If you’re an employee working for the government or in the private sector in Nigeria, you certainly come across deductions for pension contributions in your payslip each month. Although some employees know how to calculate their yearly pension contribution to the retirement savings account, many do not have a clue about it. In this article, we would explain how you can calculate your yearly pension in Nigeria. In addition, we’ll be providing some useful information about the pension scheme in Nigeria according to the provisions of the Pension Reform Act, of 2014.
How to calculate yearly pension in Nigeria would be discussed below:
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How to Calculate Yearly Pension in Nigeria
According to the provisions of the Pension Reform Act of 2014, all employees in the public service of the federation, the federal capital territory, state, local governments and the private sector are entitled to receive payments of retirement benefits under the Contributory Pension Scheme.
The contributions for every employee covered by the Pension Reform Act of 2014 are to be made by the employee and his employer at varying rates relating to the employee’s monthly emoluments. Emoluments, in this case, consist of Basic Salary, Transport Allowance, and Housing Allowance.
As we stated above, the rates of contribution made to an employee’s retirement savings account (RSA) by himself and his employer differ. According to the Pension Reform Act of 2014, the contribution of an employee to his retirement savings account is a minimum of 8% of his monthly emoluments. On the other hand, every employer of employees covered in this Act is expected to contribute a minimum of 10% of an employee’s monthly emoluments into the RSA of the employee.
The 8% contribution from the employee and 10% contribution from the employer are the minimum contributory rate accepted, however, the employee and/or employer can, upon agreement, increase the contributory rate to the RSA. More so, an employee may make voluntary contributions to his RSA, aside from the contributions being made by him and his employer.
To illustrate the calculation of yearly pensions in Nigeria, let’s make use of a fictitious employee of A. Benoit Industries Limited, named Dara Saro. For the past year 2022, Dara Saro’s monthly emoluments were N400,000. But before we go ahead to calculate what the contribution to her RSA for 2022 was, let’s break down her monthly emoluments. Here’s how her monthly emoluments add up:
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Total monthly emoluments for Dara = N400,000
Basic salary: N300,000
Transport allowance: N50,000
Housing allowance: N50,000
Now, let’s proceed to the calculations properly. Remember, Dara Saro’s minimum contribution to her RSA is 8% of her monthly emoluments, while her employer, A. Benoit Industries Limited, is expected to contribute a minimum of 10% of her monthly emoluments.
Below is the calculation of Dara Saro’s contribution to her RSA for January 2022:
Dara Saro’s contribution = (Basic salary + Transport allowance + Housing allowance) × 8/100
= (300,000 + 50,000 + 50,000) × 8/100
= (400,000) × 8/100
= 32,000
Therefore Dara Saro’s contribution to her RSA for January 2022 was N32,000 only.
Now, let’s calculate what her employer, A. Benoit Industries Limited, would contribute to Dara Saro’s RSA for January 2022. Remember, the contributory rate of employers to their employees’ RSA is a minimum of 10% of their monthly emoluments.
- Benoit Industries Limited contribution to Dara Saro’s RSA for January 2023 = (Basic salary + Transport allowance + Housing allowance) × 10/100
= (300,000 + 50,000 + 50,000) × 10/100 = (400,000) × 10/100 = 40,000
N40,000 is Dara Saro’s employer contribution to her RSA in January 2022
To get what the total contribution to Dara Saro’s RSA in January 2022 was, we would add her contributions with that of her employer.
Total Contribution to Dara Saro’s RSA for January 2022 = N32,000 + N40,000 = N72,000
Since we’ve gotten the total contribution to Dara Saro’s RSA for January 2023 to be N72,000, we can multiply the value obtained (N72,000) by 12 to get what her yearly pension would be (provided her monthly emolument remained N400,000).
Contribution to Dara Saro’s RSA for 2022 = N72,000 × 12= N864,000
According to the calculations above, Dara Saro’s yearly pension was N864,000. N384,000 was her contribution to her RSA for 2022 while N480,000 was her company’s contribution to her RSA for the same year.
We believe with the explanation above, you can conveniently calculate your yearly pension contribution to your RSA.
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What are the Benefits of Pension in Nigeria
In the earlier part of this article, we’ve discussed the contributory rates of both employee and employer towards the retirement saving account (RSA) of every employee in Nigeria. Sometimes, some employers may choose to bear the full responsibility of contributing to an employee’s RSA, however, the employer’s contribution cannot be less than 20% of the monthly emoluments of the employee.
It is important to note that the funds accumulated in the RSA of every employee in Nigeria can only be utilized upon retirement or attaining the age of 50 years, whichever is later. That is to say, if you retire at 45 years, you can only begin utilizing the money in your RSA when you turn 50 years. Likewise, if you’re still working by the age of 60 years, you will be able to utilize funds from your RSA when you retire.
The funds accumulated in RSAs of employees in Nigeria are tax-free. The funds accumulated in retirement savings accounts during one’s active years in the workforce help cater to their livelihood during old age. Below are the benefits of pension funds as contained in Part III-Retirement Benefits section of the Pension Reform Act of 2014:
- Programmed monthly or quarterly withdrawals calculated based on the expected lifespan
- Withdrawal of a lump sum from the total amount credited to the RSA of the individual provided the amount left after the lump sum withdrawal will be enough to procure a programmed fund withdrawals
- Annuity for life purchased from a life insurance company licensed by the National Insurance Commission with monthly or quarterly payments