place for the PFC to cover all foreseeable circumstances such as embezzlement of funds and even bankruptcy. To secure these policies, it is suggested that they be backed by law.

Section 18 provides that the principal objects of the Commission shall amongst others, be to: enforce and administer the provisions of the Act; and to regulate, supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria. Some of the functions of the Commission as provided for in Section 23 include: regulating and supervising the Scheme; carrying out public awareness, enlightenment and education on the establishment, operations and management of the Scheme; and receiving, investigating and mitigating complaints of impropriety against any Custodian, Administrator, employer, staff or agent. However, the Commission can be said to be weak in its regulatory and supervisory capacity. This is evident in their failure to act on or sanction defaulters in some States in Nigeria till date.


If duly implemented;

  1. Its participatory nature ensures that all stakeholders are (actively) involved;
  2. It is a guaranteed source of income and means of livelihood for an employee after retirement: a policy which may reduce the urge to steal while in service;
  1. It has the potential to reduce the expenditure of the government, since instead of singlehandedly funding pension schemes, it only contributes certain percentages;
  2. It allows and encourages extra or personal savings aside the stipulated rates since those extra savings are also not taxable;
  3. Its features are easily accessible as they are contained in the PRA, 2014;
  4. It is continuous since it is not affected by change of employment;
  5. Employees are at a liberty to change their Administrators if there are any inadequacies; and
  6. It allows pre-retirement withdrawals of certain percentage by the employee upon the attainment of 50 years of age.


Where the Scheme is not properly executed and managed;

  1. It is prone to and may encourage corruption and corrupt practices such as non-remittance of contributions by employers and diversion of pension funds and assets by administrators and custodians;
  2. It rips off the employee since only a meagre percentage of interest accrued from her or his contributions will be apportioned to her or him; and
  3. It does not make provisions for longevity since the employee will only receive the benefits for a specified period of time. Hence, such an employee may live out the rest of her or his life in penury.


The Scheme, if properly managed should work in favour of the employer and the employee. Despite the outlined advantages of the CPS, its setbacks cannot be overlooked.  Therefore, there should be in place, certain measures that will further safeguard the contributions of the stakeholders and which would also hold the Custodian and Administrator to stricter penalties where they default. Adequate punishments backed by law should be specifically provided against corrupt practices that may be associated with the Scheme. Also, interests which accrue to the employee’s savings should be added to such savings; this might lead to such an employee collecting Pension for a longer period of time.

The scope of the CPS in the Act should be expanded to widen its coverage. Also important, where the Scheme has been implemented successfully, (such as in Lagos state), it is suggested that other States of the Federation reach out to them and emulate their practices.

Halimat Temitayo Busari is a law student in her penultimate year. Her areas of interest in the legal world are numerous and they include: tax; intellectual property; and maritime laws. She can be reached at


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