Problems of Contributory Pension Scheme in Nigeria

A pension refers to payment made by the government of a country to its retired citizens. It is an arrangement between citizens and governments wherein a worker deposits a certain percent of his or her salary to a pension account so that upon retirement, they can have access to these funds.

Before 2007, Nigeria operated a defined benefits system where the pension account was funded solely by the employer, or in the case of the civil service, by the government. This meant that retirement benefits were included in the annual government budget. This was difficult to maintain for the employers because it was too expensive. Hence the introduction to the contributory pension scheme.

Under the contributory pension scheme, it is the responsibility of both the employer and the employee to contribute to the pension account. The employee pays a minimum of eight percent of his or her total monthly remuneration while the employer pays a minimum of ten percent. The contributory scheme applies to workers under any sector, whether public and private or contract staff. The contributory scheme also provides rules, regulations, and standards for the administration and payment of retirement benefits for both the public sector and private sectors. However, pension schemes in Nigeria have failed to achieve their intended purpose of easing the burden of employees after retirement. More so, of the 69 million people in the Nigerian labour force, just 7 million have pension accounts.

Problems of Contributory Pension Scheme in Nigeria

Problems of Contributory Pension Scheme in Nigeria

This article highlights the problems of the contributory scheme in Nigeria. Read on below:

Non-remittance by government

Due to lack of funds and the instability of the Nigerian economy, the federal government and many state governments have been unable to remit to their employee’s retirement savings account (RSA). This has negatively affected the implementation of the contributory scheme in Nigeria. The refusal or inability of governments and private employers to keep up to their obligation of ensuring regular remittance to the employee’s retirement savings account (RSA) contradicts the provisions of the law. The law states that the employer shall not delay later than 7 working days after payment of the employee’s salary remit the agreed amount to the RSA. One of the major problems of the contributory scheme is the lack of funds and instability of the Nigerian economy which makes it difficult for the federal government to facilitate government distribution to employee’s retirement savings account.

The inability of employees to access their pension benefits upon retirement

There are many cases where some retired employees are unable to get their pension benefits, to include gratuity due to bureaucracy and corruption

The inability of some Nigerian employees to open and own a retirement savings account (RSA)

Many Nigerian workers do not even have a retirement savings account to start with. It is mandatory that every worker open a pension account with any licensed pension fund administrator in Nigeria. With many not able to open a Retirement Savings Account, the implementation of the contributory scheme is not achieved.

Perception of employees and employers to the scheme

Many employees have a wrong perception of the pension scheme. Some are not aware of the fact that they can get pension accounts while others do not want any amount of money deducted from their salaries. Some employers, especially those who have small businesses are of the belief that they do not have to provide their employees with pension plans. However, the Nigerian law makes it mandatory for employers to have a pension plan especially if one has over 15 employees. Some employers avoid putting up a plan in the first place.  The report has it that only about 10% of the working population in Nigeria have pension plans, one wonders what will happen to the 90% left upon retirement.

Non-penalization of offenders

There have been reports of cases where private employers have failed to remit their contributions to the employee pension accounts, and then the backlog becomes too much to pay. Many do not bother about it because they know they can get away with the law. This is in spite of the fact that the law stipulates a 2% penalty on unremitted funds. However, there are no strict measures in place to ensure compliance with the law.

The inability of government to fund the guaranteed minimum pension (GMP)

As mentioned earlier, due to the instability of the government revenue, the government is often unable to fund the guaranteed minimum pension to employees in public institutions. The guaranteed minimum pension is a provision of the law to protect all retirees who were unable to build up enough wealth to have a decent standard of living after retirement.

Non- education and unavailability of orientation programmes for Nigerian employees and employers

Many employees in many institutions have not received proper and adequate orientation about the contributory pension scheme. It is sad to know that some employees still think that the country operates the old defined benefit pension scheme. Many employers also do not adequately inform and ensure that their employees register with any pension fund administrator of their choice. This ignorance and lack of information creates room for accumulated unremitted pension funds.


Corruption is a menace that has hindered the success of the pension schemes adopted in Nigeria, including the old defined benefit pension scheme. These same practices have been transferred to the new contributory scheme. This is seen majorly in the lack of transparency in the operations of schemes.

Returns on investment

Another major problem of the contributory pension scheme is returns on investment. Over the years, returns in Nigeria’s pension industry have barely covered a high inflation rate. This means that the savings of hard-working Nigerians are effectively losing their value.

This is because pension fund administrators (PFA) have often invested in safe but low-yielding ventures such as government securities. There is a need to review the management of Pension Funds Administrations in Nigeria and encourage PFAs to diversify their investments in order to get higher returns in the pension industry. This is a way to boost pension penetration.

1 thought on “Problems of Contributory Pension Scheme in Nigeria”

  1. I feel the contribution we are doing is to help us when we live the service, in my own case is a different thing. when the company come to introduced itself, is as if as soon as you live it will not take one month you will get your money. I retired at the age of 53 0n 1/8/2019 I have submitted all the necessary document required but up till now nothing has been done. Looking forward to here from you.

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