Retirement is an unavoidable event when one works for the government or corporate organisation. The importance of a secured future after years of meritorious service to any employee in the public or private sector cannot be overemphasized.[1] Pension is a serious matter. It is designed to cushion the retiree from the hardship of life in retirement and to also serve as a reward for the retiree’s past meritorious service to the employer.[2] Every employee desires that at the end of his service to an employer he/she will receive a sum of money that will be sufficient to regularly meet their basic needs of nutrition, clothing, housing, health services, etc. One of the numerous ways to prepare for prosperous future is no doubt through an effective and functional pension scheme.

In Nigeria today, almost every worker sees deductions on their pay slip every month which is classed as pension contribution. It is worthy of note to state that the Contributory Pension Scheme established under the Pension Reform Act 2014 is what is obtainable in Nigeria. The Contributory Pension Scheme (CPS) is an arrangement where both the employer and the employee contribute towards the payment of the employee’s pension at retirement. It is fully funded through the monthly pension contributions that are remitted into an employee’s Retirement Savings Account (RSA) managed by the Pension Fund Administrator (PFA). The name contributory may suggest that it is voluntary, however it is a mandatory for every employer/employee to make the required contributions under the law and failure to remit accordingly attracts a penalty.

This article seeks to discuss what prospective retirees can do to plan their lives after disengagement from service/employment according to the provisions of the Act.

Meaning of Pension

Black’s Law Dictionary[3] describes pension as a fixed sum paid regularly to a person (or to the person’s beneficiaries) especially by an employer as a retirement benefit.

In Salami v Union Bank of Nigeria PLC[4] it was stated as follows “Pension in the context of a contract of service is simply fixed amount of money paid regularly to an employee who no longer works because of age, disablement, etc., or to his widow or dependent children, by the State, his former employee or from funds to which he and his employer have both contributed”.

The word Pension was not defined in the Act, Pension fund was however defined as “an investment fund within the Pension Scheme which is intended to accumulate during an individual working life from contributions and investment income, with the intention of providing income in retirement from the purchase of an annuity or programed withdrawal, with the possible option of an additional tax-free cash lump being paid to the individual “.[5]

From the above definitions, it can be clearly seen that pension is a regular payment made during a person’s retirement from an investment fund account to which that person and their employers contributed during their time as an active member of the labor force. These contributions are made when the employer is in active labor and are invested with the sole aim of providing income when an employee retires or disengages from service.

Apart from other retirement benefits that employees enjoy, pension is considered as highly important to majority of employees. Even though, retirement has different meaning to employees depending on their individual perception of it, the economic perception of retirement is still held dear to most employees.[6]

A recipient of a retirement pension is known as a pensioner or retiree.


According to the provisions of the Act,[7] persons who are mandated to participate under the scheme are:

  1. Employees in the public sector whether federal, state, or local government
  2. Employees in the service of a private sector with 15 or more employees
  • Employees in the service of private sector with less than 3 employees or self-employed persons (subject to the PENCOM guidelines).

It is important to note that the Act did not make provision for employees in the service of a private sector with more than 3 employees but less than 15 employees.


According to the provisions of the Act,[8] persons who are exempted from participating under the scheme are:

  1. Judicial officers covered under Section 291 of the Constitution of the Federal Republic of Nigeria, 1999 (as amended)
  2. Members of the armed forces, intelligence, and secret service
  • Any employee entitled to retirement benefits under any scheme existing before the commencement of the Pension Reform Act 2004 (the Contributory Pension Scheme but as at that date had 3 years or less to retire. This implies that employees having more than 3 years to retire will be entitled to participate under the new scheme.


Maintaining an Account -The first thing for any prospective pensioner to do is to open an account in his/her name to be known as Retirement Savings Account within six months after assumption of duties. This account will be managed by a Pension Fund Administrator of his choice and no employer has the right to force a Pension Fund Administrator on an employee. Therefore, any clause in a contract of employment mandating a Pension Fund Administrator on an employee is null and void.

A Pension Fund Administrator is a body corporate licensed by the commission to open retirement savings accounts for employees, invest and manage pension assets; pay retirement benefits and account for all transactions relating to the pension funds under its management. There are several Pension Fund Administrators in Nigeria and an employee is at liberty to pick a choice. A better way is to choose is by visiting the PENCOM website.[9]

Upon choosing a PFA, the employee is mandated to notify his employer of the chosen Pension Fund Administrator and the identity of the retirement savings account opened. Where the employee fails or refuses to open the account within 6 months after assumption of office, the employer can subject to the PENCOM guidelines request a Pension Fund Administrator to open a nominal retirement savings account for such an employee for the remittance of his pension contributions.[10]

It should be noted that a Retirement Savings Account is an account opened with the Pension Fund Administrator for the purpose of remittance of pension contributions, income, and interest accruable, it does not operate like a bank account. An employee has no access to his retirement savings account or any dealing with the pension fund custodian with respect to the RSA except through the PFA[11]and withdrawal can only be made upon retirement/ attaining the age of 50 years subject to some exceptions.[12]

Statutory/mandatory Contribution– Section 4(1) of the Pension Reform Act 2014 provides for the rate of monthly contribution under the scheme. For an employer, the minimum contribution is 10% while the minimum contribution for an employee is 8% of the employee’s monthly emoluments. The Act provides that the employer and the employee may agree to increase the rate, but the commission must be notified of such increment. It further states that the employer can agree to pay additional benefits to the employee or elect to bear full responsibility of scheme and where he does so, the employer’s contribution shall not be less than 20% of the monthly emoluments of the employee.

When calculating the rate of contribution, consideration is on Basic Salary, Housing and Transportation allowances (BHT) and not the whole salary.[13] So, if Mr. A, an employee of XYZ Co Ltd earns a monthly salary for BHT of ₦500,000, XYZ’s contribution will be a minimum of 10% which is ₦50,000 and Mr. A’s contribution will be a minimum of 8% which is ₦40,000. If XYZ elects to bear the full responsibility under the scheme, it is to pay not less than 20% which will be ₦100,000.

Voluntary Contributions– Voluntary contributions are non-obligatory contributions made by all eligible contributors through their employers. The category of persons who are eligible to make voluntary contributions are as follows;[14]

  1. Any employee in an organization with three or more employees who is making mandatory contributions under the scheme.
  2. Any worker/retiree in an organization that operates a Closed Pension Fund Administration and employed prior to June 2014 as well as employees/retirees in an organization with Approved Existing Scheme (AES).
  • Any person who retired, disengaged or whose employment was terminated and is currently receiving pension under the CPS, but secures another employment on contract basis.
  1. Any retiree under the defunct Defined Benefit Scheme, who secures another contract employment.
  2. The categories of persons mentioned in Section 291 of the Constitution of the Federal Republic of Nigeria, 1999 (as amended), members of the Armed Forces and the Intelligence and the Secret Services of the Federation.
  3. Any person who is appointed by the President of the Federal Republic of Nigeria, State Government, and elected officers to hold office for a stipulated tenor and who is not a career civil servant.
  • Any foreigner residing and working in formal sector in Nigeria.

 It should be noted that Voluntary Contributions shall be made only in Nigerian Currency (Naira)and are to be remitted into and withdrawn from a duly registered RSA, managed by a licensed PFA. All eligible contributors who desires to make additional Voluntary Contributions shall maintain his/her existing RSA, while the new contributors shall open RSA with any PFA of their choice, into which their contributions shall be remitted as Voluntary Contributions. The employee shall notify his employer in writing of his intention to make voluntary contributions and the amount to be deducted from his emoluments and remitted as Voluntary Contribution through an employer into the RSA.

In addition, withdrawal of voluntary contribution made into the retirement savings account is not subject to tax if withdrawn after 5 years.[15] This implies that tax is only to the returns on such contributions if withdrawn within 5 years. The relevant tax law applicable is the Personal Income Tax Act (PITA) as provided in the Amendment PITA Act Cap P8 LFN 2011.

Remittance- the Act provides to the effect that an employer is to deduct at source the monthly contribution of an employee and remit an amount comprising of the employee’s and employer contribution not later than 7 working days from the date the employee is paid his Salary to the pension fund custodian[16] specified by the Pension Fund Administrator of the employee. A pension fund custodian is a company licensed for the sole purpose of keeping safe custody of pension assets on trust on behalf of contributors. The pension fund custodian is required to notify the Pension Fund Administrator within 24 hours of receipt of remittance of Contributions from an employer. The Pension Fund Administrator shall then cause to be credited into the RSA of the employee for whom the employer had made the payment.[17]

Where the employer fails to deduct or remit contributions within the time stipulated, he shall attract a penalty of not less than two percent of the total contribution that remains unpaid for each month or per each month the default continues, and the amount shall be recoverable as a debt owed to the employee’s retirement savings account.[18] So for example if XYZ Ltd failed to remit Mr. A’s contribution for two months to the tune of ₦1,000,000, the penalty will be to pay the ₦1,000,000 owed and the sum of ₦20,000.

Investments- contributions made under the scheme are invested by the Pension Fund Administrator with the sole aim of safety and maintenance of fair returns on the amount invested. The provision of Section 85  of the Act provides to the effect that pension funds and assets are only to be invested in bonds, bills and other securities guaranteed by the Federal, State or Local Government or corporate entities listed on a Stock Exchange registered under the Investment and Securities Act, ordinary shares of public limited companies, bank deposits and bank securities, real estate development investments or specialized investment funds and other financial instruments as the Commission may from time to time approve.[19] It should be noted that any interests, profits, dividends, investments, and other income accruable to pension funds or assets are not taxable.[20]

Withdrawal – By the provisions of the Act,[21] an employee is not entitled to make withdrawal from the RSA before attaining the age of 50. There are however exceptions to this rule and that will include.

  1. If the employee retires or disengages from employment due to mental or physical incapacity on the advice of a qualified physician or
  2. Due to permanent disability of the mind or body
  • If the employee retires in accordance with the terms and conditions of his employment

Note that persons who retire under these circumstances can be reintegrated in the scheme upon securing another employment subject to the guidelines of the commission and any employee who disengages from employment before attaining the age of 50 years and is unable to secure another employment within four months may make withdrawal from his RSA in accordance with the provision of the Act.

A holder of a RSA can decide upon retirement or attaining the age of 50 years to utilize the amount credited to his RSA by making a withdrawal of a lump sum from the total amount credited to RSA provided what is left will be sufficient to procure a programmed withdrawal or annuity for life in accordance with the extant guidelines issued by the commission.[22]

This implies that a retiree can decide to opt for a programmed monthly withdrawal which is a mode of withdrawal by which a retiree receives pension through his Pension Fund Administrator (PFA) on a monthly or quarterly basis over an estimated lifespan. The RSA balance is being re-invested by the PFA to generate more income/funds for the retiree. When a retiree dies, any balance in the RSA will be paid to the duly nominated beneficiaries.

The retiree can decide to opt to purchase an annuity which is a stream of income purchased from a Life Insurance company. It provides a guaranteed periodic income (pension) to a retiree throughout his/her life after retirement. Under the CPS, annuity is guaranteed for ten years. If the retiree dies within ten years of retirement, the monthly annuity/pension will be paid to his beneficiaries for the remaining years up to ten years. For example, if a retiree who chose annuity dies six years after retirement, his monthly annuity/pension will be paid to his beneficiaries for the next four years. The retiree can buy annuity contract by paying a portion of his retirement benefits as premium to an insurance company which in turn provides the monthly/quarterly payments (annuity), subject to the Regulations jointly issued by the National Pension Commission and National Insurance Commission.

Role of PENCOM – The National Pension Committee (PENCOM) as an agency of the Federal Government of Nigeria established by the Pension Reform Act (PRA) 2014[23] is a body saddled with the responsibility to set guidelines, regulate, and supervise all pension matters in Nigeria. In executing its mandate, it ensures an effective administration of pension for the benefit of contributors.

 Under the Act, PENCOM receives and investigates any complain of impropriety levelled against any Pension Fund Administrator (PFA), and Pension Fund Custodian (PFC), or employer or any of their staff or agents. The Commission stands as a watchdog, with the overriding objective of ensuring that all pension matters are administered with minimum exposure to fraud and risk. Therefore, where there is any complaint against the employer or PFA, an employee can report to the commission.


The major objectives of the scheme which are to ensure that every person who has worked in either the public or private sector receives his retirement benefits as and when due; assist improvident individuals by ensuring that they save to cater for their livelihood during old age; establish a uniform set of rules and regulations for the administration and payment of retirement benefits in both the public and private sectors; and stem the growth of outstanding pension liabilities.

It is important that every pensioner endeavors to familiarize his/herself with the law relating to pension to enjoy the benefits of CPS. For a prospective retiree to facilitate process of payment of his/her retirement benefits, the following actions are recommended to be undertaken;

  1. Obtain and peruse the Retiree Pack;[24]
  2. Within 6 months to retirement, the RSA holder is to submit the following documents to the PFA:

 (a) The official notice/acceptance of retirement from his/her employer;

 (b) Current pay slip or any other evidence of total annual remuneration/Grade level and step; and

 (c) The evidence of accrued pension rights (if any) or acknowledgement of indebtedness (for employees in the Treasury Funded organisations).

Upon retirement a Retiree is to;

 (a) Obtain data confirmation letter from PFA;

 (b) Obtain and complete standard notification from PFA;

(c) Seek financial advice from both PFA and Retiree Life annuity RLA provider.

(d) Choose mode of pension payment, i.e. Programmed Withdrawal (PW) or Retiree Life annuity (RLA);

(e) Complete and execute a Programmed Withdrawal agreement with the PFA if he /she wishes to receive his monthly or quarterly pension by way of Programmed Withdrawal; and

(f) Obtain an RLA Provisional Agreement from the RLA provider of choice, complete, sign and submit to the PFA if he or she wishes to receive his monthly or quarterly pension by way of RLA.


[1]  Adeniji A. Anthonia and Akinbode J. Olalekan, ‘Assessment of Employees’ Expectations of Pension Reform Act 2014 in Selected Micro Enterprises in Abeokuta Metropolis, Ogun State, NigeriaVol.2, Issue 6 (13-22), September 2016 Available at accessed on 6th May 2021.

[2] Per Joseph Shagbaor Ikyegh, JCA In Martins & ors v Kolawole (2011) LPELR 4475(CA)

[3] 9th ed. 2009. P 1248

[4] 2010(2010) LPELR 8975(CA) per Ayobode Olujimi Lukulo-Sodipe, JCA

[5] Section 120 Pension Reform Act 2014

[6] L Amusan and K S Ajibola, ‘Adoption of Contributory Pension Scheme and its Influence on Employees’ Commitment Among Nigerian Civil Servant by African Journal of Public AffairsAfrican Journal of Public Affairs, Vol. 10 No 4 accessed 15th May 2021.

[7] Section 2 of the Pension Reform Act 2014

[8] Section 5 of the Pension Reform Act 2014

[9] -fund-administrators/

[10] Section 11(1)(2) & (5) of the Pension Reform Act 2014

[11] Section 11(8) Supra

[12] Section 7 &16 of the Pension Reform Act 2014

[13] Section 120 of the Pension Reform Act 2014

[14] Section 2 Guidelines on Voluntary Contributions under the Contributory Pension Scheme

[15] Section 10(4) the Pension Reform Act 2014

[16] Section 11(3) of the Pension Reform Act 2014

[17] Section 11(4) Supra

[18] Section 11(7) of the Pension Reform Act 2014 Supra

[19] Section 85 Supra

[20] Section 10 of the Pension Reform Act 2014

[21] Section 16 of the Pension Reform Act 2014

[22] Section 7 supra

[23] Section 17 of the Pension Reform Act 2014



Leave a Reply

Avatar placeholder

Your email address will not be published. Required fields are marked *

error: Content is protected !!