Pension Contributions in Nigeria: What Every Employer Must Know (PenCom Explained)

Pension compliance is one of the most serious statutory obligations for Nigerian employers — and one of the most frequently neglected. The Contributory Pension Scheme has been in effect since 2004, yet many employers either do not contribute at all, contribute the wrong amounts, or remit late without realising the consequences.

This guide explains the scheme clearly, sets out what employers are required to do, and details what happens when those requirements are not met.

The Contributory Pension Scheme (CPS)

Nigeria's current pension system is governed by the Pension Reform Act 2014 (PRA 2014), which replaced the earlier 2004 Act and is regulated by the National Pension Commission (PenCom).

The scheme is called the Contributory Pension Scheme (CPS) because both the employee and the employer contribute to it. Unlike the old Defined Benefit scheme where only the employer funded pensions, the CPS creates a personal Retirement Savings Account (RSA) for each employee, funded by contributions from both parties throughout the employee's working life.

When the employee retires, they draw from their accumulated RSA balance plus investment returns.

Who Is Covered?

The Pension Reform Act 2014 originally applied to organisations with five or more employees. Organisations in this category are required to register their employees with a Pension Fund Administrator (PFA) and contribute monthly.

Employees in the private sector, federal government employees, and staff of federal government agencies are covered. State and local government employees may be covered by state-level pension laws, which vary by state.

Self-employed individuals can participate in the scheme voluntarily.

Contribution Rates

The minimum mandatory contribution rates under the PRA 2014 are:

• Employee contribution: 8% of monthly emolument
• Employer contribution: 10% of monthly emolument

Total: 18% of monthly emolument contributed to the employee's RSA each month.

"Monthly emolument" includes basic salary, housing allowance, and transport allowance. It does not include irregular payments like annual bonuses, project completion payments, or expense reimbursements.

Both the employer and employee contributions belong to the employee. The employer's 10% is not a cost to the employee — it is an additional benefit paid by the employer directly into the employee's retirement account.

What Is a Pension Fund Administrator (PFA)?

A PFA is a licensed company that manages pension contributions and invests them on behalf of scheme members. PenCom licences and regulates PFAs in Nigeria.

Current licensed PFAs include ARM Pension, Stanbic IBTC Pensions, Leadway Pensure, Crusader Sterling Pensions, and several others.

Each employee chooses their own PFA and opens an RSA with that PFA. The employer then remits contributions to each employee's chosen PFA. If you have 20 employees with three different PFAs, you make three separate remittances each month.

Employees are allowed to transfer their RSA to a different PFA once a year if they choose.

Remittance Deadline

Pension contributions must be remitted within seven working days of salary payment.

If you pay salaries on the 25th of the month, pension contributions must be remitted by the 4th or 5th of the following month (seven working days later). This is a stricter deadline than PAYE (which is the 10th of the following month) and catches many employers off guard.

What Employers Need to Do: Step by Step

Step 1: Register With PenCom as an Employer

If you have not already done so, register your organisation with PenCom as a participating employer. This can be done online through the PenCom employer portal.

Step 2: Ensure Each Employee Has an RSA

Every employee must have an RSA with a licensed PFA. New employees who do not have an RSA need to open one as part of their onboarding. If an employee transfers from another employer, they should already have an RSA.

Step 3: Deduct Employee Contribution Monthly

Deduct 8% of each employee's monthly emolument as their pension contribution. This appears as a deduction on their payslip.

Step 4: Calculate Your Employer Contribution

Add 10% of each employee's monthly emolument as your employer contribution. This is in addition to the employee's salary — it does not come out of their pay.

Step 5: Remit to Each Employee's PFA

Within seven working days of salary payment, remit the combined contribution (18%) to each employee's PFA. Most PFAs accept remittances via bank transfer using a reference schedule that maps each contribution to the correct RSA.

Step 6: Keep Records

Maintain a contribution schedule for each month showing the employee name, RSA number, PFA, and amount remitted. These records may be requested in a PenCom audit.

Penalties for Non-Compliance

PenCom has significant enforcement powers under the PRA 2014. Penalties for non-compliance include:

Late remittance: A penalty of not less than 2% of the total contribution due per month for each month of default.

Failure to remit: If contributions deducted from employees are not remitted, this constitutes misappropriation. Directors and officers of the company can be held personally liable.

Criminal prosecution: The Act provides for criminal prosecution of defaulting employers with penalties including fines and imprisonment.

Backdated contributions: PenCom can require an employer to pay all historical contributions owed, with penalties applied to the full amount. For a company that has been operating for three years without contributing, this can be a substantial liability.

PenCom has been increasingly active in enforcement, including publicising the names of defaulting employers.

Common Employer Mistakes

Contributing on basic salary only. The contribution base is monthly emolument, which includes basic salary plus housing and transport allowances. Contributing on basic salary alone under-contributes.

Not registering new employees promptly. Employees should be registered with a PFA as part of onboarding. Delaying this creates a gap in compliance.

Missing the seven-working-day deadline. Many employers confuse the pension deadline with the PAYE deadline (10th of the following month). Pension is strictly seven working days after salary payment.

Contributing the employee portion only. Both the employee (8%) and employer (10%) contributions are required. Some employers deduct the employee's 8% but do not add their own 10%.

How Payroll Software Helps

The combination of tracking multiple PFAs, calculating the correct contribution base, meeting the seven-working-day deadline, and maintaining records is manageable with software but genuinely error-prone manually.

BetternshipHR calculates employee and employer pension contributions automatically as part of the monthly payroll run, generates remittance schedules per PFA, and tracks upcoming compliance deadlines. The compliance calendar in the platform surfaces pension remittance deadlines before they pass.

Summary

Key points for Nigerian employers on pension:

• Minimum contribution is 10% employer + 8% employee of monthly emolument (basic + housing + transport allowances)
• Remit within seven working days of salary payment — not by the 10th of the month
• Each employee chooses their own PFA; you remit separately to each PFA
• Non-compliance penalties include 2% per month and potential criminal prosecution
• Keep detailed contribution records for each employee

BetternshipHR automates pension calculations and tracks remittance deadlines for every employee. Start free at employer.betternship.com.