The journey of pension scheme in Nigeria, being a former colony of Britain, with the received pension tradition modelled after her Colonialist, is a systematic journey cradled from defined benefit scheme to defined contribution scheme. A study into the definition of pension in the global labour space in the early years points to the importance of the review and reform made to the scheme over the years to meet the contemporary pension demand and operation.

Pension has been described as a regular payment made by the state to people of or above the official retirement age and to some widows and disabled people.[1] It could also mean allowance, benefit, support, welfare, or assistance given to such categories of person afore mentioned. Also, pension has been known to be an amount of money paid regularly by the government or a private company to a person who does not work any more because they are too old or have become ill.[2]

Pension[3] is a benefit, usually money, paid regularly to retired employees or their survivors by private businesses and governments.[4] The term pension originated from a monthly lifetime income benefit that the Continental Congress offered to soldiers who survived the American Revolution and later wars.[5] The word pension is sometimes used in the sense of annuity[6], and traced to French[7].

However, pension has metamorphosised over the years from what it has been described to mean, as described above. Hence, to achieve the purports and imports of this piece, definition of pension is adopted thus. Pension is a fund into which a sum of money is added during an employee’s employment years and from which payments are drawn to support the person’s retirement from work in the form of periodic payments.[8] Pension fund means 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 in the form of a programmed withdrawal, with the possible option of an additional tax free cash lump being paid to the individual.[9]

From the definitions adopted by this piece, the systematic journey of Nigeria pension scheme would as well be considered as it metamorphosised from the old regime of defined benefit scheme to the new reform of defined contribution scheme.

  • Background Study Of Nigerian Labour In Relation To Pension Scheme

In 1951, Nigeria, through her public service became introduced to pension by her formal colonial masterwhen the colonial British administration established a scheme through an instrument called Pension Ordinance. Since then, there had been several adjustments in the administration[10] of pension by different regimes to ensure the welfare of her retirees were sustained. During the various regimes, private employers were not required to establish pension benefits, but they do so to attract qualified employees.

The whole of the Pension Ordinance Acts and Decrees in the various regimes were capped up in the Decree No. 102 of 1979, which took effect from April 1, 1974. It consolidated all enactments on pensions and incorporated pension and gratuities seals devised for public officers by the Udorji Public Service Review Concision in 1974.[11] In the same way, Pension Act No. 103 of 1979 like its counterpart Decree No. 102, of 1974, on the other hand, dealt with pension benefits, liabilities and seals devised for the agreed forces.[12]

The past pension regimes were bedevilled by many problems[13] and inundated with the received pension tradition modelled after her Colonialist, the defined benefit scheme. During these regimes, civil servants bore no direct responsibility, by way of payroll tax, for the provision of pension; instead pension benefits were paid through budgetary allocations to be kept in the Consolidated Revenue Fund. Thus, in most cases, the amount released usually fell short of the actual appropriation for pension payment.

In most establishments, corruption bred more in the absence of facts and figures, as no accurate record of actual pensioners existed. Therefore, pension costs in the public sector were inflated through insertion of fictitious names on the list of pensioners.

The Scheme became largely unsustainable due to a lack of adequate and timely budgetary provisions, increases in salaries and pensions, weak administration, less transparency and cumbersome, leading to bureaucracy and highly liable to corrupt practices. Due to lack of reliable records of pensioners, huge number of resources on what became yearly verification exercises were expended which did not result into the timely and efficient payment of pension.

In the private sector, on the other hand, many employees were not covered by the pension schemes put in place by their employers and many of these schemes were not funded. Besides, where the schemes were funded, the management of the pension funds was full of malpractices between the fund managers and the trustees of the pension funds.[14]

Worse still, the former regimes recorded death of pensioners who died while standing in a queue waiting to receive pension benefits because of poverty of ideas or unwillingness to deploy ideas in the way pension payment should be handled, as they were left, under inclement weather for long hours and sometimes for days, before collecting their stipends.

However, the several regimes could not gain approval for continuous operation and were exiled due tointernational influence, change in population structure, increase in labour, and investigated corrupt practices among political officers and pension administrators.

These scenarios necessitated a re-think of pension administration in Nigeria by the administration of President Olusegun Obasanjo. Accordingly, the administration initiated a pension reform to address and eliminate the problems associated with pension schemes in the country.[15] . The outcome of the reform was the enactment into law of the Pension Reform Act 2004.[16]

It was not until 2004 when it was obvious that the old scheme and the former regimes could not achieve the goal of sustaining the welfare of the old that a major reform was considered and passed into law. This was made possible with the new legislation generally referred to as Pension Reform Act[17]. With this enactment, Nigeria effectively migrated her pension system from unfunded defined benefit pension scheme to funded defined contribution pension scheme. The migration undoubtedly was embraced, and the gains of the pension reform include generation of additional funds for economic activities and drastic reduction of corruption in pension administration.[18]

  • Pension Reform In Nigeria

The Pension Reform Act 2004, for the first time in the history of Nigeria pension scheme, established a contributory pension scheme for all employees in Nigeria, against the defined benefit pension scheme, which was largely unfunded and non-contributory. By virtue of the provision of section 1 (1) of the Pension Reform Act 2004, any employment in the Federal Republic of Nigeria, shall operate a Contributory Pension Scheme for payment of retirement benefits of employees to whom the scheme applies under the Act. Further to this provision, section 1 (2) of the Act also provided for the scope of operation of the scheme to apply to all employees in the Public Service of the Federation, Federal Capital Territory, and the Private Sector. In the case of the Public Sector, employees who were in employment; and in the case of the Private Sector, employees who were in employment in an organisation, in which there were 5 or more employees.[19]

Since the reform regime, Nigeria has also subscribed from pension scheme of “defined benefit plan”, where a fixed sum is paid regularly to a person, to a “defined contribution plan”, under which a fixed sum is contributed that then becomes available at retirement age. Thus, the Federal Government in June 2004 introduced a system that is sustainable and has the capacity to achieve the goal of providing a stable, predictable, and adequate source of retirement income for each worker in the country.

The Pension Reform Act 2004 ushered in a Contributory Pension Scheme (CPS) that is fully funded, privately managed, and based on individual accounts for both the public and private sector employees in Nigeria. The Act also established the National Pension Commission (PenCom) as the sole regulator and supervisor of all pensions matters in the country.

Having a sneak peek into the Labour Act, which is a major enactment on Labour in Nigeria, the provision of the act as it relates to pension is contained under its section 5, which borders on deduction. Section 5 (2) of the Labour Act provides that an employer may with the consent of a worker make deductions from the wagesof the worker and pay to the appropriate person any contributions to provident or pension funds or other schemes agreed to by the worker and approved by the State Authority. [20]But since its enactment in 1979, it has not gained sufficient operation until the pension reform regime.

By the enactment of the Pension Reform Act, 2004 one can therefore say, that the administration of pension in Nigeria has no doubt been enhanced. Not only has the Act provided a platform for a more effective, efficient, and transparent administration of pensions in the Federal public service and the private sector, but it has also generated a pool of long-term investible funds that already had positive impact on the growth of the nation’s economy.[21]

However, the reform revolution of pension scheme does not peg itself to the reform of June 2004 but cohorted the movement which brought about the Pension Reform Act, 2014, ten years after introduction of the reform.

  • Pension Reform Act, 2014 And Its Applications[22]

After 10 years of implementing the pension reforms in Nigeria, the Pension Reform Act, (PRA) 2014 was signed into law to address the challenges faced in the implementation processes. In addition, new provisions were made to particularly strengthen the powers of the Commission to resolve conflicts in addition to providing stiffer penalties for infractions. The PRA 2014 addressed the issues regarding pensions of political office holders and Professors[23] as well as provided incentives for increasing coverage of the scheme through allowing contributors to use portion of the balances in their retirement savings accounts to make equity contribution towards owning a residential property.

PRA 2014 was enacted to repeal the PRA N0. 2 2004 and make provision for the continuous governance and regulation of  the administration of uniform contributory pension scheme for public and private sectors in Nigeria, and for related matters.[24]

PRA 2014 is divided into fifteen parts (Part I to Part XV) of 121 sections, with two schedules. The 15 parts deals with different subjects but for the purpose of this study, concerns would border majorly on the parts that relate with the major reforms: Objectives and Applications; Contributory Pension Scheme (CPS), Retirement Benefits; Retirement Savings Account; and National Pension Commission (PenCom).

The PRA 2014 ,as forming part of the reform regime, its objectives seek to establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits covering the scope of the Public Services of the Federal Capital Territory (FCT), State Governments and the Local Government Councils, as well as the Private Sector; it makes provision for the smooth operations of the Contributory Pension Scheme (CPS); to ensure that every person who worked in either the Public Service of the Federation, FCT, State and Local Governments and Private Sectors receives his retirement benefits as and when due; and assists improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

The operations and applications of the PRA 2014 is to any employment in the Public Services of the Federation, FCT, State and Local Governments and Private Sectors. In the case of the Private Sector, the scheme applies to employees who are in the employment of an organisation in which there are 15 or more employees. However, the Act in its proviso to what applies to the Private Sector, provides that employees of organisations with less than three employees as well as self- employed persons shall be entitled to participate under the scheme subject to guidelines issued by PenCom.

  • Establishment Of A Contributory Pension Scheme[25]

The PRA 2014 established what is known as Contributory Pension Scheme (CPS) for any employment in the Federal Republic of Nigeria for payment of retirement benefits of employees to whom the Act applies. The contribution for any employee to which the Act applies is to be made relating to such employees’ emoluments, at the rate of a minimum of ten per cent by the employer and a minimum of eight per cent by the employee. It is noteworthy that upon agreement between any employer and his employee, the rate could be revised upwards from time to time, and the National Pension Commission shall be notified of such revision. In addition, any employee can make voluntary contributions to his retirement savings account in addition to the total contributions being made by him and his employer.

Another good about the CPS is that the Act also gives room to an employer who decides to pay additional benefits to the employee upon retirement or elect to bear the full responsibility of the contributory portion of his employee, in such case, the employer’s contribution shall not be less that 20 percent of the monthly emoluments of the employee. Also, every employer is required under the Act to maintain a Group Life Insurance Policy in favour of each employee and premium shall be paid not later than the date of commencement of the insurance cover.

It is worthy to note that although the Act applies to some category of employments,[26] the Act also exempts[27] categories of persons from CPS to include, categories of persons under section 291 of the Constitution[28], members of the Armed Forces, the intelligence, and secret services of the Federation, any employee who is entitled to retirement benefits under any pension scheme existing before 25th June 2004, being the commencement of the PRA 2004, but as at that date had 3 or less years to retire. Protecting the interest of the exempted categories, the Act provides that the administration of the retirement benefits of such persons shall be subject to the supervision and regulation of the Commission.

  • Retirement Benefits[29]

Under the provision of the Act, a holder of a retirement savings account (RSA) shall upon retirement or attaining the age of 50 years, whichever is later, utilize the amount credited to his retirement savings account and enjoy the benefits of, withdrawal of a lump sum from the total amount credited to his RSA account provided that the amount left after the lump sum withdrawal shall be sufficient to procure a programmed fund withdrawals or annuity for life in accordance with extant guidelines issued by PenCom; programmed monthly or quarterly withdrawals calculated on the basis of an expected life span of the holder; annuity for life purchased from a life insurance company licensed by the National Insurance Commission (NAICOM) with monthly or quarterly payments in line in line with the guidelines jointly issued by PenCom and NAICOM; and other categories of employees entitled by virtue of their terms and conditions of employment, to retire with full retirement benefits as may be applicable.

However, where an employee voluntarily retires, disengages, or is disengaged from employment[30] before attaining the age of 50 years, the employee may with the approval of PenCom, withdraw an amount of money not exceeding 25 per cent of the total amount credited to his RSA, provided such withdrawals shall only be made after four months of such retirement or cessation of employment and the employee does not secure another employment. The 25 percent withdrawal can only be made once in a lifetime irrespective of how many times an employee lives without another employment.

The contributions made by a holder of an RSA already forms part of tax-deductible expenses in the computation of tax payable by an employer or employee under the relevant income tax law. By so doing, all interests, dividends, profits, investment, and other income accruable to pension funds and assets under the Act shall not be taxable.

  • Retirement Savings Account[31]

The PRA 2014 in its extant provision also provides for Retirement Savings Account (RSA). Every employee to whom the Act applies is required to maintain an RSA in his name with any Pension Fund Administrators (PFA) of his choice. An employee who has chosen a PFA is required to notify his employer of the PFA he has chosen and the identity of the RSA.

An employer to whom the Act applies is also required to deduct at source, the monthly contribution of the employee and not later than 7 working days from the day the employee is paid his salary, remit the monthly contribution of the employee and employer to the Pension Fund Custodian specified by the Pension Fund Administrator of the employee.

The contributions of the Federal Government to the retirement benefits of employee of the Public Service of the Federation shall be charged on the Consolidated Revenue Fund of the Federation and contributions of the Federal Capital Territory to the retirement benefits of employee of the Public Service of the Federal Capital Territory   shall be charged on the Revenue Fund of the Federal Capital Territory.

The Act provides that a holder of an RSA maintained under the Act may not more than once a year, transfer his account from one Pension Fund Administrator to another. Also, where an employee transfers his employment from one employer or organisation to another, the same RSA shall continue to be maintained by the employee or be transferred provided it is not more than once in the year.

Essentially, every employee or contributor under the new pension scheme is expected to open RSA in his/her name with a PFA of his/her choice into which all his/her contributions and returns on investment are paid.

  • The National Pension Commission (Pencom)[32]

The PRA 2014 also established the National Pension Commission (PenCom), as a body corporate with perpetual succession and a common seal that may sue or be sued in its corporate name, among other corporate status.

The principal objects of the PenCom are to enforce and administer the provisions of the PRA 2014; co-ordinate and enforce all other laws on pension and retirement benefits; and regulate, supervise, and ensure the effective administration of pension matters and retirement benefits in Nigeria. The composition of the Board of the PenCom forms part of the provisions of the Act.

PenCom is vested with the power to formulate, direct and oversee the overall policy on pension matters in Nigeria; fix the terms and conditions of service including remuneration of the employees of the Commission; request or call for information from any employer or pension fund administrator or custodian or any other person or institution on matters relating to retirement benefit; charge and collect such fees, levy or penalties, as may be specified by the Commission; establish and acquire offices and other premises for the use of the Commission in such locations as it may deem necessary for the proper performance of its functions under the Act; establish standards, rules and regulations for the management of the pension funds under the Act; investigate any pension fund administrator, custodian or other party involved in the management of pension funds; impose administrative sanctions or fines on erring employers or pension fund administrators or custodians; order the transfer of management or custody of all pension funds or assets being managed by a pension fund administrator or held by a custodian whose licence has been revoked under this Act or subject to insolvency proceedings to another pension fund administrator or custodian, as the case may be; do such other things which in its opinion are necessary to ensure the efficient performance of the functions of the Commission under the Act.

PenCom exists for the effective regulation and supervision of the Nigerian Pension Industry to ensure that retirement benefits are paid as and when due[33] and it has a tailored approach in meeting the needs of each class of its stakeholders.[34]

  • Conclusion

This study has been able to review the pension reform programme, governed by the key principles of sustainability, safety and security of benefits, transparency, accountability, equity, flexibility, inclusivity, uniformity, and practicability, among major other provisions of the Pension Reform Act 2014. However, far beyond this study and without contradictions, there are underlying questions and clarifications that applies to pension and retirement in the Nigerian pension industry and labour market. We have experts with answers as regards pensions, contributions, compliance, and regulations.[35]


[1] Oxford English Dictionary, Oxford University Press,      

[2] Cambridge Dictionary,



[5] Melissa Phipps- The History of Pension Plans in the U.S,

[6] G. MillerPension in United States, American Legal Encyclopedia,

[7] Pension- Etymology and Meaning,


[9] S. 120 Pension Reform Act, 2014 – Pension Fund, accessed through

[10] Pension Increase Decree No. 42, 1975, Pensions (Statutory Corporation Service) Act 1961 no. 61, (Transferred Services) Act 1965 no. 28, Constables Decree 1966 no. 7, Police Pension Decree 1966 no. 60, Pensions (Federal Fire Service etc) Decree 1966 no. 74, Pensions gratuities (war service) Decree 1966 no. 49. e.t.c. Pensions Act of 1979 Decree No. 102, which awarded and united all pensions acts.

[11] Business Day- Historical development of pension scheme in Nigeria, February 5, 2014, accessed through,

[12] Ibid. 10

[13] National Pension Commission,

[14] Ibid.10

[15] National Pension Commission,

[16] LFN, 2004

[17] Ibid. 15

[18] Mathew Olasehinde Fashagba – Politics of Pension Administration in Nigeria book series (AAESPD),




[19] Section 1 Pension Reform Act, LFN, 2004

[20] Labour Act, LFN 2014,

[21] Business Day- Historical development of pension scheme in Nigeria, February 5, 2014, accessed through,    

[22] Pension Reform Act, 2014 accessed through

[23] Section 7 (d) Pension Reform Act, 2014, ibid.

[24] Repeal clause, Pension Reform Act, 2014, ibid.

[25] Section 3, 4, 5 and 6 of Pension Reform Act, 2014, ibid.

[26] Section 2 of Pension Reform Act, 2014, ibid.

[27] Section 5of Pension Reform Act, 2014, ibid.

[28] 1999 Constitution of the Federal Republic of Nigeria, as amended.

[29] Section 7, 8, 9 and 10 of Pension Reform Act, 2014, ibid.

[30] Section 16 (2) and 5 Pension Reform Act, 2014, ibid.

[31] Section 11, 12, 13, 14, 15 and 16 Pension Reform Act, 2014, ibid.

[32] Section 17 to 28 Pension Reform Act, 2014, ibid.

[33] Mission Statement of PenCom,




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